Trade is Still Very Much on the Agenda

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That the news is all about trade makes a change for us business folks from the tittle-tattle around the private lives of politicians or celebrities, as trade is topic that actually touches all of us (whether we are immediately aware or not).

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That President Donald Trump has made trade dispute a central plank of his first presidency is no surprise.

Throughout his presidential campaign, Trump frequently made reference to what he sees as unfair trade terms enjoyed by America’s trade partners and his intention to use whatever means he could to right the perceived wrong. “Trade wars are good,” he famously said on the campaign trail — he has certainly followed through with that in office.

Just as there appears to be a thaw — or at least a renewed willingness to talk — between the U.S. and China following the G20 summit in Japan, the president has renewed his previous spat with Europe, which ranges across a number of topics.

In addition to the general argument that the U.S. exports less to Europe than Europe does to the U.S., there are specific grievances over automobiles. The U.S. applies a lower rate of duty on European sedans than Europe does on U.S. cars and the company-specific case of subsidies to Airbus, the administration claims, are unfair.

This last one has been the subject of a flare-up this month. The U.S. threatened fresh tariffs on $4 billion covering 89 European products, The Guardian reports, including olives, Italian and Dutch cheese, Scotch whiskey, Irish whiskey, pasta, coffee, and ham. These items join products worth $21 billion that were announced as potential targets for tariffs in April, the paper reports, which included Roquefort cheese, wine, champagne, olive oil and seafood (such as oysters).

The latest list notably also includes a number of copper products, metal consumers should note, including bars, plate, strip and foil (the full list can be found here). The rights and wrongs of the case can be argued with equal validity on both sides, the E.U. claims — and has done since 2004 — that Boeing receives illegal subsidies. Meanwhile, U.S. claims Airbus does.

The reality is both receive state support in one form or another and the WTO has upheld cases in favor of both parties against the other.

So what are you left with?

Some form of a negotiated settlement is likely the only way out. The current upping the ante should be seen as a negotiating ploy to force that process forward.

Politically, neither side is well-placed. The E.U. is in the midst of a protracted and increasingly acrimonious change of guard at all the top E.U. jobs. The U.S. president is just starting his 2020 re-election campaign and so is in no mood for obvious compromises – although a few agreements, if they can be represented as wins, would be helpful to bolster his dealmaking credentials.

Meanwhile, as the U.S. is looking to dismantle or at the very least renegotiate all of its trade deals, the E.U. is busy trying to add new ones.

The E.U. and South American economic bloc Mercosur have agreed to a huge trade deal after 20 years of negotiations, said to be the largest ever on the basis of population (as it covers some 800 million people). Mercosur consists of Argentina, Brazil, Uruguay and Paraguay. Venezuela is also a member, but it was suspended in 2016 for failing to meet the group’s basic standards, CNN reported. While the first talks started in 1999, Trump’s rewriting of the accepted global trade rule book has added a much-needed impetus to proceedings in the last two years. During this time, the E.U. reached trade agreements with Canada, Mexico and Japan.

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CNN reported E.U. Trade Commissioner Cecilia Malmstrom’s comments saying the E.U. deal with Mercosur could see savings on tariffs that are four times as big as those made in the Japan deal.

Time will tell if such hype is right, but what we can take away is that globalization and free trade are not dead and buried. Yes, there is considerable trade conflict going on currently, but it is almost solely because of the president’s approach to renegotiation of U.S. deals.

It is likely compromises will be reached, as they were with NAFTA — just don’t expect it to be smooth sailing.

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