Don’t Believe the Hype About

Trump’s Trade Deal with the

European Union

John Cassidy

27 July 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, toldBloomberg 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,” Axiosreported last month.
The piece quoted Trump as telling his advisers, “We always get
fucked 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.