Fact Checking US – EU Trade in Goods and Services

23 Feb 2017 4 min read
Michael Wax Michael Wax

With the Trump administration being in office for a little over a month, we’re beginning to see a swing towards protectionism when it comes to the terms global trade. Promising to bring U.S stateside once again, Trump has begun to back out of a number of Free Trade agreements that have been in the works, namely the TTP, which he signed off after two days of being in office. As these actions show a strong leaning away from globalization, there are several questions being raised.

U.S. Trade with the EU

eu usa trade balance goodsusa eu trade balance servicesThe U.S. and EU move a monthly average of approximately $100 billion in goods. The EU mainly export cars and pharmaceuticals to the United States while importing aircraft and other heavy machinery. As it stands, there has been a relatively amicable business relationship between the U.S. and the EU, maintaining low trade tariffs, on an average of less than three percent for both exports and imports. Conversely, there are a number of trade barriers between the two due to a number of differing regulatory standards. The goal of the Trans-Atlantic Trade and Investment Partnership (TTIP) was to eliminate these barriers to increase the flow of trade.

Rather than the TTIP, many Republicans are calling for a ‘border adjustment tax’ which would “replace the current 35 percent corporate income tax with a “border-adjusted, destination-based cash-flow tax” of 20 percent. That means a company would pay taxes on imported goods and services, but not on exported ones,” according to a recent article from Bloomberg.

What does this mean for the U.S. trade relationship with the EU? Well, the EU isn’t altogether too worried about it just yet. While it might promise for a rocky start, the EU also has a number of other trade deals in the works, including trade alliances with Latin America and China. The EU also signed a substantial free trade agreement with Canada on Feb. 15th, in what some are calling a counter move to the U.S. President’s new position.

Still others are hopeful that the TTIP has just merely been put on hold, rather than dropped completely. As there has yet to be any formal declaration on the border tax agreements, there might still be a chance to revive the talks of an accord. Conversely, when you consider that the U.S. has roughly three times the amount invested in the EU as opposed to investments made in all of Asia, it would stand to reason that this partnership won’t be completely dissolving any time soon.

Is this a total Withdrawal from Free Trade?

When it comes to the topic of withdrawing from Free Trade Agreements, protectionism starts to become synonymous with anti-globalism. To a certain extent, that assertion isn’t wrong. Protectionist actions as an attempt to bring jobs back to U.S. soil seem to go against the grain of globalized trade. Part of Trump’s issue with free trade agreements is that the United States is leading a fairly substantial trade deficit with most of its trading partners. Of the total $3.64 trillion in global trade for 2016, 60 percent was in imports with the remaining 40 percent as exported goods and services to trade partners. To put it in perspective, as of last year, the United States ran a trade deficit of approximately $347 billion with China, about $63 million with Mexico, with the EU falling somewhere closer to the middle at $146 billion.

As it stands, the top five trade deficit countries include Ireland, at 65 percent; China, at 60 percent; Italy, at 46 percent; Germany, at 40 percent; and India, at 36 percent in trade gaps. However, it would seem that the United States is trailing a deficit with most of its trading partners, according to Bloomberg.

Trade gap

     Read more: U.S. Merchandise trade balance, by partner country 2016

Ideally, by bringing manufacturing jobs back to the United States, the country would be able to reduce its trade deficit and thereby reducing the National debt accrued due to imbalanced import/export ratio.

What does this Mean for the Transportation Industry?

It’s still at a bit of a toss up, as Trump has yet to full play out his hand in “renegotiating the terms” on free trade agreements such as the TTIP and NAFTA. Ideally, the balance of trade flows in the other direction, leaving the core business for the transportation relatively the same. If the protectionist swing kicks into full gear, however, it could cause trade to come to a screeching halt. While many are optimistic about what this means for American Job growth, others aren’t quite so sure, as we’re still merely weeks into Trump’s presidency.

     Related article: Is the role of government a help or a hindrance for freight?

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23 Feb 2017 4 min read
Michael Wax

Michael Wax

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  1. The freight and forwarding industry may be affected but not that much. Transportation will still be operation on its normal course as long as business is still balance and trade flows are going strong. Thanks for the blog.