EU bolsters trade ties with other partners as ties with US deteriorate

Key Concepts:

• EU-US trade relations deterioration
• Tit-for-tat tariffs
• Trade war fears
• EU diversification strategy
• Mercosur trade deal
• Free Trade Agreement (FTA) with India
• Investment deal with South Africa
• Digital trade agreement with South Korea
• Impact of US tariffs on European spirits
• Trade deficit and surplus in goods and services

EU-US Trade Relations Deterioration and Trade War Fears:

The trade relations between the European Union (EU) and the United States (US) have worsened recently, with both sides threatening to impose retaliatory tariffs, raising concerns about a potential trade war. 30% of global trade is conducted between the EU and US, making it the largest bilateral trading relationship in the world.

EU's Diversification Strategy:

The EU is actively pursuing new economic partnerships to reduce over-dependencies and vulnerabilities. European Commission President emphasized the importance of sourcing products from trusted partners to avoid potential blackmail.

New Trade Agreements and Partnerships:

• Mercosur: The EU signed a controversial trade deal with Argentina, Brazil, Paraguay, and Uruguay (Mercosur countries) after years of negotiations.
• India: The EU is advancing talks with India to secure a Free Trade Agreement (FTA) by the end of the year.
• South Africa: The EU agreed to a $5 billion investment deal with South Africa.
• South Korea: The EU agreed to a digital trade agreement with South Korea.

These deals aim to open up access to 2 billion potential customers. However, experts caution that the benefits of these trade deals may take over a decade to materialize.

Potential Economic Impact of Trade Conflict:

The American Chamber of Commerce to the EU estimates that a trade conflict with the US could cost businesses $9.5 trillion a year.

Tit-for-Tat Tariffs and Countermeasures:

The EU responded to Washington's 25% duty on steel and aluminum with the threat of countermeasures worth $2.8 billion. This includes a 50% tariff on American whiskey, which prompted Donald Trump's threat of a 200% tariff on European alcohol.

Impact on European Spirits Industry:

Industry experts describe Trump's potential 200% tariff on European alcohol as a "potential Hammer blow." They estimate that it would take the equivalent of 20 Merkur deals to offset the impact of US duties on European Spirits alone.

Diversification as a Complement, Not a Replacement:

Diversification efforts are not intended to replace established markets like the US or China but to create more diversity and options for companies. This strategy is not expected to provide immediate relief in the short or midterm.

Trade Imbalance and Perspectives:

President Trump claims the EU is "ripping off" America, a charge Brussels denies. The EU argues that the imbalance in the trade of goods is largely offset by the US Surplus in services.

Negotiation and Potential for Common Ground:

Analysts believe there is enough at stake for both sides to seek Common Ground. The threats observed may not be the final objective but rather a means to reduce the trade deficit. "Whatever happens in the area of economics and trade is something that is negotiable and in that sense whatever threat we see on the table may not even be the final objective it just means to and to basically cut the trade deficit"

EU's Call for Cooperation:

The European Commission warns that tariffs lead to lose-lose outcomes and calls on Washington to change course to prevent ties from souring further.

Conclusion:

The EU-US trade relationship is facing significant challenges due to escalating tariffs and trade disputes. The EU is actively pursuing diversification strategies to mitigate risks and create new economic partnerships. While these efforts may offer long-term benefits, they are unlikely to offset the immediate impact of trade tensions with the US. Both sides have significant economic interests at stake, suggesting the potential for negotiation and compromise to avoid a full-blown trade war.