This week, the United States and European Union avoided an all-out trade war, just one of several possible trade wars with which the United States is currently flirting. The avoidance of a U.S.-EU trade war, however, could be the most important trade relationship salvaged in the last few months.
The United States and European Union have “the largest bilateral trade and investment relationship” in the world, according to the European Commission. Bilateral trade agreements are treaties between two nations or trading blocs (such as the European Union) that give the two nations or trading blocs favored trading status for identified goods, services, and investments. Favored trading status often means that tariffs, import quotas, export limitations, and other trade barriers are either removed or lowered for those goods. Foreign direct investment (FDI) is the acquisition of a lasting or permanent interest in businesses, land, or other enterprises outside the investor’s home country.
The United States and the European Union are two of the largest economies in the world. Together, they account for half the world GDP. They are also heavily interconnected with other countries: they account for nearly a third of the world trade flow. The United States invests heavily in the European Union – U.S. investment in the EU is three times higher than its investment in all of Asia. It goes both ways. The EU investment in the U.S. is eight times the amount of investment in India and China together. Through May in 2018, the U.S. has exported $132,855.9 million to the EU and the EU has imported $198,695.0 million to the U.S. On average, tariffs between the two entities is under 3%.
The unhappiness from the current administration regarding U.S.-EU trade is not the amount of trade, but the imbalance. On average for the last several years, the EU’s gain in trade with the U.S. are between $100 billion and $150 billion more than the U.S.’s (with a large difference between reported numbers). However, trade is not a strict sale, but a complex set of geopolitical, economic, and social considerations. With the increase in exports to another country comes the increase in employment, in salary, and even in purchasing power. Additionally, it can drive prices down for other goods and services in the home country.
When addressing trade issues – with the EU or with the other blocs or nations with which the U.S. is currently negotiating – one should return to the treaties and the numbers. To perceive tariffs as the only way to fix trade issues is to act as if the only way to score a touchdown is to run it up the middle. While effective, if that is the only method, it will not only fail, it will hurt a star player of your team. The Transatlantic Trade and Investment Partnership (T-TIP) is an excellent opportunity to seek these protections and high standards in trades with more finesse and consideration of the full picture.
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