I recall writing an article last year headed “Jaw Jaw Not War War” based on that famous quote from Winston Churchill when talking about potential international trade wars. It is déjà vu that at the start of 2020, when looking back at the tension in 2019 that existed between the US and China over trade and how this started to affect the world economy as a whole, that we are back here again, but this time between the US and EU, whilst China and the US have started to resolve their trade differences by the “Phase One” deal.
The trade war is now a lot closer to home as this month, the EU and the US are meeting in America to discuss a long list of trade issues which are causing tension between the two trading blocks. This has the possibility to become the biggest news story of 2020 if agreement cannot reached quickly as it effects products as esoteric as artisan cheese and single malt whiskey.
The tension on the US side has started to build up due to the French digital service tax (“DST”). The DST is a 3% tax on the revenue of digital companies providing advertising services within France, which was given effect by President Macron in July 2019.
To avoid a drastic outcome that would more likely effect the EU more than the US, it is hoped that Phil Hogan, the EU Trade Commissioner, will be able to get a reset on EU/US trade relations, but this will only be achieved if they can sort out the big issues that have caused the US to impose these tariffs. These tariffs have come about due to the unease felt by the US over aircraft subsidies that have been given by the Europeans to Airbus and the fact that now Airbus has just overtaken Boeing as the biggest aircraft manufacturer in the world by the number of planes sold.
If progress cannot be achieved, as I said, it will be the EU that suffers more because of the very nature of the US economy being more insular and closed, as opposed to the EU which is more driven by export.
As with everything over trade, any resolution will be politically driven, especially given the backdrop of the pending election in the US and Trump’s mantra of “America first”, so if anything, the EU may only in reality, achieve a mini deal, a similar deal to the one that Japan has recently done with the US and/or a deal similar to that with China the “Phase One” deal, though only time will tell.