EU-US Trade Dispute: the End of War or Only Ceasefire?

26.07.2018

European Commission President Jean-Claude Juncker came from his meeting with US President Donald Trump on  July 25 with a commitment by both sides to work on agreement to remove trade barriers on non-auto industrial goods and reform the international trade system, including the WTO. However, the optimism may be short-lived, since as we approach the mid-term elections in November and the start of the next presidential election cycle in 2019, it is more likely that the EU will be considered a kind of “foe”. It may be a ceasefire for now, but each side has not stored its trade weapons away.    

European Commission president Jean-Claude Juncker came from his meeting with US President Donald Trump on  July 25 with a commitment by both sides to work on agreement to remove trade barriers on non-auto industrial goods and reform the international trade system, including the WTO. The transatlantic partners also agreed to consider the government subsidies and energy purchases - two questions that the American president had raised as trade irritants that needed to be remedied. Juncker was almost ebullient as he spoke next to Trump in the Rose Garden on the White House lawn, claiming that the meeting had met all his objectives. Close inspection of the joint statement suggests that the agreement has little in concrete. The important point is that the trade dispute between the two that seemed to be on the verge of an all-out trade war, with Trump threatening tariffs on autos and auto parts, has been avoided. 

While the EU and the member states may have drawn comfort from the fact that Juncker’s summit went much better than recent European meetings with President Trump at the G7 and NATO events, there is a reason to believe that the relief may be short-lived. First, the US has not removed tariffs imposed on steel and aluminum - a move led to retaliatory tariffs on American products, such as bourbon whiskey and jeans. Trump agreed to reconsider the steel and aluminum tariffs, but only in exchange for more European purchases of soybeans and liquefied natural gas. The concession on agriculture will surely upset France and Germany. While Juncker could claim that he has achieved a ceasefire in the bubbling trade conflict, he will also face criticism for making commitments without a scaling back of existing measures. The US pledge not to impose new and extensive tariffs seems like a minor victory, especially if progress on a new deal will be difficult and the sabers began to rattle again. 

Second, optimism may be short-lived because it is clear that the EU and the current American administration have different understanding of how the international trade should work. The EU’s reason for being is rooted in relations between a wide range of actors - and not necessarily states, -that are constrained by international law and international institutions. Whether it always acts this way is a different story but its sense of self is rooted in a view of the international system based on rules, not power. The current US administration regards international law and institutions as an unnecessary constraint against the American power. One could hardly imagine how the sides could find an agreement on a wide range of issues without sharing the basic rules.

Third, it is also hard to imagine how the “sovereigntist” turn in the US and many member states of the EU can be reconciled with the aim of a major trade agreement that removes tariff barriers and subsidies from both sides. Political programs such as “America First” or “Italy First” are the exact opposite of the liberal trade deals that led to those kinds of political movements. The logic of the sovereigntist governments is zero-sum and of relative gains: trade deals like the one contemplated by the EU is positive sum and of absolute gains for economies. It is not entirely clear how the Juncker-Trump initiative will fit into this circle.

With the Trump presidency, the international community has learned to expect the unexpected, so he may suddenly force administration to improve trade relations and the institutional architecture that governs them. As we approach the mid-term elections in November and the start of the next presidential election cycle in 2019, it is more likely that the EU will be considered a kind of “foe”. It may be a ceasefire for now, but each side has not stored its trade weapons away.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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