How the U.S. will be Impacted by the 25% Tariffs on Imported Goods from the E.U.
Historically, the United States and the European Union have had a strong trade relationship. In 2018, the 28 E.U. countries combined were the number one export market for the United States. They were also the number two largest supplier of imports to the U.S. for the same year. In comparison, the U.S. has three times the investment into trade with the E.U. than that of Asia. The E.U. investment in the U.S. is eight times what it spends in China and India.
United States’ product exports to the European Union totaled around $318 billion last year. This is a 12.5% increase from 2017 and accounts for 19.1% of overall U.S. exports in 2018.
On the flip side, U.S. product imports from E.U. countries were around $488 billion in 2018, a 12.3% increase from 2017. E.U. imports account for 19.2% of total U.S. imports last year.
Questioning Future U.S. and E.U. Trade Relations
The future of U.S. and E.U. trade relations are now in question due to newly placed tariffs. The World Trade Organization recently announced that the U.S. can impose tariffs in response to illegal E.U. loans and subsidies to Airbus. The Trump Administration has decided that starting October 18, there will be a 25% import tariff on foods, beverages, and other goods from the European Union.
In addition, it is possible that the E.U. could retaliate against the new tariffs if the WTO rules that the U.S. government illegally supported Airbus’ American competitor, Boeing. Many within the food industry are frustrated by the new tariffs as the dispute is centered around industrial products, not food or beverage. The aircraft sector will only have to pay a 10% tariff while the unrelated food and beverage sector is paying a 25% tariff.
Impact on U.S. and E.U Companies
The latest tariffs can have a serious impact on companies from the U.S. and the E.U.Trade has become a contentious topic for the food industry throughout President Trump’s time in office. A new 25% import tariff will only hurt the situation, while also negatively affecting businesses and consumers financially.
The timing of the tariffs is also problematic as higher prices for imported specialty foods will affect Americans going into the holiday season. The Office of the U.S. Trade Representatives released a final product list, which includes:
- Olive Oil
- Olives
- Butter
- Cheese
- Single-Malt Whiskey
Most of the products that will be affected by the tariffs would be coming from France, Germany, Spain, and the United Kingdom.
The new tariffs could benefit some U.S. producers of olive oil, olives, butter, cheese, and wine. The California olive oil sector accounts for 6% of the total amount consumed in the United States, and they have been trying to increase domestic consumption. This leads to the possibility of new production opportunities.
Negative Effects on U.S. Companies
Smaller businesses are more likely to be in jeopardy by the tariffs. Food importers and exporters that are run by small family-owned businesses cannot absorb a 25% tariff. Food has a low-profit margin as is without adding an additional 25% and could cause those businesses to take a loss if they import.
Another area of concern is related to the employment sector. Job losses could occur due to the anticipated financial impact. Tariffs on Scotch whiskey, liqueurs, and wine could affect almost $3.4 billion in imports, which could thereby cause 13,000 jobs to be lost.
Looking forward, the U.S. beef industry also has cause to be nervous. In August, the U.S. and the E.U. agreed to almost triple the annual amount of duty-free, hormone-free U.S. beef allowed into the E.U. during the next seven years. However, that deal still needs to be approved by the European Parliament, which could prove to be difficult because of the new tariffs in place.
Hoping for Resolution
Even though the situation appears grim, the U.S. and the E.U. do have a good history of trade together. For that reason, it is possible that the new tariff issue can be resolved before a serious impact occurs. Industry representatives could pressure the Trump Administration into rectifying the situation.
The current administration has ongoing trade disputes with multiple countries right now—China, Mexico, Canda, Japan—and if the situation is not fixed soon, adding the E.U. to the list could seriously impact consumer prices and the stock market.
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