JULY 10–14, 2019

US-EU Trade Relations:
Friends, Rivals – or Both

Eric Miller

President
Rideau Potomac Strategy Group

“The EU has taken advantage of the US on trade for many years. It will soon stop!” This tweet from President Trump introduced his plan for $11 billion tariffs on EU products from cheese and wine to industrial inputs in retaliation for EU subsidies to Airbus. Mr. Miller assessed the accuracy of the President’s claim, reviewing the history and current state of US-EU trade, and identifying opportunities for the States to compete and collaborate.

Creating a Unified Market

With a goal to "make war not only unthinkable, but materially impossible," the elites in early post-WW2 France and West Germany decided to integrate the key industries for making war materials and put them under a central authority. The original 1952 Coal and Steel Community, including France, West Germany, the Netherlands, Luxembourg, Italy and Belgium, evolved into the European Economic Community (EEC) in 1957 under the Treaty of Rome, with agreements stipulating:

•  Customs duties would be progressively reduced and a customs union established.

•  Free movement of goods, labor and capital would become cornerstone principles.

•  Common policies on Agriculture and Transport were proposed.

•  A European Social Fund was established to provide “cohesion” through financial support to less-well-off regions.

•  Finally, the European Commission was established, giving an institutional architecture to the European project.

The first waves of accession to the union came in 1973 with the United Kingdom, Ireland and Denmark, followed by Greece in 1981, Spain and Portugal in 1986, the reunification of Germany in 1990 and the accession of Austria, Finland and Sweden in 1995. By 2013, the European Union encompassed most of the former Warsaw Pact countries.

The Maastricht Treaty of 1992 created the foundations for Europe to become a quasi-national state. It created a mechanism for widespread regulatory convergence, cooperation in fields of Justice and Home Affairs, the foundations of a common foreign policy and the pathway to the creation of a single currency – the Euro.

Part of the pooled sovereignty of the EEC extended to trade, and Europe set up and subsidized all sorts of companies and institutions. Farmers were subsidized and products exported. Industrial support was prolific, including subsidies to Airbus to compete with the US airlines industry.

Initially, European integration was strongly supported by the US. Building prosperous economies in Europe would go a long way to securing peace on the continent and allow European allies to more effectively counter the Soviet threat.

US-EU Trade Relations Today

As the geopolitical realities of the world changed in the post-Soviet era of globalization, trade issues have become more contentious. Today, the EU and US are competitors. And they face additional competitive threats from fragmentation of the EU as Brexit occurs, and as pro-nationalism emerges across Europe. Meanwhile, Russia and China are emerging competitors as their rail, road, and maritime projects connect the continents and open markets in the region.

Despite competitive conflicts, such as the Trump Administration’s threatened tariffs on EU products, the US and EU are really important to each other. The EU countries together were ranked (2018):

1st export market from the US ($575 billion) 2nd import supplier to the US ($684 billion) 3rd agricultural export market for US products

An additional factor in trade relations is Foreign Direct Investment. Total US investment in the EU is three times higher than in all of Asia. And EU investment in the US is around eight times the amount of EU investment in India and China together.

Export Market
for US Goods
(2018)
Export Market
for US Goods
(2018)
Import Suppliers
to the US
(2018)
Foreign Direct
Investment in US
(2017)

United Kingdom$66.2$60.8$614.9

Germany$57.7$125.9$405.6
Netherlands$49.4$24.6$169.2
France$36.3$52.5$301.5
Belgium$31.4$19.5$80.4

*All numbers in billions. Source: Bureau of Economic Analysis.

Relevance to the US States

Foreign Direct Investment is important for the States. In 2018, Missouri received the largest investment, but its value is suppressed due to confidentiality requirements. Other States also received significant investment: New York ($63.0 billion), Texas ($31.1 billion), and California ($27.3 billion). FDI also brings jobs: California had the largest FDI-related increase in employment (102,000), followed by New York (55,300) and Texas (45,500).

To illustrate the interdependence and complexity of global trading relationships as they impact the States, Mr. Miller posed the question: “Is your BMW a threat to national security?”

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security. President Trump directed the United States Trade Representative (USTR) to negotiate agreements with the European Union and Japan to limit imports of autos and auto parts.  Implementation of a 25% tariff was delayed for 6 months to allow time for negotiations.

Mr. Miller said the threat of such tariffs has significant implications for the States, citing the example of the BMW facility in Spartanburg, SC, which, in 2018, manufactured 234,689 BMW X-series crossovers valued at more than $8.4 billion, and employs more than 11,000 workers. BMW is also a major user of the South Carolina ports system, which brings significant revenue to the State. The plant relies on 300 US suppliers as well as imported sources of materials and parts. It is the largest exporter in the North American Free Trade Agreement (NAFTA) region to non-NAFTA countries. By November, tariffs on auto parts could be in place, with repercussions for State-side industries.

