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.
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).
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.
Besides the 7.5 billion US tariff, over the following months, two events need to be taken into consideration regarding EU-US trade:
The holiday season is approaching, but the tension in EU-US trade relations is not making it particularly joyful.