U.S. President-elect Donald Trump threatened to impose tariffs on many countries if they do not fulfil certain conditions. In November last year, he said he would impose sweeping tariffs on imports from Canada, China, and Mexico if these countries failed to stem illegal border crossings into the U.S. and the trafficking of drugs — in particular Fentanyl, which is a deadly opioid.
He has also threatened the European Union (EU) with tariffs, as the U.S. runs a trade deficit with the bloc. This means that its imports from the EU are higher than its exports.
Data show that the U.S. had a trade deficit of more than $208.7 billion with the EU at the end of 2023, second only to China with which it had a trade deficit of $279.4 billion. The third on the list is Mexico (trade deficit of $152.4 billion). With Canada, the U.S. had a trade deficit of $67.9 billion.
Chart 1 shows the U.S.’s trade deficit with select countries at the end of 2023. The other countries which have been threatened with tariffs are also part of the list of countries with which the U.S. runs the highest trade deficits.
It is debatable whether imposition of tariffs is the most efficient way of dealing with this. In 2023, the U.S. imported €40.7 billion worth of motor cars and vehicles from the EU. This was the second biggest commodity in terms of value, from the bloc. If there are higher tariffs on the import of European cars, these cars would become more expensive. This would benefit U.S. car manufacturers.
At the same time, consumers in the U.S. have been importing cheaper goods from countries such as China. They imported over $35 billion worth of smartphones in 2023 from China. If the higher tariffs proposed by Mr. Trump come into force, consumers will need to look for alternatives. This means that they will spend more on these products.
This means manufacturers will benefit, but not consumers.
Mr. Trump’s solution to bridge the EU’s trade deficit with the U.S. is also questionable: he has asked the bloc to buy more oil and gas from the U.S. By the end of 2023, the EU had sourced close to 43% of its Liquefied Natural Gas needs from the U.S. Just three years before that, in 2020, the EU had sourced below 20% from the U.S. (Chart 2).
Chart 2 | The chart shows EU’s imports of liquefied natural gas from US and Russia
This means that the EU’s dependency on the U.S. had more than doubled in just three years. This was because sanctions were imposed on Russia after it invaded Ukraine. Thus, import of gas from Russia had to be cut, which benefited the U.S.
In July 2024, the EU sourced close to 15% of its crude oil from the U.S. compared to just 8% in July 2020. In the same period, crude oil imports from Russia were reduced from 23% to 2% (Chart 3).
Chart 3 | The chart shows EU’s crude oil imports from US and Russia
So, the question is, why is Mr. Trump threatening the EU when the bloc’s dependency on the U.S. for oil and gas is already increasing at a rapid pace?
The U.S. exported 31.8% of its crude oil production in 2023 compared to just 18.7% five years prior. It exported 16% of its natural gas production in 2023 compared to 9.6% five years prior (Chart 4).
Chart 4 | The chart shows U.S.’s exports of crude oil and natural gas as a share of production
Are producers in the U.S. equipped to sustainably increase production if the export share increases further, given that the U.S. is also the biggest consumer of oil and natural gas domestically?
Finally, of all the top 10 oil refineries (in terms of processing capacity) that operate in Europe, most are owned by private players (Chart 5).
Chart 5 | The chart shows the largest crude oil refineries in Europe by capacity (in thousand barrels per day)
While Mr. Trump’s tirade is directed against the governments in Europe, will the bloc be able to convince the private refineries, whose best interest is to choose the cheapest and most viable oil, to get supply from the U.S.?
Source: The data for the charts were sourced from Eurostat, U.S. Energy Information Administration, and the International Trade Administration, U.S. Department of Commerce
sambavi.p@thehindu.co.in
vignesh.r@thehindu.co.in
Published – January 22, 2025 08:00 am IST
