European trade with the United States

Europe has always been an important trading partner of the United States, consistently providing a major import-export market. As the United States and Europe have increased investment in each other’s domestic economy through corporate globalization, their trading relationship has become more open and free of barriers, resulting in economic growth for both.

The United States’ primary import-export market has been Canada and the European nations, especially Great Britain. After World War II, the United States began to trade with more countries, including those in Latin and South America, Asia, Australia, and Africa; however, until that time, foreign trade was generally understood to mean trading with Canada and Europe.

Historical Background

The United States followed a policy of protectionism until the 1940s. Tariffs and import-export policy were considered domestic issues until the 1920s, and the government’s chief objective was to protect farmers and manufacturers from foreign competition. The Constitution prohibited duties on exports but not tariffs on imports. In 1789, the United States Congress passed its first Tariff Act. The tariff, set relatively low at 5 percent, was a means of collecting revenue for the nation.

During the War of 1812, American manufacturers operated without any competition from British manufacturers. In 1816, after the war concluded, tariffs were raised to protect American manufacturers by keeping imports from Britain low. The increased tariff was also seen as a means for paying the war debt. However, British goods appeared in American markets in spite of the tariffs. Not all members of Congress were in favor of high tariffs. A battle over tariffs ensued in 1828; those opposed to tariffs encouraged the protectionist members of Congress, who were preparing a new tariff bill, to place in the language of the bill excessively high tariffs on every possible commodity. They believed that the bill would defeat itself. They were wrong, and a bill known as the Tariff of Abominations passed. In 1833, Congress reduced these tariffs. By 1861, higher tariffs were once again being authorized.

The high tariffs caused both domestic and international problems for the United States. Europe was a major market for the cotton and tobacco grown on the plantations in the southern states. The high tariffs angered the European markets and made export sales difficult as retaliatory tariffs and duties were implemented. Domestically, the southern farmers viewed the tariffs as an attack on their economic and cultural base. This widened the chasm between North and South in the United States.

Protectionism and New Policies

From 1870 through the 1920s, the U.S. stance on tariffs depended on which political party had control of Congress. A pattern of lower tariffs under Democratic Party control and higher tariffs under Republican Party control developed. However, the United States became more and more isolationist, and tariffs began to decline less during periods when the Democrats were in control. In 1930, the Smoot-Hawley Tariff Act raised tariff duty to 53 percent of the value of the import. European countries retaliated by raising their tariffs and adding quotas. By 1933, because of its unwillingness to import goods, the United States saw its export trade decline significantly.

In 1934, the United States changed its policy on trading. European countries were not willing to trade with the United States as long as such high tariffs were in force. Cordell Hull, secretary of state under President Franklin D. Roosevelt, obtained an amendment to the Smoot-Hawley Tariff Act that would cut tariffs equally with trading partners. This became the Reciprocal Trade Agreements Act, which, for the first time, gave the president the power to reduce tariffs. By the early 1940s, the United States had entered into bilateral trading agreements with approximately twenty-five countries, primarily European.

During World War II, trade was seriously interrupted. After the war, the role of the United States in international affairs and trading changed dramatically. The war-torn countries of Europe were trying to rebuild their economies and their countries. Cooperation became the action plan between European countries and the United States. The United States looked on Europe as its ally, from both a defense and an economic standpoint. The United States modified its trading policy and encouraged imports. By 1948, the General Agreement on Tariffs and Trade (GATT) was in place, with twenty-three countries, seven of which were European, signing it. The treaty reduced tariffs, quantitative restrictions, and subsidies, and has been repeatedly modified. On January 1, 1995, the members of GATT, in association with the European Community (EC) countries, formed the World Trade Organization (WTO), which replaced the GATT. The WTO is headquartered in Switzerland and oversees the implementation of treaties and adherence to trade agreements.

Until 1958, the United States had entered into trading agreements primarily with individual European countries. However with the signing of the Treaty of Rome, the situation changed. France, West Germany, Italy, Belgium, Luxembourg, and the Netherlands formed the European Economic Community (EEC). The EEC set a policy of no tariffs between member countries, common external tariffs, and shared policies in regard to agriculture, transport, and trade. In 1962, in the Dillon Round of the GATT negotiations, the EEC negotiated as a representative for all its member nations. In 1973, the United Kingdom, Ireland, and Denmark joined the EEC, and during the 1980s, Greece, Spain, and Portugal became members. The economic influence of the European countries increased steadily. The United States, from the end of World War II, supported the concept of a European union because it had come to realize that international cooperation, not isolationism, was the best policy for defense, modernization, and prosperity.

