February 2020

By Mathilde Defarges, with contribution from Étienne Soula

In Davos last month at the annual World Economic Forum, Donald Trump told the press that the EU is “more difficult to do business with than China.” This salvo made clear that the fragile truce agreed to between the U.S. president and the former head of the European Commission is coming to an end.

With the U.S.'s phase one deal with China signed and NAFTA readjusted to his liking, President Trump now seems determined to score a win against the EU and its $109 billion trade surplus.

To avert a tariffs war between the two trading giants, EU Trade Commissioner Phil Hogan was in Washington, DC last week for talks with U.S. Trade Representative Robert Lighthizer. Even though experts agree that an open trade conflict between the U.S. and the EU would be immensely costly for both sides, several issues complicate relations between the two allies.

The U.S. side is irritated by Europeans’ refusal to open their markets to American agricultural products as well as by the growing movement to increase taxes paid by digital giants. On the other side, the EU is concerned about the Trump administration’s aversion to multilateral trading institutions and is anxious to preserve its exports to the U.S. market. The decades-long dispute involving Airbus and Boeing, each backed by its respective trade bloc, is an additional irritant to the relationship.

Finally, efforts by the newly installed European Commission to address climate change are anticipated to further disrupt trade relations, particularly given the Trump administration’s skepticism toward climate science.

At present, the Europeans are hoping they can convince their American counterparts to ignore disputes about cars and agriculture, and to join forces in responding to China’s rise, particularly in the areas of high tech and cybersecurity. This past January, the head of the EU delegation in the U.S. insisted that the two allies must work together to “ensure [AI technology] cannot be used for authoritarian purposes, as China is doing to control the Muslim Uighurs in its Xinjiang province.”

Whether this approach will be successful is open to question. The EU’s purchase of American soybeans and liquefied natural gas was the main reason for the 2018 trade truce and there is no guarantee that a geostrategic grand bargain will convince Donald Trump to set aside his transactional approach to trade relations in the coming months.