Economics

An overview of the US tariff on 7.5 billion USDs-worth of EU goods

November 04 2019

On Oct. 18, the US imposed a tariff on 7.5 billion dollars-worth of EU goods, following a decision of WTO granting the US the right to take countermeasures against EU’s subsidies to Airbus. The value of the goods being targeted accounts for over 17% of the total EU exports to the US in 2018. In this article, we explore the overall impact of the tariff list on trade and shipping between the US and the EU.

A new front is now formed in the worldwide trade war. After a long period of escalating tensions between China and the US, the European Union has now become the new target. All the EU member states are more or less affected by the tariff list published by the US Trade Representative. In this list, other than part 1 that concerns airplanes with a 10% tariff, the other 14 parts, including European food, alcoholic drinks, textile, and a few machinery products are all facing a 25% tariff.

Each part identifies individual products and the specific EU member states that are facing the tariff. Part 2 imposes a tariff on cheese, fruit, and processed meat products, targeting all EU member states. The most affected countries are Germany, the UK, France, and Spain. Germany and the UK are listed in 14 out of 15 parts of the tariff list. France is taxed on its airplanes and wine, and Spain on its olive and olive oil products.

As the EU is a vital supplier of wine, cheese, and olive oil to the US market, the added tariff on these products will eventually find itself onto the US consumers' grocery bill. The EU is the US market’s major supplier, even the sole supplier of various types of cheese now facing a 25% tariff. Similarly, the UK accounts for about 77% of the total US imports of whisky. French wine has enjoyed a rapid growth in the US market in recent years. Our Captain Upply shared his insights on the impact of the tariff on French wine in our Lane of Week Le Havre-New York (a must read!).

However, for around half of the goods on the list the EU shares less than 10% of US total imports of that product. For these products, the US is either likely to find substitutions outside the EU or exclude its main EU suppliers that come from countries on the list. As for machinery products and textile, the tariffs solely target Germany and the UK, respectively. The US serves as these German and British products' main export destination, although Germany and the UK are not the US’s leading suppliers for these products. For instance, considering that North America accounts for one-quarter of the UK’s luxury products, the tariff on British textile could hit the UK’s high-end textile manufacturing industry.

Impact on shipping volume

The total volume affected by the tariff accounts for around 2.3% of the annual shipping volume from the EU to the US in 2018. Among the four most affected EU member states, the shipping volume of Spanish goods is the most affected (figure 1).

UE_china_trade_war_volumes

Figure 1 - The affected shipping volume; Data source: US Census Bureau (data is generated from the US Census Bureau and is self-calculated by the author). @Upply

As for the affected goods, those with the highest shipping volume are alcoholic drinks, cheese, and olive oil products. As such, there could be a significant impact on reefer shipping.

Imposing a tariff on whisky and wine may serve the purpose of increasing the competitiveness of US domestic producers in the American market, for instance the wine from Napa Valley. As for the international alternative suppliers, they seem to be mainly other EU member states, rather than non-EU countries. For instance, a growing demand for olive oil products from Italy and Greece, the next top two suppliers to the US market, can be envisaged due to the imposed tariff on the Made-in-Spain olive products. The imposed tariff on wine from France, Germany, Spain, and the UK could result in increasing demand for Italy, two South American countries, Chile and Argentina, as well as the Oceania countries, Australia and New Zealand.

Here are some more uncertainties:

Besides the 7.5 billion US tariff, over the following months, two events need to be taken into consideration regarding EU-US trade:

  1. To start with, the deadline of Nov. 17 for the potential US tariff on EU-manufactured automobiles and parts is approaching. Although it seems the German automobile industry has dodged the bullet in this round of tariffs, it could suffer from a 25% tariff in the near future if no further extension is granted. Even if there is an extension, the tariff on EU automobiles will remain a factor of uncertainty in the EU-US trade negotiations. In particular, it could serve as a future bargaining tool for the US to lay on the negotiating table with the EU. According to a recent report from Reuters, Trump has suggested that "Auto tariffs are never off the table”.
  2. Furthermore, the US is not the only one to have filed such a case with the WTO. Brussels has also filed a case regarding the US government's subsidies to Boeing. If the WTO rules in favor of the EU in this case, the EU could also impose tariffs on US products in a few months. In May 2019, the EU published a tariff list on goods originating from the US worth 2 billion euros. According to the list, other than imposing tariffs on US airplanes, US agriculture and food industry, the US automobile industry will be affected by the round of possible tariffs.

The holiday season is approaching, but the tension in EU-US trade relations is not making it particularly joyful.

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PhD in Political Science, Ganyi gives a sharp look at the evolutions of the global Supply Chain industry through the prism of the political and economic context.