Setting Global Standards
General Data Protection Regulations

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards. For example, the EU set the standard for data privacy by creating General Data Protection Regulations (GDPR), which applies to all companies processing and holding the personal data of subjects residing in the EU, regardless of the company’s location. Organizations can be fined up to 4% of annual global turnover for breaching GDPR or €20 Million. The processor of data must clearly disclose data collection to the end user and notify them of any security breaches. The GDPR has become the de facto standard for global companies.

EU–US Privacy Shield

Designed to harmonize US interests with the EU regulations, this framework enables US companies to more easily receive personal data from EU entities under EU privacy laws meant to protect EU citizens.

EU Copyright Directive

The Directive on Copyright in the Digital Single Market is intended to ensure "a well-functioning marketplace for the exploitation of works and other subject-matter[s] [...] taking into account in particular digital and cross-border uses of protected content.” This directive mandates that intermediaries such as YouTube, Netflix, and Google are responsible for protecting copyrighted materials and to use only licensed content. The directive has generally been supported by newspapers, publishers, and media groups. But also has been opposed by major tech companies and Internet users.

Digital Taxes

EU studies show that digital giants such as Apple, Facebook and Google pay an average of 9.5% in taxes compared to 23.2% for traditional businesses. This has led to ad hoc actions by the EU against digital giants. In 2016, the European Commission ordered Apple to pay $14.5 billion in taxes that it owed to Ireland. Ireland, however, does not want money because ultra-low taxes are part of its strategy.

To date, the EU has failed to reach an agreement on a Single Digital Tax and members are making their own rules. France is proposing a 3% tax on large tech companies – most of whom are American-based – who focus on e-commerce and digital advertising. They estimate it will raise 500 million euro. In response, the Trump Administration announced that it would investigate whether the French plan constituted an unfair trade practice and therefore could lead to retaliatory tariffs from the US.

Ultimately, who will control the digital market? Mr. Miller asked. Will the digital market be controlled with market-friendly US rules or state-friendly EU regulations, or or be simply controlled by China?

US and EU in the World

Mr. Miller concluded by reminding the Forum that, despite bumps, the US and the EU have long been the two pillars of the global economy. The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition. It is imperative that the US and the EU rebuild the transatlantic relationship, Mr. Miller said. Today, there are 25 fewer democracies than there were in 2000. This represents a risk to world security. The US and the EU together are evolving the framework for the New World.

Rod Diridon (Apple, Inc.) and Sen. Mary Kay Papen (NM) enjoy a light moment between sessions. The Forum's small group setting enables people to get acquainted.

Discussion

Sen. Charles Schneider, IA: Iowans saw the impact of tariff wars when the US and China faced off on tariffs and the soybean market contracted. Iowans think all of our soybean trade is with China.

Mr. Miller: In mid-July US soybeans exports were down 25% from last year, while soybean exports to China were down 72%. However, the EU-28 is the second largest market for US soybeans.

Jon Hixon, Yum! Brands: There seems to be a negative drift in US attitudes toward global trade, for example, resistance to NAFTA and TPP. Is that changing?

Mr. Miller: The narrative is definitely changing as people are recognizing that NAFTA, now the United States-Mexico-Canada Agreement (USMCA), really matters. MetLife Insurance Company, for example, covers 85% of Mexican public employees, so they are arguing for the importance of cross-border initiatives. Congress, too, is reassessing trade policies with better insight into cross-border supply chains. Congressional Democrats have asserted criteria for approving the USMCA: It must have enforceable environmental and labor standards and should reduce patent protection for pharmaceutical products from 10 to 8 years.

Sen. David Givens, KY: I recommend reading The Retreat of Western Liberalism by Edward Luce, which examines recent reverses in traditional Liberal Democracy experienced globally. Please comment further on your observation that today there are 25 fewer democracies in the world and on the apparent loss of faith in democracy.

Mr. Miller: Neither the Democratic nor the Republican Party has offered a compelling narrative for how they will make life better, how our children will have a better future. The perception in the EU and US is that institutions are failing. Institutions are distant. As a result, people are reverting to more tribal associations – my family, my neighborhood. The West no longer has a progress-related narrative. It is focused on the size of government, not on its role, or how is it helping to create better lives. While we have a globally connected world through the Internet, people have sorted themselves into closed groups with people who share their views. The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

Tom Finneran, Moderator: Why did Brexit happen and how will it evolve?

Mr. Miller: The slogan of the Brexit “leave” campaign was “Take back control.” The perception was that the EU Brussels bureaucracy was over-reaching, that there was too much intervention and regulation, and economic restructuring. There also was a desire to exclude Turkey. But after the Brexit vote, the Nissan manufacturing plant was closed. Many industries with UK facilities had relied on EU free trade policies. It is possible that the EU will just let Great Britain leave the EU. But Britain will be in a challenging situation without trade agreements that may take 5 years to establish.

