Trade policy barriers to imports of EU goods to the USA: Importance of liberalization of trade flows

Abstract

The paper deals with effects of trade liberalization of EU goods exports to the USA. Despite the current protectionist tendencies of US President Donald Trump, the USA is strongly motivated to promote a deeper trade liberalization in the longer horizon, further strengthening bilateral trade flows, increasing economic efficiency, and thus contributing to the growth of both economies. The primary objective is to evaluate a hypothesis which states that reducing political trade barriers could notably increase the flows. We use gravity models and our own constructed non-tariff trade barrier time series based on tens of thousands of values for EU-28 countries in relation to the USA between 1995–2014. The data are obtained from an analysis of US legislature, in contrast to previous studies which used subjective survey data. The secondary goal is to assess whether a substantial reduction of non-tariff barriers is realistic or not, an issue which other researchers have overlooked. The level of bilateral non-tariff barriers imposed by the USA against EU exporters is rather low in the international comparison, a substantial reduction is not a reasonable assumption. We conclude that dealing with non-tariff trade barriers is crucial as it can substantially increase the bilateral trade flows. Even a less optimistic scenario, with a smaller decrease in trade barriers, suggests that the EU goods exports to the USA could be increased by more than 20%.