Don’t Believe the Hype About Trump’s Trade Deal with the European Union

By John Cassidy
July 27, 2018

Be grateful for small mercies. The ceasefire in the transatlantic trade skirmish that Donald Trump and Jean-Claude Juncker, the president of the European Commission, agreed to at the White House on Wednesday may prove to be only temporary. But at least the meeting didn’t end with the world’s two largest economies descending into a full-scale trade war.

For averting an immediate crisis, we have Juncker to thank. The sixty-three-year-old former Prime Minister of Luxembourg—who says Trump described him last month as “a brutal killer,” maybe intending it as a compliment—craftily packaged together a number of small concessions and previously agreed upon initiatives which allowed Trump and his allies to hail the agreement as an American win. “This is a real vindication of the President’s trade policy,” Wilbur Ross, the Secretary of Commerce, told reporters as he travelled to the Midwest with Trump on Thursday.

In reality, the Europeans gave up little except their prior refusal to negotiate under threat. Juncker’s pledge that the E.U. would import more U.S.-grown soybeans, for instance, formalized something that was likely to happen anyway. After Trump imposed hefty tariffs on Chinese steel and aluminum products, earlier this year, China responded by imposing equally hefty levies on U.S. agricultural exports, including soybeans. That made American soybeans prohibitively expensive for Chinese buyers, and this has had global repercussions. Brazil, traditionally the E.U.’s largest supplier, is now shipping more of its produce to China, encouraging the Europeans to shop elsewhere. “While China concentrates its purchases on Brazil, the rest of the world turns to the U.S.,” Pedro Dejneka, a partner at the Chicago-based MD Commodities, told Bloomberg News last month.

Something similar is going on with natural gas. After the meeting, Trump declared that Europe will start buying “vast amounts” of U.S. liquified natural gas (L.N.G.), which is produced in Texas, Pennsylvania, and other states. At least in the short term, that is unlikely to happen, because Europe has cheaper sources elsewhere, including Norway and Russia. Global gas prices determine where L.N.G. is bought and sold, Ben van Beurden, the chief executive of Royal Dutch Shell, Europe’s biggest energy company, said on Thursday. “Will U.S. L.N.G. reach Europe? Yes, but only if there is an arbitrage opportunity that makes sense,” he argued. Looking years ahead, Norway’s reserves have plateaued, and the Europeans will eventually need alternative suppliers. U.S. producers could well be among them. But, again, such a result may well have occurred without Wednesday’s agreement.

As Alan Beattie, an economics commentator for the Financial Times, noted on Twitter, hopefully nobody tells Trump that these concessions were largely illusory. The President’s advisers would also be wise not to tell him that his declared goal of eliminating all tariff and non-tariff barriers between the United States and Europe is an unrealistic one. Both sides provide subsidies or tax breaks to politically powerful groups, such as farmers, and to industries they deem strategically important, such as commercial-aircraft manufacturers in the E.U. and military contractors in the U.S. These policies proved sticking points when the Obama Administration and the E.U. engaged in unsuccessful negotiations about a transatlantic free-trade treaty, and they will almost certainly prove to be sticking points again.

One way to think of the outcome of Wednesday’s meeting is that Trump is happy to declare a victory whenever he can get away with it. However, a more optimistic reading of this week’s developments is that Trump has finally realized that he needs the E.U.’s support in his campaign against China’s much more overtly mercantilist trade practices, and that, in this area at least, the United States and Europe have common interests.

In a prescient briefing published last week, The Economist noted that E.U. officials wanted to persuade the Trump Administration to pursue grievances against China through the World Trade Organization (W.T.O.), the global ruling body for trade disputes, rather than by dishing out tariffs unilaterally. The article also noted that Robert Lighthizer, the U.S. Trade Representative, a key player in the Trump orbit, is not necessarily averse to this idea. “Comfortingly, there is mounting evidence that Mr Lighthizer is not out to torpedo the WTO,” the article said. “This year his department has filed seven new official WTO disputes, engaged actively in discussions over new rules on e-commerce, and on July 16th even called for an end to the WTO’s impasse on agriculture negotiations, suggesting that the talks should focus on market access.”

If Lighthizer could persuade Trump to go down this route, and his negotiating team could construct a common front with the E.U., there is a possibility that, sometime in the future, China might be persuaded to make some real concessions in areas like opening its markets and respecting intellectual-property rights. If that did occur, the Trump Administration could claim a genuine victory.

But what real prospect is there of any of this happening? Far from looking to embrace a multilateral approach, which could take years to come to fruition, if it ever did, Trump “has repeatedly told top White House officials he wants to withdraw the United States from the World Trade Organization,” Axios reported last month. The piece quoted Trump as telling his advisers, “We always get ****ed by them. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States.”

That sounds like Trump’s genuine voice. It’s clear from his history that he is a convinced protectionist, and that he believes, as he tweeted a few days ago, that “tariffs are the greatest.” In all likelihood, he only agreed to de-escalate the dispute with Europe because he had no choice. With the midterms approaching, some big G.O.P. constituencies, such as farmers and major corporations, were complaining loudly about the impact of the tariffs that have already been introduced. Many Republican politicians were also aggrieved, and there was a rising danger that some of the Party’s voters would stay home in November.

Having been backed into a corner, Trump decided to unveil a twelve-billion-dollar bailout for farmers whose businesses have been hit by tariffs, then he met with Juncker and congratulated himself for resolving a crisis he had created. “We just opened up Europe for you farmers,” he declared in Iowa on Thursday. “You are not going to be too angry with Trump, I can tell you . . . No tariffs, no nothing. Free trade.”

Give him a few marks for chutzpah, anyway. How long will the ceasefire with Europe last? And where does that leave Trump’s broader trade war? Nobody knows for sure. Not even him, probably.

John Cassidy has been a staff writer at The New Yorker since 1995. He also writes a column about politics, economics, and more for newyorker.com.Read more »

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