The United States and the European Union have a complex trade relationship. The U.S. saw a significant trade deficit in goods that stood at $161.6 billion in 2023. However, it is worth noting that when it comes to services, the U.S. has a surplus of exports with the European Union. In fact, the U.S. had a services trade surplus of 104 billion euros ($113.3 billion) in 2023, which was driven by industries such as finance, technology, and tourism. Nevertheless, in order to address the goods issue, President Trump has directed the Commerce and Treasury departments to investigate and recommend measures by April.
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The EU’s trade surplus with the U.S. is largely driven by the automotive sector. Currently, Germany dominates EU exports to the U.S. and accounted for over 30% of transatlantic goods exports in 2023. Companies like Volkswagen (VWAGY) and BMW (BMWYY) are major players in this export market. Italy is the second-largest exporter, with a 13% share.
EU Warns of a “Global Race to the Bottom”
Trump’s move to potentially implement tariffs has, unsurprisingly, led to rising concerns among EU policymakers, who warn that tariffs could lead to a potential “global race to the bottom.” As a result, many EU policymakers are calling for unity and pointed to the success of this strategy during Brexit negotiations.
It is also worth mentioning that when it comes to goods, the U.S. is the largest supplier of liquefied natural gas to the EU. Companies like Cheniere Energy (LNG) and Chevron (CVX) are significant players in this market. However, the EU’s ability to increase imports of U.S. oil and gas is limited by the U.S.’s current production capacity and rising domestic consumption. This means that the EU is willing to buy more from the U.S., but simply can’t because the U.S. doesn’t have enough natural gas to sell.
Additionally, the U.S. is pushing EU countries to increase their defense spending, which could lead to increased imports of U.S. arms. In fact, European imports of arms from the U.S. have already grown to 55% of all European arms imports in 2019-2023.
Which Stock Has the Most Upside Potential?
Turning to Wall Street, out of the four stocks mentioned above, analysts think that Volkswagen stock has the most room to run. In fact, Volkswagen’s average price target of €115 per share implies 22% upside potential. On the other hand, analysts expect the least from LNG stock, as its average price target of $244.21 equates to a downside risk of 3%.