Sen. Tom Alexander, SC: How are the coming national elections likely to affect US tariffs?

Mr. Miller: As we saw with the 232 investigation that found “imported autos are threats to national security,” the Trump Administration said they would negotiate with the Japanese and Germans before imposing tariffs on cars and car parts. Every tariff has an exemption process. Mr. Trump can get the public opinion benefit of threatening a cathartic tariff, while actually making exemptions that keep the jobs and maintain the supply chains.

Tom Finneran, Moderator: Where do the 23 Democratic Presidential candidates stand on trade?

Mr. Miller: Their views tend to divide on generational lines, with Buttigieg and Harris taking a more global view. Buttigieg said, “Tariffs are taxes,” and advocates for a free trade policy, as does Kamala Harris. Free trade is being more positively perceived by Congressional Democrats. Bernie Sanders and Elizabeth Warren are more skeptical about trade. However, trade will not be a central issue in the 2020 election, unless there is a significant economic downturn.

Sen. Robert Stivers, KY: Are the problems and challenges facing the EU any different from the state-to-state disputes that accompanied the formation of the United States, will the EU become the United States of Europe? Will these issues resolve themselves for the EU as they did for the US?

Mr. Miller: Before the Civil War, the country was referred to as “These” United States, and a dollar in Alabama was not equal to a dollar in New York. After the Civil War, it became, “The” United States.  But the traditional fault lines in Europe are deeper than those that existed in the early US. There are very different models of governance among the west- and east-facing members of the EU. However, Great Britain threw itself off a cliff when they decided to leave the EU, and the rest of the members will reconsider solutions to petty concerns rather than face such a disaster.

Speaker Biography

Eric Miller

Eric Miller is President of Rideau Potomac Strategy Group, a consultancy that advises private and public sector clients on trade and business matters. Mr. Miller works with clients on trade and economic policy challenges, market development, resolving supply chain and regulatory issues, improving their government relations, understanding technology trends and navigating geopolitical developments.

He also is Senior Advisor to the Global Alliance for Trade Facilitation. Mr. Miller leads the development of Alliance projects in South and Southeast Asia, including Vietnam, India and Sri Lanka.

Mr. Miller presently serves on the external advisory committee on international trade policy to Canada’s Deputy Minister of International Trade.

He previously served as Vice President for North America and Cybersecurity at the Business Council of Canada, which represents the CEOs of the 150 largest companies in the country. Before joining the Council in 2013, Mr. Miller represented Canada’s Department of Industry at the Canadian Embassy in Washington, DC.

Mr. Miller has extensive international experience, having advised more than 40 governments in Asia, Latin America, and the Caribbean on trade, transportation and economic policies. Over the course of his career, he has worked on the development of six free trade agreements.

He is a Global Fellow at the Woodrow Wilson Center in Washington and a Fellow with the Canadian Global Affairs Institute in Ottawa. He has been published in and/or interviewed by an array of leading news outlets, including the Wall Street Journal, Financial Times, BBC News, The Guardian, Bloomberg and The Globe and Mail.

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security.

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards.

The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition.

The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

Eric Miller

Sen. Charles Schneider (IA)

Sen. David Givens (KY)

Tom Finneran
(Moderator)

Sen. Tom Alexander (SC)

Sen. Robert Stivers (Ky)

CONTACT

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

Tel: 914-693-1818

Copyright © 2019 Senate Presidents' Forum. All rights reserved.

JULY 10–14, 2019

US-EU Trade Relations:
Friends, Rivals – or Both

Eric Miller

President
Rideau Potomac Strategy Group

“The EU has taken advantage of the US on trade for many years. It will soon stop!” This tweet from President Trump introduced his plan for $11 billion tariffs on EU products from cheese and wine to industrial inputs in retaliation for EU subsidies to Airbus. Mr. Miller assessed the accuracy of the President’s claim, reviewing the history and current state of US-EU trade, and identifying opportunities for the States to compete and collaborate.

Creating a Unified Market

With a goal to "make war not only unthinkable, but materially impossible," the elites in early post-WW2 France and West Germany decided to integrate the key industries for making war materials and put them under a central authority. The original 1952 Coal and Steel Community, including France, West Germany, the Netherlands, Luxembourg, Italy and Belgium, evolved into the European Economic Community (EEC) in 1957 under the Treaty of Rome, with agreements stipulating:

•  Customs duties would be progressively reduced and a customs union established.

•  Free movement of goods, labor and capital would become cornerstone principles.

•  Common policies on Agriculture and Transport were proposed.

•  A European Social Fund was established to provide “cohesion” through financial support to less-well-off regions.

•  Finally, the European Commission was established, giving an institutional architecture to the European project.

The first waves of accession to the union came in 1973 with the United Kingdom, Ireland and Denmark, followed by Greece in 1981, Spain and Portugal in 1986, the reunification of Germany in 1990 and the accession of Austria, Finland and Sweden in 1995. By 2013, the European Union encompassed most of the former Warsaw Pact countries.

