U.S. Trade with European Countries: Structure and Disputes

Introduction: Europe as a U.S. Trade Partner

European countries fall into two broad categories: those joined in the European Union — 28 members as of Croatia's accession in July 2013 — and those that are not part of this bloc. The latter include countries such as Norway and Switzerland, which belong to a separate economic association, as well as candidate countries that have expressed their intention to join the EU in the future, including many in the Balkans.

While this paper refers to European countries as a whole, it is understood that the largest share of U.S. trade is conducted with EU member states such as the United Kingdom, Germany, Italy, and France — large economies with substantial export and import capacity. However, with the countries of Central and Eastern Europe joining the EU in the 2000s, new markets and commercial opportunities emerged for the United States.

Looking at trade data, it is noteworthy that none of the top three U.S. trade partners are European. The three countries with which the U.S. trades most are, in order, Canada, Mexico, and China. This is understandable: with the first two, the U.S. concluded a free trade agreement in 1994 — the North American Free Trade Agreement (NAFTA) — which eliminated tariff barriers and facilitated commerce among the three countries. China's position is equally understandable given the outsourcing flows that characterize the U.S. manufacturing and service sectors.

The first European country to appear on the list of U.S. trade partners is the United Kingdom, in fifth place, with Germany in sixth. However, it is important to note that these rankings reflect individual countries. When the figures for all European countries among the top thirty U.S. trade partners are aggregated, Europe collectively ranks second — above Mexico and just below Canada.

The conclusion, then, is that European countries remain an essential trade partner for the United States, with the data pointing to continuous commercial interaction between parties on both sides of the Atlantic. This paper also argues that this trend is likely to continue in the short and medium term, and that commercial ties will grow. There are strong indications of this, including ongoing discussions about a U.S.-EU free trade agreement, which would clearly be a fundamental driver of improved commercial relations.

This paper also examines several other aspects of U.S. trade with European countries — in particular, the structure of that trade, meaning the types of products and services involved in these commercial flows. A separate section addresses the areas of disagreement between the U.S. and Europe in the commercial field. Despite close political and economic relations, competition in both markets occasionally produces friction between the two sides. These disagreements occur primarily around non-tariff barriers, including issues such as licensing requirements and the regulation of genetically modified organisms (GMOs).

Structure and Evolution of U.S. Trade with European Countries

Peterson noted in an important study for the European Commission in the 2000s that the U.S.-EU economic relationship is characterized by two types of dependency: mutual penetration of each other's economies and institutional dependencies. Each category merits separate discussion in order to better understand the nature and characteristics of U.S. trade with Europe.

The concept of mutual penetration places trade in the broader context of commercial and economic relations. Trade has fallen to third place among the components of the U.S.-EU commercial relationship, behind foreign direct investment. This is significant: while trade between the two blocs remains important, it is no longer the most important element. The two entities have moved away from traditional bilateral trade toward more complex economic ties, in which other modes of doing business are preferred.

Interdependency is also institutional. Both the U.S. and the EU have dedicated entities that manage trade issues: the U.S. Trade Representative and the EU Trade Commissioner. While this paper does not examine the internal workings of these bodies, it is reasonable to conclude that the existence of dedicated structures on both sides facilitates an institutional dialogue that can only benefit dispute resolution and cooperation in the commercial field.

In terms of structure, manufactured products account for the dominant share of bilateral commercial activity: 90% of U.S. exports to Europe and 88% of U.S. imports from Europe consist of manufactured goods. These include aircraft, computers, passenger cars, pharmaceutical products, and organic chemicals. The structure of bilateral trade reflects the shared character of both the U.S. and EU economies — their emphasis on high-value, technologically advanced products that drive intra-industry trade.

Areas of Disagreement in U.S.-EU Trade Relations

The U.S.-EU economic relationship is the most important part of the transatlantic partnership and, simultaneously, the most complex — which means that disputes are inevitable. As Ahearn noted, the causes of these disputes are numerous. They range from pressure by producer interest groups — which lobby governments to provide subsidies and competitive advantages — to the protection of specific sectors such as agriculture and the steel industry, to preferential agreements with third parties, to divergent regulatory policies.

Ahearn divides the sources of U.S.-EU trade conflict into three categories: traditional conflicts involving producer protection in key industries such as steel and aerospace; foreign policy conflicts, where diverging state interests come into play; and regulatory policy conflicts, arising from different social and environmental standards.

Regarding regulatory conflicts, European authorities limit U.S. agricultural products' access to the EU market by applying a more restrictive regulatory environment than exists in the United States. In the cases of U.S. beef exports and genetically modified organisms (GMOs) used in agriculture, EU regulations require that each hormone or modification be specifically identified on the product label. In many instances, U.S. authorities view these requirements as non-tariff barriers designed to protect local agricultural producers rather than to address genuine consumer safety concerns.

Several studies document the negative impact of such regulations on U.S.-EU trade. According to Weyerbrock and Xia, a 1996 survey conducted by the USDA identified as many as 57 European regulations with a combined trade impact of $899.55 million. The authors demonstrate that technical barriers such as regulatory instruments are a preferred tool for obstructing trade between the EU and the U.S., primarily because such barriers are less directly constrained by WTO rules aimed at trade liberalization.

In the traditional category, the most prominent example is the aerospace industry dispute. The sector presents several distinctive characteristics. First, it is dominated by a single large company on each side — Boeing in the U.S. and Airbus in Europe. Second, both the U.S. and European governments provide substantial subsidies to these companies, albeit in different forms. While U.S. authorities criticize the European consortium for its subsidy practices, the significant government contracts awarded to Boeing within the United States make clear that this is not a one-sided practice.

The third category — foreign policy conflict — encompasses situations where commercial agreements with third countries interfere with bilateral U.S.-EU trade. U.S. sanctions against countries such as Cuba or Iran affect EU members' commercial relations with those states. Conversely, U.S. authorities have raised concerns about preferential agreements the EU has concluded with countries in Central and Eastern Europe and, more recently, with countries in the Western Balkans or the former Soviet Union.

Despite this array of disputes, it is important to underscore the maturity of the conflict-management relationship between the two blocs. For all their disagreements, the EU and the U.S. remain fundamental partners across a wide range of issues. This implies a second key point: both blocs are generally aligned on the same side of major questions. Both the EU and the U.S. promote free trade and oppose protectionism — a shared baseline from which any commercial differences must be understood. Third, the trade relationship has generated, over time, a variety of cooperative mechanisms and agreements — both formal and informal — that play a critical role in resolving disputes as they arise. These mechanisms will continue to support bilateral trade going forward.

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