For more than six decades the transatlantic partnership has been crucial for building a more democratic, secure and prosperous world. The partnership has been constructed on a solid foundation of common values, which, besides the commitment to democracy, the rule of law and respect for human rights, include free enterprise and free trade.
Europe and the US have worked together for harmonious transatlantic economic development, and to maintain the stability of international trade. They have cooperated to sustain the international financial and monetary system and to strengthen the economies of developing countries. This cooperation is now under threat by a trade war between these two leading believers in free, fair and reciprocal trade.
The transatlantic commitment to free trade mushroomed into a deeply interdependent and interconnected transatlantic economy. The EU and the US represent only 12 per cent of the world’s population, but together they account for more than half of the entire world’s GDP and for nearly a third of the world trade flows.
The EU-US economic partnership supports more than 15 million jobs on both sides of the Atlantic. It is estimated that total US investment in the EU is three times higher than that in all of Asia, and total EU investment in the US is eight times the EU investment in India and China together. In 2017, EU imports of goods from the US amounted to more than €256 billion, an increase of 2.3 per cent over the previous year, and its exports to the US reached nearly €375 billion, an increase of 3.3 per cent.
A quick scan of the current EU–US trade flows can shed some light on the potential causes for a trade war stoked up by the rallying call of Donald Trump’s “America First”.
According to Eurostat, the EU has maintained a steadily increasing trade surplus with the US, amounting to €120 billion in 2017. Manufactured goods dominate trade with the US. The main categories of goods driving exports to and imports from the US are “machinery and vehicles”, “chemicals”, and “other manufactured goods”. Together these account for 89 per cent of EU exports to the US and 84 per cent of imports.
Motor cars and vehicles are the most traded goods. EU exports of motor cars to the US are almost six times as high as its imports of motor cars from the US. Germany is the EU member state that trades most with the US. In 2017, Germany imported €46 billion from the US and exported €112 billion.
There has been a remarkable deterioration in transatlantic trade relations since President Trump entered the White House. Two years ago the EU and the US were deeply engaged in talks on an ambitious Transatlantic Trade and Investment Partnership, TTIP, which has now been cast aside.
In March 2018, the Trump administration announced that it would introduce tariffs of 25 per cent on steel and 10 per cent on aluminium imported into the US. Following a temporary exemption to try to reach a broader trade agreement, the new tariffs came into effect on 1 June, affecting not only the EU, but also Canada, Mexico, India and other US allies.
The EU’s response to this unilateral decision taken by the US was three-pronged. As a first step the EU Commission announced the imposition of rebalancing duties on a list of products previously notified to the WTO, valued at €2.8 billion of trade. Rebalancing duties are allowed by the WTO’s Safeguards Agreement. The second step was to launch legal proceedings against the US in the WTO. The third step, if the dispute continues, will be the possible triggering of safeguard action to protect the European market from disruptions.
It does not seem that Malta will suffer any serious direct hit should there be an escalation of the EU–US trade war. However, as an EU member state, Malta will certainly be caught inthe crossfire
The Trump administration claims that US tariffs and sanctions are necessary to prevent unfair trade practices and to reduce the US trade deficit. The US also alleges theft of intellectual property, and stresses the need to protect national security.
A truce agreed on July 25, between Commission President Jean-Claude Juncker and Trump aims, to address these US concerns. Juncker and Trump agreed to work towards zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods. They also agreed to work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soya beans.
They agreed to strengthen EU–US strategic cooperation on energy. The EU will import more LNG from the US to diversity its energy supplies. They agreed to establish a dialogue on standards in order to facilitate trade and reduce bureaucratic obstacles.
Finally, they agreed to work together, and with like-minded nations, to reform the WTO in order to protect EU and US companies from unfair global trade practices.
An Executive Working Group of close advisers has been set up to carry forward this agenda. In the meantime the two sides pledged not to take any measures against each other while negotiations were going on. This implies that the US would refrain from introducing new tariffs on European cars.
Commentators point out that the Juncker-Trump deal has failed to tackle the thorny issues of agricultural products, auto tariffs and public procurement, which have been at the roots of various EU–US trade disputes.
Surveys both in Europe and the US show that businesses are nervous about the fragile truce reached on July 25. The mood among European businesses shows a clear negative trend, while concern among US managers is mounting. Investors look for trust and predictability. Uncertainty leads to the cancellation or delays of new investments.
Concerns about the fragility of the Juncker–Trump agreement is increasing. According to European Trade Commissioner Cecilia Malmstrom, the EU has “profound disagreements” with the US. The EU–US trade situation remains extremely volatile. Business leaders are hoping that the ceasefire reached by Trump and Juncker will hold and that negotiations between Brussels and the White House will be successful.
It is important to note that the transatlantic relationship is not only about trade. As major world powers the EU and the US share global responsibilities and work together to promote peace and stability round the world. The danger of a spillover from the trade dispute to other areas of EU-US cooperation has never been more real; not to mention the damage done to multilateralism and the principle of free trade.
How is Malta likely to be affected? NSO figures show that bilateral trade, excluding mineral fuels, between Malta and the US fluctuates within a very broad range: between a low €227 million in 2009 (the low point during the last international recession) and €906 million in 2016. The US enjoyed a trade surplus of €31 million in 2017. The most traded goods in 2017 were machinery and mechanical appliances, electrical machinery and aircraft parts.
Therefore, it does not seem that Malta will suffer any serious direct hit should there be an escalation of the EU–US trade war. However, as an EU member state, Malta will certainly be caught in the crossfire and may suffer serious collateral damage.
Moreover, Malta strongly believes in free trade and multilateralism, and is particularly worried about the short- to long-term implications of disruptions in transatlantic trade. This concern is compounded by uncertainty from Brexit.
It is no use taking sides in a trade war. Everyone will be worse off.
Edward Zammit Lewis is chairman of the Parliamentary Standing Committee on Foreign and European Affairs.