The Maastricht Treaty of 1992 created the foundations for Europe to become a quasi-national state. It created a mechanism for widespread regulatory convergence, cooperation in fields of Justice and Home Affairs, the foundations of a common foreign policy and the pathway to the creation of a single currency – the Euro.

Part of the pooled sovereignty of the EEC extended to trade, and Europe set up and subsidized all sorts of companies and institutions. Farmers were subsidized and products exported. Industrial support was prolific, including subsidies to Airbus to compete with the US airlines industry.

Initially, European integration was strongly supported by the US. Building prosperous economies in Europe would go a long way to securing peace on the continent and allow European allies to more effectively counter the Soviet threat.

US-EU Trade Relations Today

As the geopolitical realities of the world changed in the post-Soviet era of globalization, trade issues have become more contentious. Today, the EU and US are competitors. And they face additional competitive threats from fragmentation of the EU as Brexit occurs, and as pro-nationalism emerges across Europe. Meanwhile, Russia and China are emerging competitors as their rail, road, and maritime projects connect the continents and open markets in the region.

Despite competitive conflicts, such as the Trump Administration’s threatened tariffs on EU products, the US and EU are really important to each other. The EU countries together were ranked (2018):

1st export market from the US ($575 billion) 2nd import supplier to the US ($684 billion) 3rd agricultural export market for US products

An additional factor in trade relations is Foreign Direct Investment. Total US investment in the EU is three times higher than in all of Asia. And EU investment in the US is around eight times the amount of EU investment in India and China together.

Export Market
for US Goods
(2018)
Export Market
for US Goods
(2018)
Import Suppliers
to the US
(2018)
Foreign Direct
Investment in US
(2017)

United Kingdom$66.2$60.8$614.9

Germany$57.7$125.9$405.6
Netherlands$49.4$24.6$169.2
France$36.3$52.5$301.5
Belgium$31.4$19.5$80.4

*All numbers in billions. Source: Bureau of Economic Analysis.

Relevance to the US States

Foreign Direct Investment is important for the States. In 2018, Missouri received the largest investment, but its value is suppressed due to confidentiality requirements. Other States also received significant investment: New York ($63.0 billion), Texas ($31.1 billion), and California ($27.3 billion). FDI also brings jobs: California had the largest FDI-related increase in employment (102,000), followed by New York (55,300) and Texas (45,500).

To illustrate the interdependence and complexity of global trading relationships as they impact the States, Mr. Miller posed the question: “Is your BMW a threat to national security?”

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security. President Trump directed the United States Trade Representative (USTR) to negotiate agreements with the European Union and Japan to limit imports of autos and auto parts.  Implementation of a 25% tariff was delayed for 6 months to allow time for negotiations.

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security.

Mr. Miller said the threat of such tariffs has significant implications for the States, citing the example of the BMW facility in Spartanburg, SC, which, in 2018, manufactured 234,689 BMW X-series crossovers valued at more than $8.4 billion, and employs more than 11,000 workers. BMW is also a major user of the South Carolina ports system, which brings significant revenue to the State. The plant relies on 300 US suppliers as well as imported sources of materials and parts. It is the largest exporter in the North American Free Trade Agreement (NAFTA) region to non-NAFTA countries. By November, tariffs on auto parts could be in place, with repercussions for State-side industries.

Setting Global Standards
General Data Protection Regulations

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards. For example, the EU set the standard for data privacy by creating General Data Protection Regulations (GDPR), which applies to all companies processing and holding the personal data of subjects residing in the EU, regardless of the company’s location. Organizations can be fined up to 4% of annual global turnover for breaching GDPR or €20 Million. The processor of data must clearly disclose data collection to the end user and notify them of any security breaches. The GDPR has become the de facto standard for global companies.

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards.

EU–US Privacy Shield

Designed to harmonize US interests with the EU regulations, this framework enables US companies to more easily receive personal data from EU entities under EU privacy laws meant to protect EU citizens.

EU Copyright Directive

The Directive on Copyright in the Digital Single Market is intended to ensure "a well-functioning marketplace for the exploitation of works and other subject-matter[s] [...] taking into account in particular digital and cross-border uses of protected content.” This directive mandates that intermediaries such as YouTube, Netflix, and Google are responsible for protecting copyrighted materials and to use only licensed content. The directive has generally been supported by newspapers, publishers, and media groups. But also has been opposed by major tech companies and Internet users.

Digital Taxes

EU studies show that digital giants such as Apple, Facebook and Google pay an average of 9.5% in taxes compared to 23.2% for traditional businesses. This has led to ad hoc actions by the EU against digital giants. In 2016, the European Commission ordered Apple to pay $14.5 billion in taxes that it owed to Ireland. Ireland, however, does not want money because ultra-low taxes are part of its strategy.

