US-EU “deal” — a quick fix but no long-term clarity

Trade correspondent L.C. reports: President Trump met with European Commission President Jean-Claude Juncker for over three hours at the White House on July 25th. The leaders emerged with what they claimed to be a significant deal on trade, though the meeting was not a formal negotiation and the outcome was vague and mainly pointed to possible future talks.  The key question now is whether this deal represents a shift in the President’s trade policy toward seeking agreements that will enable him to step back from his most onerous protectionist moves or whether he sees it as a quick victory that will enable him to claim that his tough trade policy and his wielding of tariffs is already showing results. If the latter, he likely will continue with his hard line toward other trading partners until they give in as well.

Suggesting that perhaps the President hasn’t changed his fundamental views and misunderstandings about trade, just before the meeting with Juncker he tweeted: “Tariffs are the greatest!” And after the meeting, he declared in a speech to Illinois steelworkers that the US “has lost” hundreds of billions of dollars every year by trading, and “if we didn’t trade, we’d save a hell of a lot of money.” He also used the speech to assert “This is the time to straighten out the worst trade deals ever made… in history.” And on July 28th, Trump said on the Sean Hannity TV show that he thinks GDP growth could reach 8% or 9% because “If I cut [the trade deficit] in half, right there we will pick up three or four points.”

EU trade victories

Meanwhile the EU has concluded full free trade agreements (FTAs) with Canada and Japan that include industrial tariff elimination and broad agricultural market access. These emerged without the drama of trade war threats and tariff attacks. Indeed, the US goals for the Transatlantic Trade and Investment Partnership (TTIP), to which the EU agreed without the US wielding threats, included provisions to “eliminate all tariffs on trade” and “tackle costly… non-tariff barriers that impeded the flow of goods, including agricultural goods.”

Whether or not President Trump considers the recent deal with the EU a win for his negotiating tactics, it was Juncker who got the key item he came for: agreement that the US will not impose Section 232 (national defense related) tariffs on automotive trade, at least for as long as the two sides continue to talk about future trade arrangements. Since President Trump had given every indication that he wanted to impose these tariffs, especially to encompass German auto exports, and that he wanted to do it soon to impact the November US elections, this was a significant win for the EU.

In return, it does not appear that President Trump won anything as significant. He mainly got a promise that the EU will be buying more US soybeans and liquefied natural gas, two commodities for which it was preparing to ramp up its imports anyway. However, the US President did gain something he needed: a rationale for pulling back from trade policy commitments that had brought him under fire from almost all quarters – business, agriculture, legislators of both parties, and trading partners. By playing up the promise of stepped up soy and gas imports, Trump was able to portray his suspension of the auto tariffs as a good bargain. In short the EU won a suspension of the impending auto tariffs while the US won the political space to suspend those tariffs.

The Trump-Juncker deal did have other aspects, some of which may turn out to be meaningful – indeed, there will be continuing talks. As President Trump announced, “We decided to set up immediately an Executive Working Group of very intelligent people on both sides. They’ll be our closest advisors, and they’re going to carry out this joint agenda.” The joint agenda includes beginning talks on a possible free trade agreement (no tariffs, subsidies, non-tariff barriers) on non-automotive industrial goods; working to lower barriers to trans-Atlantic trade in services, chemicals, pharmaceuticals, and medical products; and opening discussion on reducing obstacles to bilateral trade posed by standards and red-tape. The talks will also work toward a resolution of the Section 232 tariffs the US has imposed on EU steel and aluminum and the EU’s counter-tariffs. In addition, the two sides will cooperate in seeking WTO reform.

And agriculture?

The joint statement doesn’t mention agriculture. Juncker said after the meeting, “As far as agriculture is concerned, the EU can import more soybeans from the US, and it will be done.” Agriculture was one of the main obstacles in the TTIP. The EU excludes US chlorine-washed chicken and hormone-treated beef. It wants the US to agree to the EU’s Geographical Indications, which would ban the US from using the names of cheeses and wines with local European names. Agriculture was not part of the Trump-Juncker agreement, other than Juncker’s informal promise to buy more soybeans. This has raised the prospect that the deal could begin to crumble.

A reprieve from Congressional criticism?

There is one possible outcome of the Trump-Juncker deal that would reinforce the President’s unilateral trade power: it could take the momentum away from efforts in Congress to pass legislation curtailing this power. If the White House can convince at least some of the electorate — who are upset about the tariffs — that the President is using them to cut new deals favorable to the US, support for these bills would weaken.

Farmer bailout – welfare plan panned

Agriculture Secretary Sonny Perdue announced on July 24th a new plan to provide $12 billion in aid to farmers and ranchers who have been hurt by China’s retaliatory tariffs on US agricultural products, especially soybeans and pork. The details of the program — how much relief individual farmers and growers of specific crops can expect — won’t be clear until early fall.  The plan, a step-up in already controversial US agricultural subsidies, received a highly negative response from across Congress and the private sector.

Latin American trade developments – and  beyond

The seven-year old Pacific Alliance trade bloc – Chile, Colombia, Mexico, Peru – held their 13^th summit, July 23rd-25th in Puerto Vallarta, Mexico, with all four presidents participating. It was in part a joint summit with MERCOSUR. The two blocs agreed on an action plan to begin work toward forming a huge Latin American trade zone. Meeting participants also agreed to admit South Korea as an associate member, once that status has been finalized for the current four candidates (Canada, Australia, New Zealand, Singapore). Associate members are expected to eventually forge FTAs with the PA; many already have FTAs with individual PA members.

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