European Commission President Jean-Claude Juncker arrived to the G7 meeting in Quebec, Canada armed with “the facts” in order to respond to United States President Donald Trump’s controversial trade war rhetoric.
To put the possible trade wars into perspective, Deutsche Welle (DW), Germany’s international broadcaster, reported that EU-US trade in goods was worth about €600bn in 2016, while the US imported €5bn worth of European steel and exported a mere €1bn.
As Bloomberg pointed out, this would then be a trade war whose effects would probably be smaller than statistical anomalies.
According to the US Census Bureau, the US goods trade deficit with the EU was $146.7bn in 2016, while the EU puts its surplus with the US at €112.9bn (at the average exchange rate for 2016, which is $125.3bn).
What this means, according to DW, is that the $21.4bn “asymmetry” would cover the US steel and aluminium trade deficit four times over. The differences are even bigger for services, where both parties claim a surplus.
In an interview with DW, trade expert Gabriel Felbermayr said “Trump is quite right on a number of things,” pointing to EU tariffs on cars of 10%t and EU food barriers, where on average, the EU charges 5.2% and the US 3.5%.
“But he has a distorted perception of EU-US trade relations,” Felbermayr said. “He only talks about the US deficit in goods, but forgets to mention that the US is running a massive surplus against the EU in services and corporate profits.”
According to DW, Trump had said in a tweet before the G7 meeting that the US was running a deficit of $151bn with the EU. According to its own figures, however, the US is running a surplus of $14bn on its current account balance with the EU and has been in surplus since 2008.
Of crucial importance, however, at least for Trump, is US Department of Commerce data that show a US current account deficit with Germany of $65bn
“It is wrong to pick out individual EU member states. The EU is a customs and economic union in which individual member states are closely linked. The US surplus of almost $100 billion with the Netherlands is largely due to Germany,” said Felbermayr.
He also noted that the US has enjoyed a competitive advantage in the New Economy, and especially in digital services with Apple, Amazon, Facebook, Google and Co. “In the Old Economy of car manufacturing, machinery, various consumer goods and even in the food industry, by contrast, the EU has a competitive advantage,” said Felbermayr.
Meanwhile, the US Commerce Department recently launched an investigation that could reportedly result in a 25% auto-import tax. EU cars to the US today face a 2.5% tax, while US cars to the EU face a 10% tax at least.
However, Bernhard Mattes, the new head of the German Association of the Automotive Industry, has warned that a trade war must be “avoided by all means”.
According to DW, Germany’s car industry relies heavily on the US market. Last year, its US revenues were €29.4b and 1.3m German vehicles were sold in the country. This is about 10% of total production.
What is more, the German car industry directly or indirectly provides 2m German jobs.
As for the looming trade war, Felbermayr warned that both the EU and the US stand to lose. “Europe now needs to unite and explain US figures to the Americans. Europe also needs to signal retaliatory measures in the digital sector like the digital tax discussed by the EU Commission, if the Americans decide to impose tariffs on European cars,” said Felbermayr.