European trade with the United States: Protectionism and New Policies - Business in United States of America

European trade with the United States

European trade with the United States: Historical Background

European trade with the United States: The European Union

United States Trade with the European Union, 1997-2007

From 1870 through the 1920’s, the U.S. stance on tariffs depended on which political party had control of Congress. A pattern of lower tariffs under Democratic Party control and higher tariffs under Republican Party control developed. However, the United States became more and more isolationist, and tariffs began to decline less during periods when the Democrats were in control. In 1930, the Smoot-Hawley Tariff Act raised tariff duty to 53 percent of the value of the import. European countries retaliated by raising their tariffs and adding quotas. By 1933, because of its unwillingness to import goods, the United States saw its export trade decline significantly.

In 1934, the United States changed its policy on trading. European countries were not willing to trade with the United States as long as such high tariffs were in force. Cordell Hull, secretary of state under President Franklin D. Roosevelt, obtained an amendment to the Smoot-Hawley Tariff Act that would cut tariffs equally with trading partners. This became the Reciprocal Trade Agreements Act, which, for the first time, gave the president the power to reduce tariffs. By the early 1940’s, the United States had entered into bilateral trading agreements with approximately twenty-five countries, primarily European. 

During World War II, trade was seriously interrupted. After the war, the role of the United States in international affairs and trading changed dramatically. The war-torn countries of Europe were trying to rebuild their economies and their countries. Cooperation became the action plan between European countries and the United States. The United States looked on Europe as its ally, from both a defense and an economic standpoint. The United States modified its trading policy and encouraged imports. By 1948, the General Agreement on Tariffs and Trade (GATT) was in place, with twenty-three countries, seven of which were European, signing it. The treaty reduced tariffs, quantitative restrictions, and subsidies, and has been repeatedly modified. On January 1, 1995, the members of GATT, in association with the European Community (EC) countries, formed the World Trade Organization (WTO), which replaced the GATT. The WTO is headquartered in Switzerland and oversees the implementation of treaties and adherence to trade agreements.

Until 1958, the United States had entered into trading agreements primarily with individual European countries. However, with the signing of the Treaty of Rome, the situation changed. France, West Germany, Italy, Belgium, Luxembourg, and the Netherlands formed the European Economic Community (EEC). The EEC set a policy of no tariffs between member countries, common external tariffs, and shared policies about agriculture, transport, and trade. In 1962, in the Dillon Round of the GATT negotiations, the EEC negotiated as a representative for all its member nations. In 1973, the United Kingdom, Ireland, and Denmark joined the EEC, and during the 1980’s, Greece, Spain, and Portugal became members. The economic influence of the European countries increased steadily. The United States, from the end of World War II, supported the concept of a European union because it had come to realize that international cooperation, not isolationism, was the best policy for defense, modernization, and prosperity.

Although the United States favored a united Europe and was willing to make many concessions, including tariff reductions as described in the Trade Expansion Act of 1962, problems continued to arise in trade relations. During the 1980’s, disputes arose, particularly about agricultural products. The EEC, from its creation in 1962, protected European farmers from foreign competition. The Common Agricultural Policy (CAP) ensured the free movement of agricultural products within the European community, gave member-country products priority over imports, and imposed market restrictions on foreign products. These policies resulted in a decline in U.S. agricultural exports to Europe. Disputes about trade in canned fruit, wine, wheat flour, pasta, and other products were brought to the attention of the GATT but not easily solved.