Biden gets a $5.4 billion reminder to patch trade ties with Europe

Mr Biden's preference for strengthening democratic alliances could create a more conducive environment. PHOTO: REUTERS

BRUSSELS (BLOOMBERG) - Barely 48 hours after President-elect Joe Biden pledged to "make America respected around the world again", the European Union was among the first in line to remind him that trans-Atlantic trade relations might be a good place to start.

Brussels on Monday (Nov 9) agreed to put new tariffs on US$4 billion (S$5.39 billion) worth of US imports, a move taken with the blessing of the World Trade Organisation after the EU won a case in Geneva against illegal subsidies to Boeing Co.

It was a counter-punch after the US, in a parallel filing against Airbus SE, was allowed to impose tariffs on US$7.5 billion in goods from nations including France, Germany, Spain and Britain.

The fight preceded President Donald Trump by some 12 years, but his "America First" approach only prolonged it.

The eye-for-an-eye result reflects what some observers have said is a miscalculation in the Trump administration's strategy with trade friend and foe alike: Europe didn't blink under pressure, it hit back.

In contrast, Mr Biden's preference for strengthening democratic alliances could create a more conducive environment to settle lingering disputes like the Airbus-Boeing case - one of several festering stalemates.

"The US have put on their tariffs, the EU have put on their tariffs. We are on par. It is a good way to start negotiations," Mr Pascal Lamy, the WTO's former director-general told Bloomberg TV on Tuesday.

Years of stalemate

"The question is, would Brussels and Washington agree," Mr Lamy said.

"With Trump, the answer was no way. With Biden, the answer is yes."

At the same time, Europeans acknowledge that there will remain major disagreements and they must be realistic about Mr Biden's ability to prioritise the alliance over more pressing domestic matters and longer-term changes in political tides.

"Divisions can always be bridged, wounds can be healed," EU Commission President Ursula von der Leyen said in a speech on Tuesday.

"But some shifts in priorities and perceptions run much deeper than one politician or administration. And they will not disappear because of one election."

Here's a rundown of the other main US-EU disagreements on trade issues:

Steel & aluminium tariffs

One early, trust-building exercise could be a withdrawal of the Trump administration's national security tariffs on steel and aluminium, which are viewed in Europe as a regrettable indignity.

Former White House adviser Clete Willems acknowledged that the tariffs amounted to an "unforced error" by the Trump administration that's created undue animosity between Washington and Brussels.

"Of all the things Trump has done, that was the one that was unnecessary and hurt the relationship in a way that wasn't productive at all," Mr Willems said in a phone interview.

A move by Mr Biden to end the steel and aluminium tariffs could encourage Brussels to withdraw its retaliatory tariffs on €2.8 billion (S$4.45 billion) worth of iconic US goods like bourbon whiskey, Harley-Davidson Inc motorcycles and Levi Strauss & Co jeans.

Industrial subsidies accord

The Biden administration could work with the EU, Japan and other like-minded parties to craft new global rules to curb China's market-distorting government aid.

"I believe a Biden Administration will look to confront China and to reassert American leadership," said Mr Tim Brightbill, a partner at Wiley, a law firm in Washington.

The Biden administration could pick up a tentative agreement that the US, EU, and Japan advanced in January to target Beijing's subsidy practices that have been a source of growing trade tensions between Beijing and the rest of the world.

If adopted and expanded among a large enough group of nations, the agreement could represent the most significant upgrade of the global trade rulebook in more than a decade.

Digital services tax

Another key point of friction will continue to be the fight over Europe's plans to impose digital services taxes, which act as levies on local sales of foreign technology companies like Facebook Inc and Google.

Austria, France, Italy, Spain and Britain are among countries that are either adopting or considering digital services taxes to try to gain a greater slice of the US$26 trillion worldwide e-commerce marketplace.

But the Trump administration argues that the taxes are discriminatory against US Internet companies and pledged to impose tariffs of 25 per cent on a series of French goods including makeup, soap and handbags worth about US$1.3 billion.

The digital tax debate will remain a "major irritant" for Mr Biden, Mr Willems said.

"The US views this as Europeans discriminating against US companies to extract revenue from them and claw it back to develop their own national champions."

Climate change agreement

Mr Biden has also pledged to rejoin the Paris climate agreement, which would be a welcome development for European capitals and could open some opportunities for re-engagement on a stalled trade deal to cut tariffs on environmentally friendly goods.

If Mr Biden signals his intent to re-engage on the Environmental Goods Agreement, it could increase global trade in environmental products - like solar panels, water filters, electric motors and hydraulic turbines - by US$119 billion a year.

Over the long term, there will be a need for the US and Europe to engage on Brussels' plans for a carbon border-adjustment mechanism that would create new costs for foreign imports from countries that are less strict about reducing pollution.

"The US will be moving much more slowly than the EU is committed to do," Mr Adam Posen, president of the Peterson Institute for International Economics in Washington, said during a recent webinar hosted by Bruegel, a Brussels-based think tank.

"There is going to be a trade aspect of border adjustments that we are going to have to talk about."

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