To date, the EU has failed to reach an agreement on a Single Digital Tax and members are making their own rules. France is proposing a 3% tax on large tech companies – most of whom are American-based – who focus on e-commerce and digital advertising. They estimate it will raise 500 million euro. In response, the Trump Administration announced that it would investigate whether the French plan constituted an unfair trade practice and therefore could lead to retaliatory tariffs from the US.

Ultimately, who will control the digital market? Mr. Miller asked. Will the digital market be controlled with market-friendly US rules or state-friendly EU regulations, or or be simply controlled by China?

US and EU in the World

Mr. Miller concluded by reminding the Forum that, despite bumps, the US and the EU have long been the two pillars of the global economy. The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition. It is imperative that the US and the EU rebuild the transatlantic relationship, Mr. Miller said. Today, there are 25 fewer democracies than there were in 2000. This represents a risk to world security. The US and the EU together are evolving the framework for the New World.

The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition.

Rod Diridon (Apple, Inc.) and Sen. Mary Kay Papen (NM) enjoy a light moment between sessions. The Forum's small group setting enables people to get acquainted.

Discussion

Sen. Charles Schneider, IA: Iowans saw the impact of tariff wars when the US and China faced off on tariffs and the soybean market contracted. Iowans think all of our soybean trade is with China.

Mr. Miller: In mid-July US soybeans exports were down 25% from last year, while soybean exports to China were down 72%. However, the EU-28 is the second largest market for US soybeans.

Jon Hixon, Yum! Brands: There seems to be a negative drift in US attitudes toward global trade, for example, resistance to NAFTA and TPP. Is that changing?

Mr. Miller: The narrative is definitely changing as people are recognizing that NAFTA, now the United States-Mexico-Canada Agreement (USMCA), really matters. MetLife Insurance Company, for example, covers 85% of Mexican public employees, so they are arguing for the importance of cross-border initiatives. Congress, too, is reassessing trade policies with better insight into cross-border supply chains. Congressional Democrats have asserted criteria for approving the USMCA: It must have enforceable environmental and labor standards and should reduce patent protection for pharmaceutical products from 10 to 8 years.

Sen. David Givens, KY: I recommend reading The Retreat of Western Liberalism by Edward Luce, which examines recent reverses in traditional Liberal Democracy experienced globally. Please comment further on your observation that today there are 25 fewer democracies in the world and on the apparent loss of faith in democracy.

Mr. Miller: Neither the Democratic nor the Republican Party has offered a compelling narrative for how they will make life better, how our children will have a better future. The perception in the EU and US is that institutions are failing. Institutions are distant. As a result, people are reverting to more tribal associations – my family, my neighborhood. The West no longer has a progress-related narrative. It is focused on the size of government, not on its role, or how is it helping to create better lives. While we have a globally connected world through the Internet, people have sorted themselves into closed groups with people who share their views. The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

Tom Finneran, Moderator: Why did Brexit happen and how will it evolve?

Mr. Miller: The slogan of the Brexit “leave” campaign was “Take back control.” The perception was that the EU Brussels bureaucracy was over-reaching, that there was too much intervention and regulation, and economic restructuring. There also was a desire to exclude Turkey. But after the Brexit vote, the Nissan manufacturing plant was closed. Many industries with UK facilities had relied on EU free trade policies. It is possible that the EU will just let Great Britain leave the EU. But Britain will be in a challenging situation without trade agreements that may take 5 years to establish.

Sen. Tom Alexander, SC: How are the coming national elections likely to affect US tariffs?

Mr. Miller: As we saw with the 232 investigation that found “imported autos are threats to national security,” the Trump Administration said they would negotiate with the Japanese and Germans before imposing tariffs on cars and car parts. Every tariff has an exemption process. Mr. Trump can get the public opinion benefit of threatening a cathartic tariff, while actually making exemptions that keep the jobs and maintain the supply chains.

Tom Finneran, Moderator: Where do the 23 Democratic Presidential candidates stand on trade?

Mr. Miller: Their views tend to divide on generational lines, with Buttigieg and Harris taking a more global view. Buttigieg said, “Tariffs are taxes,” and advocates for a free trade policy, as does Kamala Harris. Free trade is being more positively perceived by Congressional Democrats. Bernie Sanders and Elizabeth Warren are more skeptical about trade. However, trade will not be a central issue in the 2020 election, unless there is a significant economic downturn.

Sen. Robert Stivers, KY: Are the problems and challenges facing the EU any different from the state-to-state disputes that accompanied the formation of the United States, will the EU become the United States of Europe? Will these issues resolve themselves for the EU as they did for the US?

Mr. Miller: Before the Civil War, the country was referred to as “These” United States, and a dollar in Alabama was not equal to a dollar in New York. After the Civil War, it became, “The” United States.  But the traditional fault lines in Europe are deeper than those that existed in the early US. There are very different models of governance among the west- and east-facing members of the EU. However, Great Britain threw itself off a cliff when they decided to leave the EU, and the rest of the members will reconsider solutions to petty concerns rather than face such a disaster.

