What’s Next After Last Week’s Trade Agreement Between Trump, Juncker?

After an initial media lovefest over the announcement that America and the European Union had reached an agreement to “… work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods” — reached during a surprisingly short meeting last week between President Donald Trump and Jean-Claude Juncker, the European Commission president, at the White House — a more cautious tone has been adopted by just about every quarter outside of Washington.
It has begun to dawn on observers that the president said much the same thing about reaching a very good deal with China earlier this year only for it all to fall apart within weeks.
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President Trump is quoted in The Guardian as saying: “The European Union is going to start almost immediately to buy a lot of soybeans – a tremendous market – buy a lot of soybeans from our farmers in the Midwest primarily.”
But the reality is the E.U.’s demand for soybeans is never going to make up for the loss of Chinese buying that is now facing tariffs as part of the country’s reciprocal response to U.S. sanctions.
Although the president has announced some $12 billion in aid to farmers hit by the loss of Chinese buyers, he is still facing a loss of previously strong support from the farming community and was no doubt hoping to hold up the E.U. as an alternative.
The E.U.’s farmers, however, are just as cosseted as those in the U.S., and the French have already voiced reservations about opening up the E.U. to U.S. agricultural imports, The Telegraph reported.
There is palpable relief in Germany, the Telegraph reported, to the news, as there are fears within the country’s car industry regarding the Trump administration’s proposed 25% tariff on $200 billion worth of automobile imports. The agreement between Trump and Juncker has temporarily eased that fear, but has by no means put it to rest. As the Indians say, there is ever a gap between cup and lip — the deal has every opportunity of falling apart as the details are worked through.
One major concern is that U.S. exports and European exports are different. The U.S. is looking to export agricultural products, but the E.U. has one of the most protected agricultural markets in the world and is never going to zero tariff that market.
Likewise, the U.S. is pushing for equitable tariff arrangements on cars. The U.S. currently applies a 2.5% tariff on imports form the E.U., whereas the E.U. applies a 10% tariff on U.S. cars.
If the president is hoping equitable tariffs will solve that imbalance, he is mistaken. There is a much stronger reason why there are high European and Japanese penetration in the U.S. market, and it has everything to do with the design and quality of the vehicles and nothing to do with tariffs.
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Such are the challenges faced by trade negotiators; at least, while they plod on, both sides can claim progress is being made.

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