OPINION:
President Trump and European Union Commission President Ursula von der Leyen have agreed to fast-track trade negotiations, and I don’t envy America’s chief strategist, Treasury Secretary Scott Bessent, his task.
The Trump team has some reasonable frustrations and unreasonable demands, but this is likely the most crucial bilateral face-off among the negotiations set into motion by Mr. Trump’s “Liberation Day” tariffs.
The EU is our largest trading partner for exports and imports, yet in terms of comparative advantages, our commerce with the ancient continent makes little more sense than commerce with China.
The United States has a $237 billion merchandise trade deficit with the EU. Considering our sizable agricultural and energy endowments and our strengths in manufacturing technology, it’s a puzzle.
When I complain about the bilateral merchandise deficit with China, critics quickly point out that the Middle Kingdom has cheaper labor, has nearly caught or surpassed the West in 13 critical technology domains and has an easier regulatory environment.
It’s hard to argue the same for the EU.
Before the trade war, average tariffs were about the same: 2.68% for the EU and 2.53% for the United States, weighted by imports.
The real problems are in nontariff barriers: food safety standards such as the EU ban on hormone-treated beef and chlorine-washed chicken, industrial technical regulations, safety standards and the like.
A lot stems from the precautionary principle in European law.
The United States tends to regulate items scientifically verified to cause harm, whereas European regulators try to anticipate unproven risks.
This was an issue in the World Trade Organization complaint on hormone-treated beef. The United States prevailed, but the EU accepted WTO-sanctioned U.S. retaliatory tariffs rather than alter its rules and then negotiated a settlement.
The EU will not let partners in trade negotiations alter its safety and environmental rules, but it is happy to dictate to others.
The EU ban on imports of goods produced on land deforested after 2020, which came into effect this year, will affect about one-third of Brazil’s shipments to the EU.
Brussels is effectively dictating domestic land conservation and forestry policies to Brazil. Continental Europe has no tropical rainforests. It makes me wonder whether the European Commission will next aim at water supply disruptions in U.S. shale oil and gas fields.
Estimates of the tariff equivalent impacts of EU nontariff barriers range up to 13%.
From experience divining estimates of tariff equivalents for nontariff barriers to trade, I know that these policies are often so amorphous that whatever numbers we calculate tend to be too low.
When we get involved in discussions about safety and environmental regulations, the Europeans get priggish about their sovereignty and right to have their own, unique regimes.
Regarding services, continental Europeans have only a small footprint in the high-tech space.
The Wall Street Journal counted 690 U.S. technology companies valued at more than $1 billion, with a combined value of $2.5 trillion. China has 162 valued at $702 billion, and the EU has only 107 valued at $333 billion.
In chipmaking, ASML in the Netherlands produces much of the machinery used to manufacture cutting-edge semiconductors, such as those designed by Nvidia and fabricated by TSMC in Taiwan.
However, the EU lacks indigenous analogs to Google, Amazon or Meta, and Apple’s market value is greater than the entire German stock market.
Yet EU antitrust enforcers under legacy antitrust laws and the newer Digital Markets Act rigorously police these U.S. and other technology firms and have assessed some enormous fines.
The Trump team wants this regulatory regime addressed as part of a trade deal. However, just as the negotiations were underway in April, the EU Commission fined Apple $571 million and Meta $200 million for DMA violations.
The U.S. would also like the EU to take a tougher stance on China’s subsidized exports so that Beijing cannot merely divert to Europe what U.S. tariffs shut out. Yet Tesla’s sales are falling in Europe as BYD gains.
It’s tough to fathom how China’s BYD can launch a $15,000 electric SUV without receiving massive government subsidies.
The Americans do have some unreasonable demands. The WTO and mainstream international economists do not regard European value-added taxes as trade barriers.
These are no different from our state sales taxes, but the Trump team wants something done about them. It also wants to keep some U.S. tariffs on EU goods as part of a deal.
Putting those aside, the Americans are really looking for wholesale systemic change, whereas the EU approaches these talks as traditional irritant-by-irritant negotiation in the model of its deals with Mexico or Canada.
The Europeans consider their regulatory and enforcement regimes as expressions of their continent’s unique values and culture.
In that sense, Ms. von der Leyen is from Venus and Mr. Trump is from Mars.
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
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