Thought Leadership - Evolution of U.S. - EU Trade Relations

The Evolution of U.S.–European Trade Relations
Authors: Kai Bitter, James Hardman, Annarita Vallese

  

Europe and the United States share the world’s most extensive bilateral trade and the most integrated economic relationship. Given the scale and strategic significance of this relationship, strengthening transatlantic ties by addressing persistent and emerging trade barriers has long been a priority for both European and American policymakers. Amid current uncertainty, there is no way to comment meaningfully on the status quo. This article traces the key milestones and turning points in United States–European trade relations, highlighting periods of close cooperation as well as enduring structural tensions, providing a historical perspective to help allay current fears.

Until the onset of the Great Depression, trade between the United States and Europe had grown steadily. But this trend reversed when the U.S. adopted a wave of protectionist policies. Between 1929 and 1932, U.S. imports from Europe dropped from $1.3 billion to $390 million, while exports to Europe declined from $2.3 billion to $784 million. This was, at least in part, caused by the Smoot-Hawley Tariff Act of 1930, a bill which U.S. industrial groups lobbied to include broad protections from foreign competition, particularly European agriculture recovering post-WWI. Smoot-Hawley and similar laws undermined international economic and political cooperation during a critical era in global relations. It caused European trading partners such as Britain, France, and Italy to adopt similar “beggar-thy-neighbor” policies, which contributed to a dramatic contraction in international trade. The harmful economic effects—for both the U.S. and its trading partners—of Smoot-Hawley and similar protectionist policies were so severe that they ultimately led the U.S. to abandon its long-standing practice of imposing high tariffs on imports.

The Reciprocal Trade Agreements Act of 1934, however, inaugurated a new era of U.S. trade liberalization, emphasizing bilateral and multilateral tariff reductions with Europe and other regions. After World War II, the United States assumed a central role in reshaping the global economic order. Through the Marshall Plan (1948–1952), it provided over $13 billion in aid to rebuild European infrastructure, stabilize currencies, and spur industrial production. European countries moved toward deeper integration, culminating in the formation of the European Economic Community (EEC) in 1957—a process the United States largely supported, viewing a prosperous Europe as a strategic ally during the Cold War. Still, the United States remained cautious about the emergence of a protectionist European block that could disadvantage U.S. exports, and these concerns impeded U.S.–European international trade negotiations throughout the 1960s.

The establishment of the World Trade Organization (WTO) in 1995 later codified a liberalized trade regime that benefited both European and American firms. Reduced tariffs, standardized regulations, and shared legal frameworks facilitated unprecedented access to transatlantic markets. European multinationals such as Nestlé, Siemens, and L’Oréal expanded operations in the United States, while American companies like Ford, IBM, and Procter & Gamble deepened their presence in Europe, taking advantage of regulatory convergence and strengthened investor protections.

Despite this integration, the United States and Europe frequently diverged in policy approaches, sparking recurring trade disputes. While they jointly advanced landmark agreements—such as the 1996 Information Technology Agreement (ITA)—frictions persisted over market access, agricultural subsidies, and food safety standards.

In the 21st century, efforts to institutionalize transatlantic economic ties culminated in the Transatlantic Trade and Investment Partnership (TTIP) negotiations. Intended to create the world’s largest free trade zone, TTIP aimed to harmonize regulatory frameworks and reduce non-tariff barriers. However, by 2016, after 15 rounds of negotiation, talks collapsed amid political opposition, transparency concerns, and fears of eroded consumer protections. Deep-rooted differences in environmental, labor, and food safety standards proved insurmountable. More broadly, regulatory divergence continues to complicate trade relations between the United States and European Union (EU), particularly on issues such as data privacy (GDPR vs. sectoral U.S. models), genetically modified organisms (GMOs), antitrust enforcement, and digital platform regulation.

Trade tensions resurfaced in 2018 when the Trump administration, invoking Section 232 of the Trade Expansion Act, imposed national security-based tariffs of 25% on steel and 10% on aluminum imports from the EU. The EU responded with retaliatory tariffs on $3.2 billion worth of U.S. goods, targeting politically sensitive products such as motorcycles and bourbon. While the Biden administration shifted its rhetoric toward cooperation, it retained many of the Trump-era trade measures. Moreover, recent U.S. industrial policies—most notably the Inflation Reduction Act and the CHIPS and Science Act—drew criticism from European leaders for potentially disadvantaging EU-based firms through state-subsidized domestic production.

Nevertheless, the United States and Europe have maintained strategic alignment on key geopolitical challenges. Their coordinated sanctions against Russia—following the 2014 annexation of Crimea and the 2022 invasion of Ukraine—demonstrated the resilience of transatlantic cooperation in matters of security and global order. However, unity has not always prevailed: the United States’ withdrawal from the Iran-focused Joint Comprehensive Plan of Action in 2018, despite strong European opposition, exposed enduring diplomatic rifts with Europe, which sought to preserve the agreement unilaterally by establishing a special-purpose vehicle designed to facilitate trade with Iran outside the scope of U.S. sanctions.

Overall, the historical trajectory of U.S.–European trade relations reveals a pattern of fluctuating cooperation and conflict. From the protectionist policies of the interwar period to the liberalization efforts post-WWII, and the recent resurgence of trade barriers and increased regulatory divergence, each phase has shaped the global economic landscape. In this respect, the current trade tensions are nothing new. It remains to be seen whether the pendulum will swing back in favor of cooperation as diverging geopolitical priorities put new strains on the transatlantic relationship.