Quick Key Points
- EU companies need to monitor and be prepared to address actions taken by the Trump administration on trade with China, Iran, and Russia in the near-term.
- While a Biden administration is unlikely to remove restrictions in the short-term, expect to see more cooperation on trade concerns with allies in Europe.
- Tariff relief for European industries could come, but a return to comprehensive FTA negotiations will remain elusive.
- The Biden administration is expected to focus on domestic policies which could still raise barriers for EU businesses.
- Digital trade presents both challenges and opportunities for trade normalization under a Biden administration.
Following the U.S. Presidential election, companies in Europe stand to face effects of U.S. trade policy decisions from both the final days of the Trump Administration and the incoming Biden Administration. Below are some key takeaways.
EU companies need to monitor and be prepared to address actions taken by the Trump administration on trade with China, Iran, and Russia in the near-term. While a Biden administration is unlikely to remove restrictions in the short-term, expect to see more cooperation on trade concerns with allies in Europe.
European businesses should immediately be prepared for continued aggressive action by the Trump Administration in its remaining days. The Trump Administration is reported to have prepared long lists designating Chinese and Russian companies as military end users and subject to significant U.S. export control restrictions. It is also likely poised to increase pressure on Tehran during the transition, further exacerbating obstacles to sanctions relief. Company compliance programs need to be able to pivot when additional restrictions and sanctions are announced.
EU companies can expect more cooperation in the Biden Administration, but it will not alleviate all trade-related challenges in the near term. President-Elect Biden has pledged to bring together a coalition to multiply economic pressure on China – expanding current trade disputes to potentially target Beijing’s human rights record in Hong Kong, Xinjiang and Tibet. The Biden Administration will likely push EU officials to evaluate their approach to China and is unlikely to refrain from pressuring its partners on technology and supply chain security. Specifically, the Biden Administration is unlikely to roll back recently strengthened controls on U.S. supply chain and 5G telecommunications security, including near-comprehensive restrictions on dealings with Huawei. However, we may see an increased focus on a multilateral approach that limits potential harm to the U.S. semiconductor sector and other key U.S. high tech industry segments. Along these lines, the Biden administration may continue to closely scrutinize foreign investments from countries such as China and Russia, though reviews by the Committee on Foreign Investment in the United States (CFIUS) may become less politicized and less public.
Industry should also expect current U.S. sanctions targeting Iran and Russia to remain in place, and Congress will continue to play a role via legislation that may mandate imposing sanctions, including activities supporting the Nord Stream II pipeline. Russia is likely to receive increased attention, as Democrats have made it abundantly clear that they consider the Trump Administration’s ambivalent approach to be harmful. President-Elect Biden has expressed that the U.S. would rejoin the Joint Comprehensive Plan of Action (JCPOA) provided that Iran returns to “strict compliance” with the agreement, but U.S. efforts will be made more complicated by sanctions President Trump is currently implementing.
Tariff relief for European industries could come, but a return to comprehensive FTA negotiations will remain elusive.
Companies should also expect a return to transatlantic cooperation, with the incoming Biden Administration determined to resume and leverage alliances with the EU to take on China. Senior advisors to President-Elect Biden have said his administration would use tariffs—when necessary as part of a broader strategy. For that reason, the incoming Biden Administration could lift current Section 232 tariffs on steel and aluminum from the EU. In addition, the stated commitment to improving trans-Atlantic relations, including ending ongoing trade wars and resolving the decades-long WTO dispute over aircraft subsidies will set up an early test for the administration’s priorities. The Boeing-Airbus dispute, recently reinvigorated by a $4 billion EU tariff retaliation will land on the incoming administration’s plate with EU trade officials hopeful that President-Elect Biden will be motivated to pursue a mutually agreed solution to lift tariffs, including the $7.5 billion worth of European goods hit by U.S. tariffs last year. We expect the incoming Biden Administration to continue ongoing negotiations of a mutually agreed solution to the longstanding dispute.
President-Elect Biden has also pledged not to enter into any new Free Trade Agreements (FTAs) before his administration considers the American economy to be internationally competitive – to the extent a Biden Administration would negotiate FTAs, focus would likely shift more towards promoting environmental and workers’ rights at home and abroad. Aligning interests with Europe may well usher in a more cooperative relationship, but a resurrection of Obama-era Transatlantic Trade and Investment Partnership (TTIP) negotiations should not be taken for granted.
The Biden administration is expected to focus on domestic policies which could still raise barriers for EU businesses.
Even with a range of trade issues facing the President-Elect in January, the Biden Administration stands to focus on addressing domestic economic challenges first. COVID-19 has accelerated the political imperative to re-shore supply chains, which are set to undergo a 100-day review of national security risks current dependencies represent. U.S. federal “Buy American” procurement rules are also set to expand which may well raise barriers to European companies seeking to benefit from any large infrastructure spending which the President-Elect has promised to pursue.
Digital trade presents both challenges and opportunities for trade normalization under a Biden administration.
The Biden Administration will also likely address digital service taxes (DST) and privacy regulation. In addition to a French DST, which was stayed after the threat of Section 301 tariffs on $1.5 billion worth of exports, the U.S. has several ongoing Section 301 investigations against multiple European countries over similar legislation, which could result in tariffs on EU products. These disputes could come to a head by the time the incoming administration assumes office, with the French government preparing to resume collection of its DST and U.S. tariffs scheduled to be reimposed on January 6, 2021. The USTR is also expected to publish its findings from the ongoing investigations next summer. With OECD negotiations underway aiming to produce an international tax framework that would apply to digital companies, there is a possibility for a negotiated resolution to these disputes.
The President-Elect has supported the OECD process, but it is unclear whether any agreement can be struck within such a short timeline and U.S. opposition to legislation perceived as unfairly targeting its tech firms will not dissipate with the change in administration. The EU has presented preliminary proposals for a common DST which may gain more traction as the EU seeks to finance its COVID-19 relief package, setting up a potential hurdle to broad normalization of trade relations between the EU and the U.S.
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