EU US trade negotiations: deep economic struggles under tariff game

Recently, the European Commission's Commissioner for Trade and Economic Security, Shevchenko, arrived in Washington, D.C., to initiate a highly anticipated trade negotiation. Previously, US President Trump threatened to impose a 50% tariff on EU goods and later postponed the start date to July 9th. This move bought time for negotiations between the two sides, but also made the negotiations full of urgency and uncertainty. The core issues of this negotiation include tariff reduction, trade rule coordination, and controversial issues such as digital service tax, which are backed by a complex economic interest game between the two sides.

Behind the threat of tariffs by the United States is its attempt to reverse the trade deficit and protect domestic industries through trade protectionism. The Trump administration has repeatedly wielded the tariff stick, imposing a 50% tariff on EU steel and aluminum products, a 25% tariff on the automotive sector, and a 10% benchmark tariff on almost all other goods. The threat to impose a 50% tariff this time has pushed trade protectionism to new heights. However, tariff barriers have had a negative impact on both economies. According to the Bruegel Institute's assessment, if Trump's tariff policy is fully implemented, the average tariff on EU imports by the United States will soar to 15.2%. With some exemptions and suspensions of tariffs on certain goods, the current average bilateral tariff is about 9.9%. The impact of this tariff level on European and American trade and GDP is within an acceptable range, but the impact should not be underestimated. In a no agreement scenario, US GDP may decrease by 0.7%, while EU GDP may contract by 0.3%.

The EU hopes to achieve tariff reductions through negotiations to safeguard its own economic interests. The EU proposed to mutually cancel industrial tariffs, but the US did not buy it. There are also differences within the EU regarding tariff reductions, and Germany, as an exporting country, hopes to reach an agreement as soon as possible to alleviate pressure on businesses; France and other countries are concerned that hastily advancing the agreement may lead to an imbalance of interests and put the EU at a disadvantage in negotiations.

The coordination of trade rules is another key issue in this negotiation. The United States hopes that the European Union will align with it in trade rules and lower the entry barriers for American companies, especially in areas such as automobiles and agricultural products. For example, the United States hopes that the European Union will reduce car tariffs and expand the market share of American cars in the EU. But the EU has its own trade rules and standard system, involving multiple aspects such as value-added tax, environmental standards, food and safety standards, etc. These rules are important means for the EU to protect domestic industries and consumer rights, and the EU regards them as negotiation red lines. Taking the automotive industry as an example, the environmental and safety standards of the European Union are relatively strict, and American car companies need to invest a lot of cost in renovation to meet the requirements of the EU market. In addition, in the field of agricultural products, the EU's agricultural subsidies and food standards differ from those of the United States, and both sides face many difficulties in coordinating agricultural trade rules.

The digital service tax has become one of the controversial topics in this negotiation. The digital service tax is a tax levied on specific digital service income obtained by large multinational digital enterprises in the countries where their users are located, aimed at solving the problems of tax base erosion and profit transfer caused by the virtual and non-existent characteristics of the digital economy in traditional international tax rules. The United States considers the digital services tax to be a "discriminatory tax" that primarily targets American tech giants and hinders the country's advantage in the digital economy. Previously, Canada announced the imposition of a digital services tax, triggering a strong backlash from the United States. The United States immediately suspended trade negotiations with Canada as punishment and threatened to announce new tariffs within 7 days. Several EU countries, such as France, Italy, Spain, and the UK, have also implemented similar digital service taxes. The US also expressed dissatisfaction with the EU's "unfair" digital legislation and demanded that the EU relax its regulation of US tech giants. The EU insists on the "right of market countries to levy taxes" and believes that a digital service tax can fill the loopholes in the current international tax system and achieve tax fairness. The EU has made it clear that digital related legislation is not a topic of trade negotiations with the United States and will not change laws, including digital related legislation. This indicates that the EU has a firm stance on the issue of digital service tax and will not easily compromise with the United States.

The prospects of this negotiation are full of uncertainty. There are significant differences between the two sides on core issues such as tariff reduction, trade rule coordination, and digital service tax, making it difficult to reach a comprehensive agreement in the short term. If the negotiations break down, the United States may impose a 50% tariff on EU goods after July 9th, which will trigger countermeasures from the EU, escalate the trade war, and cause greater economic damage to both sides. In the long run, the outcome of this negotiation will have a profound impact on the global trade landscape. If both sides can reach a compromise, it will help ease the trade tensions between Europe and the United States and promote the process of global trade liberalization; If negotiations fail, it may trigger a wave of global trade protectionism, disrupt the stability of global industrial and supply chains, and hinder the recovery and development of the global economy.

The trade negotiations between the European Union and the United States are a complex economic struggle involving multiple levels such as tariffs, trade rules, and digital service taxes. Both sides need to seek compromise and cooperation while safeguarding their own economic interests, in order to avoid the escalation of the trade war and jointly promote the healthy development of the global economy.