• The US and EU are expected to start negotiating a trade deal.
  • But with contrasting priorities on each side, experts doubt a compromise will be forged anytime soon.
  • A Commerce Department report on the Trump administration’s proposed car tariffs is due this month, which could make or break the start of talks.

Ahead of anticipated trade talks between Washington and Brussels, expectations appear to be miles apart.

The two sides have long sought to rearrange their bilateral trade partnership, which is the largest in the world. But preliminary back-and-forths have suggested a resolution won’t be any easier after a truce was reached in July.

“Successful negotiations are far from guaranteed,” said Rachel Ellehuus, a former Pentagon official who now leads the Europe Program at the Center for Strategic and International Studies, a Washington think tank. “The US and EU have different negotiating priorities.”

The US has said it is focused on reducing the overall trade deficit with the EU, its second-largest after China, and increasing market access for US agricultural and energy businesses. But European officials have pushed back against the idea that the latter would even be on the table.

"We have been very clear that from the EU side that we will not discuss agriculture," European Trade Commissioner Cecilia Malmström said last month. EU negotiators, for their part, have prioritized lowering trade barriers for industrial goods, a potential uphill battle with a president whose core promises have included bolstering the US manufacturing industry.

The tariffs on steel and aluminum that prompted tit-for-tat retaliation from Brussels last year are unlikely to be lifted anytime soon, according to analysts, after remaining in place for North American trading partners despite the USMCA deal reached in November. And Trump's threats to impose a 25% duty on European cars loom large.

"For the EU, much of this is about stringing out the process in order to prevent further trade war escalation, in the hope they can wait Trump out," said Sam Lowe, a senior research fellow at the Center for European Reform, a London-based research institution.

While Washington said it wouldn't levy automobile duties while trade talks are going on, it's unclear if that will stand after the Department of Commerce this month concludes a Section 232 investigation into whether cars pose a threat to national security.

According to Bloomberg, the EU is prepared to retaliate with tariffs on $22.7 billion worth of American products if the Trump administration follows through with import taxes on cars. The potential escalation is expected to cover a wide range of exports and could set the stage for prolonged tensions.

"If the president imposes auto tariffs, it's going to make the relationship much worse," said William Reinsch, who served as a Commerce Department official in the Clinton administration. "The Europeans will probably walk away from negotiations."

Trump's threats to levy tariffs on cars have raised alarm in his own party at the same time that they have been seen as increasingly likely. Republican Sen. Chuck Grassley of Iowa recently said that while he isn't in favor of the duties, Brussels is "very afraid" of them and they could be effective in talks.

"I think the president's inclined to do it," Grassley, the chairman of the Senate Finance Committee, said last month of taxing imported cars. "It may be the instrument that gets Europe to negotiate."

But worries about unraveling relations with the US's largest trading partner abound. Escalations that would follow auto tariffs could ultimately lower global growth by 0.2 percentage points in 2019 and 0.3 percentage points in 2020, according to estimates from Citi.

"The size of the US auto imports from the EU and the interconnectedness of both economies with global supply chains suggest that a tit-for-tat tariff war scenario could have significant implications for growth, more so at a time when the EU is going through an economic slowdown and when business sentiment is still digesting the developments around US-China (trade) tensions," the analysts said in a research note.

On Monday, the Wall Street Journal's editorial board wrote that Trump should scale back protectionist policies, including with Brussels, if he hopes to win reelection in 2020. The US can't expand at the White House's goal of 3% or higher if China and Europe aren't growing, they added.

"Mr. Trump thinks car tariffs are 'leverage' in trade talks, but they are also a reason to delay investment until supply-chain and input costs become clear," they wrote. "Tariffs act like Obama regulation as an economic wet blanket, as numerous CEOs attest on their earnings calls."