"The total GDP of the United States and Europe collectively comprises more than 40 percent of global GDP. Europe therefore serves as a major consumer within the global trading system, and the European Union notably imports more from China than it does from the United States. This relationship, while critical geopolitically, is becoming wildly unbalanced economically. The US goods trade deficit with the European Union has more than doubled in recent years. In 1997, soon after the WTO was created, the United States had a $17 billion trade deficit in goods with the European Union. By 2001, it had grown to $65 billion. Ten years later (2011) it was $100 billion. Ten years after that (2021) it was $220 billion. If one wants a policy that leads to balanced trade overall, one must examine the European trading relationship. President Trump, while mindful of the importance of these countries as allies, was always concerned with this growing imbalance."
"At the EU-wide level this surplus with the United States has several causes. First, certain significant tariff differences exist because of poor negotiating by prior US administrations. For example, a very large part of the trade between the United States and the European Union is in automobiles and auto parts. The United States has a 2.5 percent tariff on these products and Europe has a 10 percent tariff. That is a $3,700 difference on a $50,000 car. Autos and auto parts contribute more than $24 billion to the deficit and are largely sourced from German-owned companies. There are other significant tariff inequities as well. For example, the European Union has tariffs of up to 26 percent on wine, while ours are often less than 1 percent. Likewise, the EU’s tariffs on processed wood products are 10 percent, while ours are less than 1 percent. The same pattern can be seen across a wide range of products, including nitrogen fertilizers and plastics. In addition to high tariffs, the European Union uses product standards as a way to keep US products out or to encourage manufacturing in Europe. In the United States, standards on products (think standards on, say, electric fans, auto brakes, or food) are made in a uniquely American way. Most are determined through one of a couple hundred different, independent standard-setting bodies. These are greatly influenced by US industry, and the objective is a cost-benefit analysis on safety versus affordability. Industry experts meet and discuss the science and current data. They then establish what is a reasonable standard considering risks and costs associated with the product. Sometimes these requirements are made official through adoption by government agencies, but often they are voluntarily adopted by industry without formal government involvement. In Europe, standards are largely set by the government, although also with industry input. These standards tend to prioritize product safety above all else and are less concerned about associated costs. The Europeans have standards on things such as cars and consumer goods that are often much higher than ours and, we would say, higher than necessary. Some in the United States assert that the Europeans’ standards are not based on science. These higher standards encourage people to manufacture in Europe. There were negotiations in the Obama administration on something called Transatlantic Trade and Investment Partnership. The idea was to have a further integration of the US and EU economies. These negotiations lasted from 2013 to 2016. Little real progress was ever made. In theory the talks continued into the start of the Trump administration, but in reality they had been long since abandoned by Obama’s USTR. The talks ultimately broke down over a series of differences. High on the list among them was the fact that Europe wanted to maintain its own ability to have standards on products that would help promote European manufacturing. In addition, European industry is helped by the reliance of their countries on VATs. As discussed in greater length in chapter 17, VATs tend to protect domestic industries by discouraging imports and encouraging exports. Unlike income taxes, which cannot be reimbursed on export because of WTO rules, these VATs are assessed on all imports and are deducted from products requirements are made official through adoption by government agencies, but often they are voluntarily adopted by industry without formal government involvement."
"In addition, European industry is helped by the reliance of their countries on VATs. As discussed in greater length in chapter 17, VATs tend to protect domestic industries by discouraging imports and encouraging exports. Unlike income taxes, which cannot be reimbursed on export because of WTO rules, these VATs are assessed on all imports and are deducted from products that are exported. The average EU VAT is 21 percent, which is a significant contributor to their trade surplus.1 An American product that cost $100 in New York would cost $121 in Europe (excluding transportation and other costs). On the same basis, a European product that costs $100 in Paris could be exported for $79 with all else held equal. Economists argue about the effect of VATs, but businesspeople understand the impact. They must pay their own countries’ taxes at home and then additionally pay the VAT when exporting to Europe (or any other market with significant VATs). Likewise, the European importer has an advantage when competing with the fully taxed US producer in our market. There is no logical reason why a VAT is border adjusted but federal and state income tax is not allowed to be. State sales taxes are border adjusted, however, but they are almost universally much lower than the European VAT—which is a primary source of revenue for European governments. Europe also has a very protected agriculture sector. The EU’s member countries use safety, health, and other similar food and agricultural standards to keep many US products out. The result is that we have an approximately $20 billion deficit in agricultural goods and foods. This in spite of the fact that we have a very efficient agricultural sector. Finally, Europe is a much larger user of industrial subsidies than the United States is. One big contributor to the US-EU goods trade deficit is commercial aircraft. The European competitor, of course, is Airbus. We annually import about $4 billion worth of aircraft and parts from Airbus and its suppliers, suppliers, and Airbus would not exist were it not for extensive and long-standing government subsidies."
Another way to analyze the huge and growing US-EU trade deficit is to look at the different EU countries individually. While Europe is a common market, it is still a group of individual countries with unique domestic industrial policies and economic advantages and disadvantages. Only four bilateral deficits are significant among the twenty-seven EU member states. If we could move toward more balanced trade with Germany, Ireland, Italy, and France, the problem would be solved."
If you don't read the book, there is a very thorough interview with Tucker Carlson that lays out the issue and thinking behind the Trump strategy on tariffs. The data given by Lighthizer is alarming: https://tuckercarlson.com/tucker-show-bob-lighthizer
Reference: Lighthizer, Robert. No Trade Is Free: Changing Course, Taking on China, and Helping America's Workers (p. 262). HarperCollins. Kindle Edition.