IMPACT OF A TRADE WAR WITH THE EU

Imposing restrictions on steel imports would have severe consequences for the EU. The European Steel Association considers the U.S. a key market, accounting for most European steel exports outside the EU. Steel has long been a strategically important industry in the EU, one that has fostered innovation, sparked economic growth and employed a lot of people. A, increase in tariffs would mean fewer exports to the U.S. and a potential cut on production for European plants. It could also mean some European steel workers would lose their jobs, adding already high unemployment rates in some European states.

The U.S. and the EU are dependent on trade with each other. In 2016, U.S. exports to the EU accounted for 18.7 percent of total U.S. exports, making the EU the top destination for U.S. goods and services. In the same year, EU exports to the U.S. accounted for 20.8 percent of total EU exports, making the U.S. the top destination of European goods and services. It is a fairly equal relationship though exports are somewhat more important to the U economy. In 2017, the exports-to-GDP ratio stood at 12.6 percent in the U.S. and 16.7 percent in the EU.

When it comes to investment, the EU has more leverage over the U.S. than the U.S. has over the EU. The EU is the largest investor in the U.S. accounting for 60 percent of total foreign investment in 2016. Although the U.S. is also the largest investor in the EU, it only accounted for 40 percent of total foreign investment in 2016. In fact, since 2006, EU investment in the U.S. has exceeded U.S. investment in the EU. Both countries are roughly equally dependent on foreign investment. In 2016, total investment as a percent of GDP was 21 percent in the U.S., and 20 percent in the EU. In both places, roughly 20 percent of total investment comes from foreign sources, according to the World Bank.

Import barriers don't just impede trade but also investment. Foreign companies that have operations and production facilities in either the EU or the U.S. depend on imports to run their businesses. A trade war could make it difficult for these companies to operate and hurt their bottom line.

Higher import tariffs imposed by the EU will also affect American exporters, including those in the manufacturing sector, a critical industry accounting for roughly 12 percent of U.S. GDP. Eighty-four percent of U.S. exports to the EU are manufactured products. Of these, machinery and transport equipment account for more than 45 percent and chemival products account for 23 percent. These industries could suffer if the EU were forced to impose retaliatory measures in response to U.S. tariff hikes. In addition, rises in steel import tariffs would mean increased costs for sectors that are dependent on imported steel products. The automotive, constuction, mechanical and electrical engineering sectors are all large consumers of steel products- some of which are only available from external suppliers.