Although the United States favored a united Europe and was willing to make many concessions, including tariff reductions as described in the Trade Expansion Act of 1962, problems continued to arise in trade relations. During the 1980s, disputes arose, particularly in regard to agricultural products. The EEC, from its creation in 1962, protected European farmers from foreign competition. The Common Agricultural Policy (CAP) ensured the free movement of agricultural products within the European community, gave member-country products priority over imports, and imposed market restrictions on foreign products. These policies resulted in a decline in U.S. agricultural exports to Europe. Disputes about trade in canned fruit, wine, wheat flour, pasta, and other products were brought to the attention of the GATT but not easily solved.

The European Union

On February 7, 1992, with the signing of the Treaty of Maastricht, the European Union (EU) was formed. Its membership included new members as well as the EEC countries, eventually bringing the membership to twenty-eight. The EU and the United States represent the largest interdependent trade and investment relationship in the world. The increase in investment in the United States by European companies and by American companies in European countries has done much to stimulate trade between the United States and the EU. A good portion of the trade between the United States and the EU stems from imports and exports between parent companies and their affiliates in the other country.

The two trading units, which are basically on the same socioeconomic level, engage in a considerable amount of intraindustry trade. Many similar products are both imported and exported by the two trading partners. The EU was the United States’ second-largest trading partner in merchandise and goods and its largest trading partner in services. Although since 1993, the United States has imported more goods than it has exported to the EU, it also has exported more services than it has imported from the EU.

Although the United States and the EU enjoy a largely cooperative trade relationship, disputes continue to arise between the trading partners. Many of these result from regulations and policies adopted to protect various segments of the members’ domestic economies. Agriculture-related problems remain the biggest area of discord, particularly because of the subsidies granted to farmers or agricultural producers of specific products. The 1994 Uruguay Round of trade talks solved part of the problems created by subsidies. However, export subsidies and market-access quotas remain issues. Other problems that came into prominence after the Uruguay Round include hormone-treated beef and bioengineered foods.

Aerospace is another trade area in which the United States and the EU have argued over subsidies. This dispute has centered on subsidies provided by the United States to Boeing and by various EU nations (France, Spain, the United Kingdom, and Germany) to Airbus Industrie. Each trading partner maintains that the subsidies are necessary for the aircraft manufacturers to remain competitive.

Differing attitudes toward social and environmental protection have also caused trading problems between the United States and the EU. Domestic health and safety standards often vary widely between the trading partners. The United States tends to apply fewer regulations than does the EU. In an attempt to be a homogenous single market, the EU prefers to set standards and legal guidelines to be followed by its members in all areas, but the United States intervenes in production only when health concerns or other problems become apparent. One example of this difference is found in the issue of hormone-treated beef. Although this type of beef is considered safe for human consumption in the United States, it is not welcomed in EU countries. Bioengineered food crops have also been an issue. The EU is opposed to importing them because of the lack of proof regarding their long-range safety. However, the United States argues that bioengineering of food products has become a necessity for its farmers to be able to grow crops profitably.

In March 2018, the United States declared new tariffs of 25 percent on steel imports and 10 percent on aluminum imports, effective June 1, on national security grounds. The EU responded by initiating dispute resolution proceedings through the WTO in May. EU officials alleged protectionism was at the heart of the issue, while the Donald Trump administration argued that it merely sought balanced trade. That June, the European Commission retaliated with duties on numerous steel-containing US-made items, as well as agricultural products such as tobacco, cranberries, peanut butter, orange juice, and sweet corn, whiskey; footwear, certain apparel, textiles, and bedding; essential oils and cosmetics; select paper goods; tableware and kitchenware; and glass products. The United States threatened levies on foreign automobiles and automotive parts, prompting the EU to consider additional "rebalancing" tariffs. Some economic observers feared the start of a trade war, and many predicted that not only could EU tariffs on US goods harm US companies and consumers but also that the US tariffs could drive up costs for US consumers because US companies rely on global supply chains.

The interdependency of the United States and the EU has significantly affected the trade relationship between the two political entities, and this relationship is highly influential in the global economy.

Bibliography

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