Speaker Biography

Eric Miller

Eric Miller is President of Rideau Potomac Strategy Group, a consultancy that advises private and public sector clients on trade and business matters. Mr. Miller works with clients on trade and economic policy challenges, market development, resolving supply chain and regulatory issues, improving their government relations, understanding technology trends and navigating geopolitical developments.

He also is Senior Advisor to the Global Alliance for Trade Facilitation. Mr. Miller leads the development of Alliance projects in South and Southeast Asia, including Vietnam, India and Sri Lanka.

Mr. Miller presently serves on the external advisory committee on international trade policy to Canada’s Deputy Minister of International Trade.

He previously served as Vice President for North America and Cybersecurity at the Business Council of Canada, which represents the CEOs of the 150 largest companies in the country. Before joining the Council in 2013, Mr. Miller represented Canada’s Department of Industry at the Canadian Embassy in Washington, DC.

Mr. Miller has extensive international experience, having advised more than 40 governments in Asia, Latin America, and the Caribbean on trade, transportation and economic policies. Over the course of his career, he has worked on the development of six free trade agreements.

He is a Global Fellow at the Woodrow Wilson Center in Washington and a Fellow with the Canadian Global Affairs Institute in Ottawa. He has been published in and/or interviewed by an array of leading news outlets, including the Wall Street Journal, Financial Times, BBC News, The Guardian, Bloomberg and The Globe and Mail.

JULY 10–14, 2019

US-EU Trade Relations:
Friends, Rivals – or Both

Eric Miller

President
Rideau Potomac Strategy Group

“The EU has taken advantage of the US on trade for many years. It will soon stop!” This tweet from President Trump introduced his plan for $11 billion tariffs on EU products from cheese and wine to industrial inputs in retaliation for EU subsidies to Airbus. Mr. Miller assessed the accuracy of the President’s claim, reviewing the history and current state of US-EU trade, and identifying opportunities for the States to compete and collaborate.

Creating a Unified Market

With a goal to "make war not only unthinkable, but materially impossible," the elites in early post-WW2 France and West Germany decided to integrate the key industries for making war materials and put them under a central authority. The original 1952 Coal and Steel Community, including France, West Germany, the Netherlands, Luxembourg, Italy and Belgium, evolved into the European Economic Community (EEC) in 1957 under the Treaty of Rome, with agreements stipulating:

•  Customs duties would be progressively reduced and a customs union established.

•  Free movement of goods, labor and capital would become cornerstone principles.

•  Common policies on Agriculture and Transport were proposed.

•  A European Social Fund was established to provide “cohesion” through financial support to less-well-off regions.

•  Finally, the European Commission was established, giving an institutional architecture to the European project.

The first waves of accession to the union came in 1973 with the United Kingdom, Ireland and Denmark, followed by Greece in 1981, Spain and Portugal in 1986, the reunification of Germany in 1990 and the accession of Austria, Finland and Sweden in 1995. By 2013, the European Union encompassed most of the former Warsaw Pact countries.

The Maastricht Treaty of 1992 created the foundations for Europe to become a quasi-national state. It created a mechanism for widespread regulatory convergence, cooperation in fields of Justice and Home Affairs, the foundations of a common foreign policy and the pathway to the creation of a single currency – the Euro.

Part of the pooled sovereignty of the EEC extended to trade, and Europe set up and subsidized all sorts of companies and institutions. Farmers were subsidized and products exported. Industrial support was prolific, including subsidies to Airbus to compete with the US airlines industry.

Initially, European integration was strongly supported by the US. Building prosperous economies in Europe would go a long way to securing peace on the continent and allow European allies to more effectively counter the Soviet threat.

US-EU Trade Relations Today

As the geopolitical realities of the world changed in the post-Soviet era of globalization, trade issues have become more contentious. Today, the EU and US are competitors. And they face additional competitive threats from fragmentation of the EU as Brexit occurs, and as pro-nationalism emerges across Europe. Meanwhile, Russia and China are emerging competitors as their rail, road, and maritime projects connect the continents and open markets in the region.

Despite competitive conflicts, such as the Trump Administration’s threatened tariffs on EU products, the US and EU are really important to each other. The EU countries together were ranked (2018):

1st export market from the US ($575 billion) 2nd import supplier to the US ($684 billion) 3rd agricultural export market for US products

An additional factor in trade relations is Foreign Direct Investment. Total US investment in the EU is three times higher than in all of Asia. And EU investment in the US is around eight times the amount of EU investment in India and China together.

 Export Market
for US Goods
(2018)
Import Suppliers
to the US
(2018)
Foreign Direct
Investment in US
(2017)

United Kingdom$66.2$60.8$614.9

Germany$57.7$125.9$405.6
Netherlands$49.4$24.6$169.2
France$36.3$52.5$301.5
Belgium$31.4$19.5$80.4

*All numbers in billions. Source: Bureau of Economic Analysis.

