The Trade Numerologist: Why Europe can’t win a trade war with U.S.

The declaration by President Trump of U.S. import tariffs of 25% on steel and 10% on aluminum has sparked what some analysts say could be the first shots of a trade war.

As commerce ministries around the world scrambled to adjust to the biggest protectionist move by the U.S. since the George W. Bush era, one surprise was new tension with the European Union, which is also grappling with a populist protectionist wave of its own.

Trump even singled out the EU in a Tweet. “The European Union, wonderful countries who treat the U.S. very badly on trade, are complaining about the tariffs on Steel & Aluminum,” he wrote. “If they drop their horrific barriers and tariffs on U.S. products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc. FAIR!”

EU officials don’t want a fight. “A trade war has no winners,” EU trade commissioner Cecilia Malmström told reporters. She said the “EU should be excluded from these measures” and that she would address the tariffs with the U.S.

The U.S. is likely to have the upper hand in those meetings. There are three big reasons for EU officials to avoid a tariff duel with the U.S., and confine their threats, as they have so far, to largely symbolic duties on things like bourbon, jeans and motorcycles, and soft rhetorical retaliation.

One is that, although the EU has low tariffs compared to the rest of the world, its average tariffs are higher than those of the U.S. Its average applied duty was 5.2%, compared to 3.5% for the U.S., in 2016, the last year on record, according to the World Trade Organization. The difference is especially stark in agriculture. The tariff on dairy was 37.4% in the EU, compared to 16% in the U.S. On animal products, it was 16.2% for Europe, 2.3% for the U.S.

That means the EU is already keeping out a lot of goods, and, in negotiations, won’t have as many markets it could threaten to close.

The second reason is that the EU runs a huge trade surplus with the U.S., $130.1 billion in 2017, and that the 50 states are its biggest market.

Biggest EU export markets, 2017

Finally, the biggest EU imports from the U.S. are pieces of major global corporate supply chains operated by multinational companies, like Airbus, Orano and Novo Nordisk, that have offices in Europe and plants in the U.S. Applying to tariffs to these kinds of products would hurt the bottom lines and stock market values of EU companies.

Top EU imports of U.S. products, 2017

Europe is hoping to get the same treatment from the White House as Mexico and Canada, which will be exempted, pending the ongoing negotiations to redo the North American Free Trade Agreement. The countries most like to be hurt by the new duties on steel are Brazil, Russia and South Korea.

U.S. steel imports, 2017

Besides the NAFTA talks, there is another good reason for the U.S. to grant exceptions to Mexico and Canada. Those two countries are, by quite a lot, the biggest markets for U.S. exports of steel.

U.S. steel exports, 2017

The highest-ranking European nation is Italy, in ninth position.

And those bourbon, motorcycle and denim imports that the EU is threatening tariffs on?

The EU imported $319.6 million of textiles from the U.S., which ranked only 15th in supplying countries. By comparison the EU imported $16.4 billion of textiles from China.

EU imports of spirits from the U.S. amounted to $954 million, the most of any country, but a drop in Europe’s $44 billion annual spirits market.

And the U.S. ranked fifth in shipments of motorcycles to the EU, at $182 million in 2017, behind China, Japan, Thailand and Taiwan.

U.S. imports of large washing machines, first 11 months of 2017