Dialogue, not confrontation

The European Union (EU) has declared its willingness to discuss trade issues, including energy, with US President-elect Donald Trump following the warning he shared on his Truth Social platform about the possibility of imposing tariffs on the EU if the bloc does not purchase more oil and gas from the US.

Delegates attending the fifth meeting of the EU-US Trade and Technology Council (TTC) in Washington, D.C., on January 30, 2024.

The EU seeks to avoid a trade war with the world's largest economy and aims for better cooperation rather than a retaliatory strategy, which could result in a tit-for-tat escalation with no real winners.

Having previously criticised US-EU trade relations, President-elect Donald Trump announced plans to impose tariffs ranging from 10% to 25% on imports from China, Mexico, and Canada shortly after his election victory. Similar measures are expected for EU goods. Recently, Trump, who is set to take office in January 2025, warned of imposing tariffs on the EU if the bloc fails to increase its purchases of US oil and gas, aiming to reduce the significant trade deficit between the two sides.

Trump stated that he has requested the EU to offset its large trade deficit with the US by purchasing substantial quantities of American oil and gas; otherwise, Washington would impose tariffs. According to US government data, in 2022, imports from the EU to the US amounted to 553.3 billion USD, while US exports to the EU totalled 350.8 billion USD, resulting in a US trade deficit with the EU of 202.5 billion USD.

Although the US records a trade deficit in goods with the EU, it enjoys a surplus in services. Eurostat data shows that in 2023, the US-EU goods trade deficit stood at 155.8 billion EUR, but the US achieved a 104 billion EUR surplus in services. In this context, the EU emphasised that the US benefits significantly from its services trade surplus with the bloc and reaffirmed the willingness of its 27 member states to negotiate with Washington.

"We are ready to discuss with President-Elect Trump how we can further strengthen an already strong relationship, including by discussing our common interests in the energy sector," stated European Commission Spokesperson Olof Gill. This statement demonstrates the EU’s willingness to negotiate with the US rather than resort to retaliatory measures that could lead to a transatlantic trade war.

According to European Central Bank (ECB) President Christine Lagarde, trade wars generally do not benefit anyone and would result in a decline in global GDP. The potential impact of US tariffs on inflation within the Eurozone is uncertain, and would depending on the tariff rates, targeted goods, and the duration of their imposition, however they could lead to short-term net inflation.

She suggested that the EU should propose the purchase of certain goods from the US, such as liquefied natural gas (LNG) and defence equipment. Last month, European Commission President Ursula von der Leyen requested that the US provide additional LNG to the EU to help replace energy supplies previously sourced from Russia.

Trade tensions between the US and the EU during Donald Trump's first presidential term (2017–2021) escalated significantly after the US imposed tariffs of 10% on aluminium and 25% on steel imports from the EU in June 2018. In retaliation, the EU levied tariffs on key US export products. These tit-for-tat trade measures caused substantial losses for both sides.

Global observers are concerned that the hardline trade policies which Trump is expected to implement once he officially assumes office could heavily disrupt global trade flows, hinder the recovery efforts of many nations, and negatively affect global economic growth.

To prevent a potential trade crisis during Trump’s second term, EU leaders are focusing on negotiation and avoiding heightened tensions in transatlantic trade. Alongside preparing contingency plans and preventive measures for worst-case scenarios, they are striving to maintain constructive dialogue to safeguard economic stability.

NDO