Relevance to the US States

Foreign Direct Investment is important for the States. In 2018, Missouri received the largest investment, but its value is suppressed due to confidentiality requirements. Other States also received significant investment: New York ($63.0 billion), Texas ($31.1 billion), and California ($27.3 billion). FDI also brings jobs: California had the largest FDI-related increase in employment (102,000), followed by New York (55,300) and Texas (45,500).

To illustrate the interdependence and complexity of global trading relationships as they impact the States, Mr. Miller posed the question: “Is your BMW a threat to national security?”

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security. President Trump directed the United States Trade Representative (USTR) to negotiate agreements with the European Union and Japan to limit imports of autos and auto parts.  Implementation of a 25% tariff was delayed for 6 months to allow time for negotiations.

In May 2019, the Trump administration announced, after a year-long investigation, that imported automobiles constitute a threat to National Security.

Mr. Miller said the threat of such tariffs has significant implications for the States, citing the example of the BMW facility in Spartanburg, SC, which, in 2018, manufactured 234,689 BMW X-series crossovers valued at more than $8.4 billion, and employs more than 11,000 workers. BMW is also a major user of the South Carolina ports system, which brings significant revenue to the State. The plant relies on 300 US suppliers as well as imported sources of materials and parts. It is the largest exporter in the North American Free Trade Agreement (NAFTA) region to non-NAFTA countries. By November, tariffs on auto parts could be in place, with repercussions for State-side industries.

Setting Global Standards
General Data Protection Regulations

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards. For example, the EU set the standard for data privacy by creating General Data Protection Regulations (GDPR), which applies to all companies processing and holding the personal data of subjects residing in the EU, regardless of the company’s location. Organizations can be fined up to 4% of annual global turnover for breaching GDPR or €20 Million. The processor of data must clearly disclose data collection to the end user and notify them of any security breaches. The GDPR has become the de facto standard for global companies.

The absence of US regulation in a trade area does not mean no regulation. It can mean applying foreign standards.

EU–US Privacy Shield

Designed to harmonize US interests with the EU regulations, this framework enables US companies to more easily receive personal data from EU entities under EU privacy laws meant to protect EU citizens.

EU Copyright Directive

The Directive on Copyright in the Digital Single Market is intended to ensure "a well-functioning marketplace for the exploitation of works and other subject-matter[s] [...] taking into account in particular digital and cross-border uses of protected content.” This directive mandates that intermediaries such as YouTube, Netflix, and Google are responsible for protecting copyrighted materials and to use only licensed content. The directive has generally been supported by newspapers, publishers, and media groups. But also has been opposed by major tech companies and Internet users.

Digital Taxes

EU studies show that digital giants such as Apple, Facebook and Google pay an average of 9.5% in taxes compared to 23.2% for traditional businesses. This has led to ad hoc actions by the EU against digital giants. In 2016, the European Commission ordered Apple to pay $14.5 billion in taxes that it owed to Ireland. Ireland, however, does not want money because ultra-low taxes are part of its strategy.

To date, the EU has failed to reach an agreement on a Single Digital Tax and members are making their own rules. France is proposing a 3% tax on large tech companies – most of whom are American-based – who focus on e-commerce and digital advertising. They estimate it will raise 500 million euro. In response, the Trump Administration announced that it would investigate whether the French plan constituted an unfair trade practice and therefore could lead to retaliatory tariffs from the US.

Ultimately, who will control the digital market? Mr. Miller asked. Will the digital market be controlled with market-friendly US rules or state-friendly EU regulations, or or be simply controlled by China?

US and EU in the World

Mr. Miller concluded by reminding the Forum that, despite bumps, the US and the EU have long been the two pillars of the global economy. The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition. It is imperative that the US and the EU rebuild the transatlantic relationship, Mr. Miller said. Today, there are 25 fewer democracies than there were in 2000. This represents a risk to world security. The US and the EU together are evolving the framework for the New World.

The US and EU have to work together to shape the emerging world by engaging both in cooperation and competition.

Rod Diridon (Apple, Inc.) and Sen. Mary Kay Papen (NM) enjoy a light moment between sessions. The Forum's small group setting enables people to get acquainted.

Discussion

Sen. Charles Schneider, IA: Iowans saw the impact of tariff wars when the US and China faced off on tariffs and the soybean market contracted. Iowans think all of our soybean trade is with China.

Mr. Miller: In mid-July US soybeans exports were down 25% from last year, while soybean exports to China were down 72%. However, the EU-28 is the second largest market for US soybeans.

Jon Hixon, Yum! Brands: There seems to be a negative drift in US attitudes toward global trade, for example, resistance to NAFTA and TPP. Is that changing?

