Unresolved trade dispute tantamount to inflation & unemployment

Ongoing trade tariff dispute between the European Union and the United States is posing serious threats to bilateral relations between both the sides as both have been key allies to each other for decades. Some experts also term tariff dispute as serious concern for global economic growth because unresolved trade tariff dispute may further slowdown the manufacturing sectors of both the sides tantamount to more unemployment and inflation due to closure of manufacturing units.

As per latest development, President Trump has said that the US will not do a deal with the European Union to remove tariffs on car imports, preferring to force the Europeans to build their heavy vehicles in the United States. We lost over the course of the last five, six seven years $150 billion a year with the European Union. They tax us tremendously, Trump said in an apparent reference to European car imports. Trump said he already had been offered a deal by the EU to eliminate tariffs on all car imports, but he had rejected that proposal.

The United States currently imposes a 25% import tariff on light trucks, which includes SUVs, the most popular segment of the US auto industry. Trump ordered the Commerce Department to begin an investigation to determine whether auto imports were a threat to national security with a view toward imposing more tariffs on car imports. The Commerce Department investigation was given to the White House last month and the president has 90 days to decide whether to go ahead with more tariffs.

In response European Commission said EU would hit 20 billion euros ($22.7 billion) of US products should Trump impose duties on European automotive goods on the same national-security grounds that he invoked last year to tax foreign steel and aluminum. Caterpillar trucks, Xerox machines and Samsonite luggage are among US goods that would face retaliatory European Union tariffs should Trump follow through on a threat to impose automotive duties against the bloc, according to a senior EU official.

Factually, the United States and European Union (EU) are each other’s largest trade and investment partners. Their ties are deep, but some barriers to trade and investment remain. The trading relationship is largely harmonious, but frictions emerge periodically due to the high level of commercial activity and specific policy issues. US-EU trade and economic relations face heightened tension currently, amid the Trump Administration’s trade policy, which is focusing on unilateral tariff measures under US trade law and taking a critical view of the US role in international economic cooperation.

Given US-EU historical joint leadership on global trade and economic issues, these developments could have implications for the rules-based international trading system, a foundation of the global economic order that has contributed to global economic growth and stability in the post-World War II era. United States goods and services trade with the European Union totaled nearly $1.1 trillion in 2016.

Exports totaled $501 billion; Imports totaled $592 billion. The US goods and services trade deficit with the EU was $92 billion in 2016. The US monthly international trade deficit increased in October 2018 according to the US. The deficit increased from $54.6 billion in September (revised) to $55.5 billion in October, as exports decreased and imports increased.
In 2017, the total US trade deficit was $566 billion. It imported $2.895 trillion of goods and services while exporting $2.329 trillion. The deficit is higher than in 2013 when it was $478 billion. One reason is that the dollar strengthened 28 percent between 2014 and 2016.

Imports are goods and services bought by a country’s residents but made in a foreign country. … When exports are less than imports, it creates a trade deficit. Countries usually regard that as an unfavorable trade balance. But sometimes a favorable trade balance, or surplus, is not in the country’s best interests.

The most important cause of the increased US trade deficit was the sharp rise in the value of the dollar, which caused the prices of US goods to rise compared to the prices of foreign goods; the strong US economic recovery caused US consumption of goods, including imports, to rise. The US trade deficit added up to almost $503 billion in the first 10 months of 2018. That compared to about $451 billion in the same span in 2017. The last time the U.S. trade deficit was higher was in 2008, when it topped $700 billion as per statistics in December 2018
The European Union narrowly avoided a bruising economic war with the US in 2018 by vowing to rebalance trade. In 2019, the EU faces headwinds to fulfilling its promise and satisfying President Trump’s demands. EU and US negotiators missed a self-imposed November deadline to deliver quick results on removing nontariff barriers. Their talks on a broader free-trade deal appear.

President Trump prioritizes reducing US bilateral trade deficits as a major trade policy objective. He blames EU trade policies for the US deficit with the EU $101 overall billion deficit in 2017, as the goods deficit ($153 billion) outweighed the surplus ($51 billion). He is also particularly critical of Germany’s massive [goods] trade surplus, which, at $64 billion, ranked as the fourth largest US bilateral goods trade deficit. EU leaders counter that the trade relationship is fair and mutually beneficial. The role of unfair trade practices as a driver of trade deficits is contested view.
Therefore, in June last year, the United States began applying tariffs of 25% and 10% on imports of certain steel and aluminum products, respectively, following an investigation into the potential threat to impair national security posed by these imports under Section 232 of the Trade Expansion Act of 1962. Some countries negotiated exceptions to the tariffs, but not the EU.

The US decision was preceded by consistent US concerns, shared by the EU, about the negative impact of China’s excess steel capacity on market prices. Despite the US national security justification, the EU views the US tariffs to be inconsistent with World Trade Organization (WTO) rules on safeguard actions (measures to protect domestic industries from rising imports). The EU, which accounted for about one-fifth of US steel imports and less than one-tenth of US aluminum.

President Trump denounced European duties on American automobiles and said if they were not removed the US would hit back twice as hard. Based on the Tariffs and Trade Barriers long placed on the US and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US Build them here.

Since then the United States and Europe are now locked in an escalating trade dispute that began in March, when Trump announced his intention to impose massive steel and aluminum tariffs on the EU and other US allies. But the tariffs Trump is responding to actually predate the current trade dispute; the European Union already had a 10-percent tariff on auto imports from the United States, whereas the US charged much less for European auto imports.

Since Trump’s new metal tariffs went into effect weeks ago, however, the situation has spiraled downward. The move was unanimously denounced by the tariffs’ targets which included Canada and Mexico in addition to the EU and made for an awkward gathering at this month’s Group of Seven summit. That normally staid annual meeting ended this time in the American president retracting his endorsement of the attendees’ joint communique, and attacking Canadian Prime Minister Justin Trudeau and French President Emmanuel Macron over Twitter. Each country announced it would slap new charges on American imports.

In retaliation, EU adopted measures within the framework of World Trade Organisation (WTO) rules on dispute settlement. Rebalancing duties worth €2.8bn came into effect on June 22nd. These are tariffs of 10% or 25% on a range of US goods, and are the EU’s response to the US tariff on steel. A further €3.6bn worth of tariffs will be applied on June 1st 2021 or after a successful outcome of the WTO dispute settlement case (whichever is sooner) in response to the tariff on aluminium products and other steel products.

The EU also launched legal proceedings against the US, and an investigation into steel products to prevent trade diversion; the European Commission has nine months to decide whether to impose tariffs or quotas on imports of steel from all countries. The EU’s decision to retaliate was less about the economic impact of the steel and aluminium tariffs which account for less than 2% of total EU exports to the US—and more about defending the rules-based international order against the US action, which the bloc has said contravenes international trade law. The EU is seeking to safeguard EU interests against what it has called pure protectionism.

The United States and Europe are now locked in an escalating trade dispute that began in March, when Trump announced his intention to impose massive steel and aluminum tariffs on the EU and other US allies. Each country announced it would slap new charges on American imports.

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