The President-elect of the United States, Donald Trumpwarned the European Union (EU) that its exports will be subject to American tariffs if the bloc’s member countries do not significantly increase their purchases of oil and liquefied natural gas (LNG) from the USA.
“I told the European Union that they must make up their huge deficit with the US through large-scale purchases of our oil and gas. Otherwise, it will be TARIFF all the time!!!”, Trump posted on his Truth Social network.
The US is the world’s largest producer of crude oil and the leading exporter of LNG. Buyers, including the EU and Vietnam, are already discussing the possibility of purchasing more fuel from the US to avoid the imposition of tariffs.
The euro rose 0.3% to trade at US$1.0398 on Friday, indicating that investors believe the bloc will be able to meet Trump’s demands and avoid punitive measures.
Trade deficit and trade tensions
The U.S. goods and services trade deficit with the EU was $131.3 billion in 2022, according to the Office of the U.S. Trade Representative. Since Trump’s victory in the November elections, the EU has been preparing for a possible American trade offensive.
The bloc was caught by surprise in 2017, during Trump’s first term, when he imposed tariffs on European steel and aluminum citing national security concerns. Since then, the EU has reformulated its trade doctrine, creating mechanisms to react to coercive practices.
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“We are well prepared for the possibility that things will change under the new American administration,” German Foreign Minister Annalena Baerbock declared after a G7 meeting in Italy in November.
Change in power supply
European Commission President Ursula von der Leyen suggested last month that US LNG imports could replace consumption of the fuel from Russia.
“LNG was one of the issues we addressed,” von der Leyen said after a call with Trump. “We still receive a lot of LNG from Russia. Why not replace it with American LNG, which is cheaper and reduces our energy costs?”
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The US is already the biggest supplier of LNG to Europe, but Russian imports still rank second. The bloc is looking for ways to reduce its dependence on Moscow as the war in Ukraine continues.
In the short term, the US has limited capacity to increase LNG shipments. In the long term, several projects underway in the USA promise to expand supply.
Possible trade clashes
Despite the increase in American oil and gas exports, the EU is preparing for possible trade conflicts with Washington. The bloc’s new trade defense instrument strengthens its ability to impose tariffs or other punitive measures in response to politically motivated restrictions.
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Furthermore, the regulation of foreign subsidies allows the European Commission to block foreign companies that receive unfair state benefits from participating in public tenders or mergers in the bloc.
Trump has a history of disputes with the EU, criticizing the bloc for insufficient defense spending and a trade deficit with the US. He has also threatened tariffs against a range of countries, from China to Canada, and frequently targets nations with trade deficits with the US.
Currently, Europe is already the largest destination for American LNG, with more than half of deliveries going to the continent last year.
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