Mr. Miller: The narrative is definitely changing as people are recognizing that NAFTA, now the United States-Mexico-Canada Agreement (USMCA), really matters. MetLife Insurance Company, for example, covers 85% of Mexican public employees, so they are arguing for the importance of cross-border initiatives. Congress, too, is reassessing trade policies with better insight into cross-border supply chains. Congressional Democrats have asserted criteria for approving the USMCA: It must have enforceable environmental and labor standards and should reduce patent protection for pharmaceutical products from 10 to 8 years.

Sen. David Givens, KY: I recommend reading The Retreat of Western Liberalism by Edward Luce, which examines recent reverses in traditional Liberal Democracy experienced globally. Please comment further on your observation that today there are 25 fewer democracies in the world and on the apparent loss of faith in democracy.

Mr. Miller: Neither the Democratic nor the Republican Party has offered a compelling narrative for how they will make life better, how our children will have a better future. The perception in the EU and US is that institutions are failing. Institutions are distant. As a result, people are reverting to more tribal associations – my family, my neighborhood. The West no longer has a progress-related narrative. It is focused on the size of government, not on its role, or how is it helping to create better lives. While we have a globally connected world through the Internet, people have sorted themselves into closed groups with people who share their views. The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

The challenge today is how to include people who are alienated, who are not getting the benefits of globalization.

Tom Finneran, Moderator: Why did Brexit happen and how will it evolve?

Mr. Miller: The slogan of the Brexit “leave” campaign was “Take back control.” The perception was that the EU Brussels bureaucracy was over-reaching, that there was too much intervention and regulation, and economic restructuring. There also was a desire to exclude Turkey. But after the Brexit vote, the Nissan manufacturing plant was closed. Many industries with UK facilities had relied on EU free trade policies. It is possible that the EU will just let Great Britain leave the EU. But Britain will be in a challenging situation without trade agreements that may take 5 years to establish.

Sen. Tom Alexander, SC: How are the coming national elections likely to affect US tariffs?

Mr. Miller: As we saw with the 232 investigation that found “imported autos are threats to national security,” the Trump Administration said they would negotiate with the Japanese and Germans before imposing tariffs on cars and car parts. Every tariff has an exemption process. Mr. Trump can get the public opinion benefit of threatening a cathartic tariff, while actually making exemptions that keep the jobs and maintain the supply chains.

Tom Finneran, Moderator: Where do the 23 Democratic Presidential candidates stand on trade?

Mr. Miller: Their views tend to divide on generational lines, with Buttigieg and Harris taking a more global view. Buttigieg said, “Tariffs are taxes,” and advocates for a free trade policy, as does Kamala Harris. Free trade is being more positively perceived by Congressional Democrats. Bernie Sanders and Elizabeth Warren are more skeptical about trade. However, trade will not be a central issue in the 2020 election, unless there is a significant economic downturn.

Sen. Robert Stivers, KY: Are the problems and challenges facing the EU any different from the state-to-state disputes that accompanied the formation of the United States, will the EU become the United States of Europe? Will these issues resolve themselves for the EU as they did for the US?

Mr. Miller: Before the Civil War, the country was referred to as “These” United States, and a dollar in Alabama was not equal to a dollar in New York. After the Civil War, it became, “The” United States.  But the traditional fault lines in Europe are deeper than those that existed in the early US. There are very different models of governance among the west- and east-facing members of the EU. However, Great Britain threw itself off a cliff when they decided to leave the EU, and the rest of the members will reconsider solutions to petty concerns rather than face such a disaster.

Speaker Biography

Eric Miller

Eric Miller is President of Rideau Potomac Strategy Group, a consultancy that advises private and public sector clients on trade and business matters. Mr. Miller works with clients on trade and economic policy challenges, market development, resolving supply chain and regulatory issues, improving their government relations, understanding technology trends and navigating geopolitical developments.

He also is Senior Advisor to the Global Alliance for Trade Facilitation. Mr. Miller leads the development of Alliance projects in South and Southeast Asia, including Vietnam, India and Sri Lanka.

Mr. Miller presently serves on the external advisory committee on international trade policy to Canada’s Deputy Minister of International Trade.

He previously served as Vice President for North America and Cybersecurity at the Business Council of Canada, which represents the CEOs of the 150 largest companies in the country. Before joining the Council in 2013, Mr. Miller represented Canada’s Department of Industry at the Canadian Embassy in Washington, DC.

Mr. Miller has extensive international experience, having advised more than 40 governments in Asia, Latin America, and the Caribbean on trade, transportation and economic policies. Over the course of his career, he has worked on the development of six free trade agreements.

He is a Global Fellow at the Woodrow Wilson Center in Washington and a Fellow with the Canadian Global Affairs Institute in Ottawa. He has been published in and/or interviewed by an array of leading news outlets, including the Wall Street Journal, Financial Times, BBC News, The Guardian, Bloomberg and The Globe and Mail.