A wave of protectionism and obstacles to free trade hit the global economy in 2018, and threaten economic growth in 2019. Although more disputes are expected, there is some cause for hope too.
US, tariffs and threats
In May 2018, President Donald Trump moved from words to actions and slapped the EU, Canada and Mexico with tariffs on steel and aluminium starting what is likely to turn into a trade war.
The EU responded by bringing the case to the World Trade Organisation as well as by imposing retaliatory measures worth €2.8 billion and safeguards.
Trump then threatened to hit European cars.
In spite of member states’ concerns, who claimed not to be willing to negotiate “with a gun in our head,” Jean-Claude Juncker travelled then to Washington.
Juncker closed an agreement with Trump that eased the tension but did not put an end either to the tariffs on steel and aluminium or to the threats over European cars.
Brussels also tried to improve the economic relationship with the US by tabling a proposal to reform the WTO, in line with Washington’s concerns, which will be negotiated next year.
Despite such efforts, particularly on this side of the Atlantic, EU-US relations have been difficult since Trump arrived at the White House due to his decision to withdraw both from the Paris Agreement and the Iran Nuclear deal.
The reimposition of sanctions on those who would establish economic relations with Tehran has also affected EU companies operating in the country despite Brussels’ efforts to minimise the impact.
Trump has got into trade disputes with other major partners such as Japan or China as well. These are particularly worrying for the global economy, in spite of the recent truce between Beijing and Washington.
How to move forward in talks with Iran while preserving European companies’ interest and avoiding further confrontation with the US, whether or not Trump will target EU cars; if the trade dispute with China will escalate and the likely outcome of talks to reform the WTO will be three of the main questions in trade policy in 2019.
Trade talks to be continued
While the trade tensions between the US and China rose, the EU has been reinforcing its economic relationship with Beijing in the past few months.
In July, Juncker and Donald Tusk, the president of the European Council, travelled to Beijing to hold an EU-China summit aimed at paving the way towards an investment agreement.
The EU and China agreed to enhance market access and investment. The dispute with the US could help boost the trade talks between the EU and Beijing as long as China respects its promises to make it easier for European companies to operate in its territory.
Nevertheless, China is not the only partner in Asia with whom Brussels wants to speed up negotiations in 2019.
The EU’s Trade Commissioner Cecilia Malmström said earlier this year that the “ambitious” trade deal with Vietnam could “pave the way” for an agreement with the Association of South East Asian Nations (ASEAN).
The never-ending MERCOSUR trade talks will also be on the European agenda. However, the election of far-right, nationalist Jair Bolsonaro to the Brazilian presidency might jeopardize an already complex and tough negotiation.
In spite of the wave of protectionism, the EU managed to strike a few trade deals in 2018 and opened talks with other commercial partners with similar interests, in particular, New Zealand and Australia.
The free trade agreement with Japan, which the European Parliament gave its consent to recently, will enter into force as from February 2019.
The EU-Vietnam trade deal, struck in October, will require the approval of the member states and the Parliament next year as well.
Brexit – the elephant in the room
All eyes are on January’s House of Commons vote on the draft withdrawal agreement, as the UK is set to leave the EU in March with or without a deal.
Whether the deal is backed by the British MPs or not, Brussels and London will sooner or later need to open talks on a comprehensive economic agreement.
EU leaders have repeatedly said over the past few months that this will be the first time the bloc will be negotiating to get a worse economic relationship with a third country, as they consider the best possible deal is for the UK to remain in the Union.
The EU and the UK have committed to work towards an “an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation.”
However, whether this will take the form of the so-called Norwegian +, Switzerland or even an EU-Japan trade deal like, it is still unclear.
In any case, it will be up to the European leaders to decide on a future relationship between the UK and the EU either in 2019 or in 2020 but certainly no later than that.