The EU's enormous trade surplus with the USA – like the EU's £70+ billion per annum trade surplus with the UK – has become a major political issue. The surplus vis a vis the UK plays big in the Brexit arena, whilst the surplus vis a vis the USA had come to be perceived, by the Trump White House, as tantamount to state-supported dumping.
Eurostat has issued its picture for 20191. The EU exported €384 billion and imported €232 billion, leading to a surplus of €153 billion. Eurostat declared that "In 2019, the United States was the largest partner for EU exports of goods (18% of total extra-EU exports) and second largest for EU imports of goods (12% of total extra-EU imports), after China (19%)."
It will be hoped in Brussels and other EU capitals that the issue will be quietly forgotten by the incoming administration, but the Biden campaign made much of their candidate's internationalist credentials compared, supposedly, to Trump's parochial ones. The Trump White House will have tended to view the issue as an assault by a foreign power on the USofA and deserving of a riposte. The Biden White House may see the issue as an interference with and manipulation of the principles of free trade. Whichever world view is prevailing on Pennsylvania Avenue, the materiality of the issue and its causes will be concerning, as they amount to barriers to entry to the EU Single Market for non-EU suppliers, the financial benefits from which accrue to EU suppliers and are then used to subsidise EU exports in the opposite direction. And it is a structural issue, germane to the nature of the EU Single Market.
No-one genuinely committed to global free trade can view the EU Single Market as a free market, nor the EU's interactions with non-EU states as an example of free trade.
The Eurozone - the EU's core - is a high-price economic area, contrary to one of the main promises of the euro to the Eurozone citizenry (that the large market with many competing suppliers would bring prices down). Instead, obligatory technical specifications – lobbied for by major Eurozone suppliers – have created a protected core market in which high prices deliver sufficient margin not only to cover all fixed costs but to create profits over-and-above the suppliers' global Return on Equity.
These surplus profits are firstly employed to dump goods into the non-Eurozone portion of the EU: in 2019 the UK had a trade deficit of £72 billion with the EU, a surplus of £23 billion on trade in services being heavily outweighed by a deficit of £95 billion on trade in goods 2.
The surplus profits are then used to dump goods into non-EU markets like the USA.
This is enabled by the protectionist nature of the core of the EU – the Eurozone. The EU's claim to be a Free Trade Area is undermined by how the Eurozone operates. The protectionism that delivers high profits to Eurozone suppliers and inhibits market access to others is in no way punished in the manner in which Eurozone suppliers are allowed access to non-UK markets, and that conundrum does not diminish for the US President whether he is painted as a parochialist or an internationalist.
Bob Lyddon is an author for accountingcpd. To see his courses, click here.