US tariffs on European goods threaten to shake up the world’s largest 2-way trade relationship

FRANKFURT Germany AP America s largest commerce partner the European Union is among the entities awaiting word Monday on whether U S President Donald Trump will impose punishing tariffs on their goods a move economists have warned would have repercussions for companies and consumers on both sides of the Atlantic Trump imposed a import tax on all EU-made products in early April as part of a set of tariffs targeting countries with which the United States has a contract imbalance Hours after the nation-specific duties took effect he put them on hold until July at a standard rate of to quiet financial markets and allow time for negotiations Expressing displeasure the EU s stance in pact talks however the president commented he would jack up the tariff rate for European exports to A rate that high could make everything from French cheese and Italian leather goods to German electronics and Spanish pharmaceuticals much more expensive in the U S The EU whose member nations operate as a single economic bloc declared its leaders hoped to strike a deal with the Trump administration Without one the EU reported it was prepared to retaliate with tariffs on hundreds of American products ranging from beef and auto parts to beer and Boeing airplanes Here are critical things to know about exchange between the United States and the European Union US-EU bargain is enormous A lot of money is at stake in the arrangement talks The EU s executive commission describes the pact between the U S and the EU as the greater part crucial commercial relationship in the world The value of EU-U S exchange in goods and services amounted to trillion euros trillion in or an average of billion euros a day according to EU statistics agency Eurostat The biggest U S export to Europe is crude oil followed by pharmaceuticals aircraft automobiles and therapeutic and diagnostic equipment Europe s biggest exports to the U S are pharmaceuticals cars aircraft chemicals diagnostic instruments and wine and spirits EU sells more to the US than vice versa Trump has complained about the EU s billion-euro billion commerce surplus in goods which shows Americans buy more stuff from European businesses than the other way around However American companies fill selected of the gap by outselling the EU when it comes to services such as cloud computing tour bookings and legal and financial services The U S services surplus took the nation s exchange deficit with the EU down to billion euros billion which represents less than of overall U S -EU commerce What are the issues dividing the two sides Before Trump returned to office the U S and the EU maintained a generally cooperative agreement relationship and low tariff levels on both sides The U S rate averaged for European goods while the EU s averaged for American products But the White House has taken a much less friendly posture toward the longstanding U S ally since February Along with the fluctuating tariff rate on European goods Trump has floated the EU has been subject to his administration s tariff on steel and aluminum and a tax on imported automobiles and parts Trump administration authorities have raised a slew of issues they want to see addressed including agricultural restrictions such as EU robustness regulations that include bans on chlorine-washed chicken and hormone-treated beef Trump has also criticized Europe s value-added taxes which EU countries levy at the point of sale this year at rates of to But a large number of economists see VAT as trade-neutral since they apply to domestic goods and services as well as imported ones Because national governments set the taxes through law the EU has declared they aren t on the table during bargain negotiations On the thorny issues of regulations consumer standards and taxes the EU and its member states cannot give much ground Holger Schmieding chief economist at Germany s Berenberg bank noted They cannot change the way they run the EU s vast internal realm according to U S demands which are often rooted in a faulty understanding of how the EU works What are feasible impacts of higher tariffs Economists and companies say higher tariffs will mean higher prices for U S consumers on imported goods Importers must decide how much of the extra tax costs to absorb through lower profits and how much to pass on to customers Mercedes-Benz dealers in the US have announced they are holding the line on model year prices until further notice The German automaker has a partial tariff shield because it makes of the Mercedes-Benz vehicles sold in the U S in Tuscaloosa Alabama but the company explained it expects prices to undergo key increases in coming years Simon Hunt CEO of Italian wine and spirits producer Campari Group notified capital analysts that prices could increase for chosen products or stay the same depending what rival companies do If competitors raise prices the company might decide to hold its prices on Skyy vodka or Aperol aperitif to gain field share Hunt commented Trump has argued that making it more laborious for foreign companies to sell in the U S is a way to stimulate a revival of American manufacturing A great number of companies have dismissed the idea or declared it would take years to yield positive economic benefits However several corporations have proved willing to shift particular production stateside France-based luxury group LVMH whose brands include Tiffany Co Luis Vuitton Christian Dior and Moet Chandon could move selected production to the United States billionaire CEO Bernaud Arnault disclosed at the company s annual meeting in April Arnault who attended Trump s inauguration has urged Europe to reach a deal based on reciprocal concessions If we end up with high tariffs we will be forced to increase our U S -based production to avoid tariffs Arnault declared And if Europe fails to negotiate intelligently that will be the consequence for plenty of companies It will be the fault of Brussels if it comes to that Various expect Trump to drop his majority drastic demands Several forecasts indicate the U S market system would be more at danger if the negotiations fail Without a deal the EU would lose of its gross domestic product and U S GDP would fall if Trump slaps imported goods from Europe with tariffs of to according to a research review by Bruegel a think tank in Brussels Given the complexity of chosen of the issues the two sides may arrive only at a framework deal before Wednesday s deadline That would likely leave a base tariff as well as the auto steel and aluminum tariffs in place until details of a formal agreement agreement are ironed out The majority likely outcome of the pact talks is that the U S will agree to deals in which it takes back its worst threats of retaliatory tariffs well beyond Schmieding revealed However the road to get there could be rocky The U S offering exemptions for particular goods might smooth the path to a deal The EU could offer to ease certain regulations that the White House views as agreement blockades While Trump might be able to sell such an outcome as a win for him the ultimate casualties of his protectionism would of subject be mostly the U S consumers Schmieding commented Source