EUROPEAN UNION TRADE?
By far our largest trading partner is the EU, almost $1 trillion dollars per year changes hands between us. China has been getting most of the headlines lately. But our trade with them is around $600 million. This makes the EU very important economically to us, as well as us to them.
The EU holds 27 countries. How they can get a consensus on anything is amazing to me. Here in the US, Congress wrangles over every detail of who gets what and we are one country. The EU countries must be in permanent debate and compromise mode.
Of the trade we have between us, Europe sells more to us than we do to them. Our trade imbalance is roughly a 60-40 split. The US being the 40%. The largest export to us from the EU is pharmacology at $127 billion. Followed by cars and trucks at $45 Billion. We can’t forget wine which comes in at $5.4 billion.
Ireland had a history of offering low corporate tax rates to attract foreign companies. When the EU was put together Ireland was able to keep a corporate tax rate of 12.5% which was much lower than the other EU countries. As a result of this tax advantage Ireland attracted large companies to headquarter there. Much of the drug products deficit we run with the EU comes from this Irish connection.
The EU like much of Europe before it is tax, tax, tax. Denmark has the highest income tax rate of 55.9%. They also have a Value Added Tax. Which basically adds 10% to everything along a supply chain from manufacturing to retail. The consumer ultimately pays it. Just like here, costs get passed along. They also have a nasty habit of banning agricultural products because of this or that hormone or pesticide or because the seed was genetically modified (GMO). Most of this, in my opinion, is just an excuse to protect their domestic producers. The EU recently has gained billions in fines from US tech firms claiming they are monopolies.
The EU is our most important trading partner, and I hope we can work out a trade compromise both countries can live with. Trump is trying to get them to the negotiating table with deficit reduction and return of manufacturing jobs in mind. The EU will utilize everything possible to drag things out and will continue to use excuses about our products to gain the upper hand. On top of that, 27 countries have to agree on any final agreement, almost an impossibility.
Unlike China and their stated goal of world domination, the EU and the US are fellow democracies and we share common cultural and security interests. NATO is maybe more important to them than us.
It will be a miracle if we can reach an agreement that gets closer to parity on trade. One thing is for sure, neither China nor Europe will open the flood gates to US products and businesses. Give us an even playing field and we will dominate and they know it.
Thanks, Andy McClung CFP TM
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