EconomyEuropeForeign PolicyPolitics

The Power of the Bloc

Following political discourse with the Trump Administration, the EU’s exemption from America’s steel and aluminium tariffs demonstrates the indispensability of EU-US bilateral trade and the gumption of European politicians to challenge the world’s economic hegemony.

The United States and Europe are one another’s biggest trading partners. Both served as the other’s biggest export destination in 2016. Transatlantic differences in job creation, trade, and overall growth all decreased in the same year. In short, as the Centre for Transatlantic Relations puts it, when it comes to US-EU trade relations, “no other commercial artery in the world is as integrated.”

In particular, the EU is the second-largest producer of steel in the world, and one of the largest sources of US steel imports. This is why many were taken aback when US President Donald Trump announced tariffs on steel and aluminium imports into America in early March with no exceptions—save America’s partners in the North American Free Trade Act (NAFTA)— Mexico and Canada.

The European Union reacted immediately with opposition, and rightly so. Firstly, the bloc served as America’s number two biggest steel exporter in 2017, behind Canada. However, the EU’s sale of 5.3 million metric tons of steel totalled a value of $6.6 billion, which beat out Canada in dollar terms. The Trump administration announced that steel imports would face a 25% tariff, and aluminium 10%. Thus, as the original tariff stood, the EU would have been the biggest loser in the Trump Administration’s steel tariffs.

The Union’s response was swift, rejecting US attempts to negotiate bilaterally with member states, and demanding that the EU “be treated as a trading bloc”.  While EU officials voiced agreement with the problems that the US faces in terms of protecting its domestic steel and aluminium market, they insisted that tariffs were “a prescription for the wrong illness”.

But in true trade ‘tit for tat’ fashion, the EU did not stop at diplomatic pleas. They made it clear, as America’s largest export market, they would not accept taxes on their products without a fight, threatening to implement retaliatory tariffs on myriad American-sourced goods. European Commission President Jean-Claude Juncker announced that the Union would add politically incentivized tax hikes on a host of goods produced in key Republican states throughout the Midwest and the South of the United States. The tactical tax threat included everything from whiskey bourbon and peanut butter to blue jeans and Harley-Davidsons. They also warned they would slap tariffs on products like orange juice, which is produced in the crucial election swing state of Florida. The list of potentially taxed products represented more than $3.4 billion in annual trade.

While the US and the EU are one another’s biggest trading partners, they are also very connected in terms of foreign direct investment. According to the Centre for Transatlantic Relations, no country in the world has attracted more US FDI than Europe. In fact, the highest numbers of US FDI into Europe, to date, have been seen in this decade. Copyright: mrfiza/

While steel may seem like an important enough commodity, few realise how interconnected its history is to the very existence of the European Union. The original organisation that predated the EU was called the European Coal and Steel Community. Together six countries (France, West Germany, Belgium, Italy, Luxembourg and the Netherlands) created the first international organisation founded on the fundamental principles of a supranational union at the end of World War II. It was formally established with the Treaty of Paris in 1951 and lead to the ultimate creation of the European Union we have today. The reason for focusing on important resources like coal and steel, post-war, was to discourage any of the founding member countries from collecting enough resources to build an arms race, planting the first seed of accountability for the preservation of regional peace in Europe.

After several rounds of discussions between EU and US representatives, and increased threats on both sides (including a few EU-targeted tweets from Mr. Trump himself), the Trump administration issued a temporary exemption on the steel and aluminium tariffs for a series of countries, hours before they were set to begin. The list included Argentina, Australia, Brazil, the European Union and South Korea. This will give these countries time to negotiate permanent exemption. In light of the exemptions, which include more than half of all of America’s imported steel, the countries that are being hit hardest by the tariff (active March 23rd), are Japan, Turkey, and Russia.

While negotiations continue, it will be hard for either side to ignore the fact that the transatlantic economy of trade between the EU and the US employs 15 million workers and generates circa $5.5 trillion in annual commercial sales. It is the biggest and wealthiest market on the planet and accounts for one-third of the global GDP in terms of purchasing power.

In addition to being one another’s top importing partners, Europe and the US are also one another’s primary source and destination for foreign direct investment (FDI). However, while for decades no country has come close to investing as much FDI into Europe as America has, the EU actually has more to leverage in terms of investment. The EU accounts for 60 percent of total FDI in the US, while the US accounts for only 40 percent in the EU. In fact, the Centre for Transatlantic Relations reported that EU investment in America has exceeded that of US investment in the EU for 11 years running. While FDI is not everything, it is a large part of economic growth, as is trade. The two sides are stitched at the seams in both regards, not to mention militarily. Thus, they would do well to keep their relations clean and their steel production flowing, as anything else would cause both economies to suffer unnecessary pains.

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Mary Reed Davis

Mary is a writer focused on economics, energy resources, and international politics and serves as the managing editor of online content for the South EU Summit Magazine. She holds an MA in International Economics from Johns Hopkins University School of Advanced International Studies (SAIS) and worked in China for five years as a journalist before relocating to Europe. She currently lives in Italy with her husband.

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