The European Union and United
States are among the closest allies in the world. Since the end of the second
world war, the two sides of the Atlantic have remained being close. They are
all members of the G10, G20, NATO, and OECD among other organizations. This
stability has helped the business between the two sides grow.
However, for more than three
decades, Donald Trump has talked about how the European Union takes advantage
of the US. He has argued that the bloc was formed specifically to compete with
the US. He has also condemned the region for using the US on defense. As
members of NATO, members are required to spend at least 2% of their annual
budgets on defense. However, wealthy countries like Germany spend a very tiny
amount of their budgets on defense.
As such, last year, the US
president started sending signals that he was hoping to start imposing tariffs
on imported cars from the EU. This would be a major thing because of the
volumes the region exports to the United States. Estimates say that the region
would lose more than $10 billion every year. To some extent, Donald Trump has a
point. This is because when the EU exports cars to the US, they receive a
tariff of just 2% but when the US exports cars to the EU, they are met with a
tariff of 25%. This makes it difficult for American companies like General
Motors to compete.
Yesterday, it was revealed that
the US was moving to impose tariffs on European goods worth about $11 billion.
This is because of a ruling by the World Trade Organization (WTO) that the EU
gave Airbus illegal subsidies in a case that has been going on for more than 15
years. The new tariffs are a bit small based on the volumes the two regions trade.
Last year alone, the two regions did business worth more than $800 billion.
However, the tariffs come at a
difficult time for the European Union. In recent months, data from the region
has been significantly weaker than what the market has been expecting. In fact,
countries like Italy have been in a recession.
There is also speculation that
Donald Trump will turn his trade war to the European Union after he secures a
win with China. In fact, he has announced that a deal with China will come in
the next four weeks. Coincidentally, he is legally allowed to determine whether
he will tariffs on European cars in that period.
The key issue with Donald Trump
is the increasing trade deficits with the EU. The deficit has grown from about
$68 billion in 2007 to more than $160 billion in 2018. However, critics argue
that additional tariffs are unlikely to reduce the deficit. This is because
Americans are the ones that will shoulder these tariffs. Indeed, after he
imposed tariffs on Chinese goods, the US deficit reached the highest level in
more than ten years.
Therefore, there is a likelihood
that the euro and EU stocks will weaken slightly in the next month as a
decision on tariffs is expected.
The post Trade Tensions Rise as Donald Trump Turns Focus on the EU appeared first on Forex.Info.