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Trump’s Tariff Threats Are Tested by Europe’s Record Trade Surplus

February 19, 2020

Editors note: The increased trade deficit with EU transfers many good paying US jobs to Europe. Supporting their efforts towards full employment. Causing low quality job underemployment here. Dollar overvaluation needs to be eliminated.

Europe’s surplus, a bone of contention for the president, rises amid efforts toward a new EU trade deal

[Paul Hannon and Tom Fairless | February 14, 2020 | WSJ]

Europe’s trade surplus with the U.S. hit a record high in 2019, amid renewed threats from President Trump to place tariffs on European Union goods if the bloc doesn’t agree to a new deal.

The EU’s surplus with the U.S. stood at €152.6 billion ($165.5 billion) last year, an 11% increase over 2018.

The surplus has sparked sharp comments from the U.S. president, who said this week his administration would refocus on trade talks with the EU following a recent agreement with China. Mr. Trump wants to reach a deal with the EU before the November election and has threatened to levy tariffs on European goods if the talks fail.

“Europe has been treating us very badly,” he said Monday. “Over the last 10, 12 years there’s been a tremendous deficit with Europe. They have barriers that are incredible.”

The U.S.-EU trade talks have progressed little due to a number of differences, most notably concerning U.S. insistence that Europe open its giant agricultural market to American businesses.

The European Union’s statistics agency Friday said the 27 members of the bloc imported €231.7 billion in goods from the U.S. during the year, an increase of 8.6% from 2018. European exports to the U.S. rose 9.5% to €384.4 billion.

Among the goods singled out by Mr. Trump for tariff increases are automobiles. According to Rabobank, an increase in U.S. import duties on cars would hit Germany particularly hard, with production in Europe’s largest automobile industry falling as much as 5% if a tariff of 25% were imposed.

That fresh blow would fall at a challenging time for Germany. Figures also released Friday showed its economy stalled at the end of last year, as the export powerhouse wrestled with tensions in global trade, turbulence in its large auto industry and a slowdown in China.

The country’s economy grew at its slowest pace in six years during 2019, held back by a drop in exports to the U.K. and a slowdown in sales to Chinese buyers. A pickup in sales to the U.S. was a bright spot, although imports rose even more rapidly, leading to a narrowing of its trade surplus.

Germany has been flirting with recession for a year and a half, with no end in sight. Its slowdown has rippled across the entire continent, prompting a fresh burst of stimulus in September from the European Central Bank.

Economists expect the slump could deepen if the coronavirus in China hits the global supply chains on which Germany’s export-oriented car and capital goods manufacturing sectors depend. German growth will likely slow further to 0.5% in 2020, according to economists at Allianz.

German exports to China could fall around 5% in the first quarter of 2020 due to the coronavirus-induced shutdown, slicing about 0.2 percentage point off German growth, especially as some companies could suffer from a lack of deliveries from China, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

Germany isn’t the EU’s only soft spot. A separate release from Eurostat on Friday showed that none of the bloc’s three largest economies managed to record an increase in economic activity during the final three months of 2019, with France and Italy experiencing contractions. It was left to Spain and the Netherlands to drive the meager, 0.2% increase in eurozone gross domestic product at the end of last year.

According to economists, the faster rate of growth in the U.S. is one reason for its widening trade deficit with the EU, with recent tax cuts spurring higher spending by businesses and households, some of which goes on imports.

While U.S. complaints have focused on the EU’s protection of its farmers and other barriers to trade, the Trump administration also has urged European governments—and that of Germany in particular—to cut taxes as a spur to growth. Germany’s government has indicated it has no plans to ramp up spending. 

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