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automotive, EU, European Union, Eurozone, Jean-Claude Juncker, non-tariff barriers, tariffs, Trade, Trump, value-added tax, VAT, {What's Left of) Our Economy
Whenever an agreement raises many more, and bigger, questions than it answers, it’s legit to ask whether it’s much of an agreement. And the questions raised by yesterday’s U.S.-European Union (EU) announcement on trade relations are numerous and immense.
For example, the statement, released following talks between President Trump and European Commission President Jean-Claude Juncker, said nothing directly about the U.S. auto trade tariff threat that raised transatlantic trade tensions to a whole new level. To be sure, the two leaders did agree that, while a joint “Executive Working Group” would begin work on implementing a new trade agenda between the two economic giants, neither “will not go against the spirit of this agreement, unless either party terminates the negotiations” – which sounds like a deal to forego any new trade restrictions. Moreover, Juncker reportedly has stated that this agreement specifically rules out the automotive levies.
Nonetheless, there’s been no announcement yet that the United States will terminate the study it launched in May to determine whether or not new tariffs are needed to bolster the American automotive sector for national security reasons. And regarding the U.S. levies still in place on certain metals products from Europe, the statement simply declared an intention “to resolve the steel and aluminum tariff issues and retaliatory tariffs” issue.
But there are far bigger questions about the agreement, its execution, and the implications for U.S. trade flows and industries that haven’t been answered — or even asked. Of special importance: First, will Washington and Brussels agree to tackle – and eliminate — all the barriers impeding and distorting transatlantic trade? Second, will any such agreement be genuinely enforceable. Major doubts are justified on both counts.
Regarding the barriers to be addressed, it’s encouraging that the statement targeted the complete elimination of not only tariffs, but non-tariff barriers and subsidies on “non-auto industrial goods.” But why was the automotive sector omitted? And why, when it comes to “trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans,” is the aim simply to “reduce barriers.”
Even more important, what about the towering value-added taxes (VATs) imposed by European Union members? Not only do they typically add between 20 and 25 percent to the cost of imports. They subsidize exports to the same degree. Unless they’re on the agenda, the proverbial playing field will remain badly tilted. Yet the joint statement made no mention of them.
Monitoring and enforcement is a major concern, too. As indicated above, it’s heartening that the Trump administration recognize the importance of non-tariff trade barriers and subsidies. But recognizing their importance is a far cry from devising a strategy to eliminate or even reduce them verifiably.
Principally, although the European Union’s bureaucracy is less opaque than similar complexes in East Asia, for example, it still suffers major transparency problems – as even its officials admit. So even identifying many non-tariff barriers and subsidies – much less eliminating them – will be exceedingly difficult at very best. America’s governing processes, by contrast, are highly transparent. All rules and regulations and budgetary expenditures are published regularly, frequently, and in full.
Relatively secretive bureaucracies such as Europe’s enjoy another important trade-related advantage over the American system. Subsidies and non-tariff trade barriers have proved to be eminently fungible. In other words, they are easily reshuffled and renamed. But when such shell games are played by systems such as the EU’s, they’re typically played behind closed doors. Such American gambits, however, are pursued and agreed on in the open.
Finally, the joint statement made no mention of currency manipulation. Admittedly, there’s precious little consensus even within the United States as to defining this protectionist practice. Yet there’s a serious case to be made that it’s been engaged in by the eurozone, which includes many EU members, by virtue of the European Central Bank’s ultra-easy monetary policies.
Not that the America’s central bank, the Federal Reserve, hasn’t kept interest rates very low for long periods of time, and pursued similar forms of stimulus, such as Quantitative Easing. But given the consumption-oriented structure of the U.S. economy and the gigantic trade and current account deficits it chronically runs, it’s hard to make the currency manipulation charge stick. Given the major international surpluses racked up by the eurozone and EU, and how net exports have led their growth, they’re much more plausible culprits.
Interestingly, for all these differences, Europe’s economic and political systems are surely closer to and more compatible with America’s than those of nearly all other major economies. If Washington can’t overcome the above obstacles and negotiate a truly win-win deal with Brussels, how promising can trade talks with other countries and regions be?
4.1% GDP growth rate!
And Q1 adjusted up to 2.2%!
Do we see a pattern here? I recall some quarterly numbers for President Obama adjusted down ward… and now it seems like President Trump’s numbers are typically adjusted upwards?
Definitely a very good quarter. Which followed an “Obama-esque” first quarter. Now we need to see it sustained. Re the adjustments, Trump’s so far have been generally, but not always, adjusted up. Obama’s were adjusted up and down – it’s random and of course has zero to do with who’s president.
Wilbur Ross on Fox Business with Maria B says they’re not looking for a 2- or 3-year negotiation like past administrations. Why would President Trump bring in a group of savvy business executives to go backwards?
Steel and aluminum tariffs to stay in place. Mexico is joining Trump speed, so they appear to be a focus now, Canada on the back burner. Mr. Ross considers Mexico more complex but interesting that that’s who were engaged with. NAFTA appears dead?
An interesting combo is the EU wanting to join us in responding to China’s IP theft and hardball tactics. I’m hoping for the best. The perfect time for these negotiations, from a point of strength!
Better is better, good idea not to get bogged down seeking the perfect trade agreement, which could hammer the EU. Yes, the devil is in the details … but this is a great signal for the markets, and other negotiations. President Trump, like the EU, holds the option to exit if things don’t go well. I am sure Europe is keenly aware of investment dollars leaving Canada, and their recent job losses.
I’m sure Germany is protecting their all-important auto industry. So Trump originally used a potential 25% tariff to bring them to the table. Positive announcements are increased purchases of soybeans (countering China) and LNG. Win win! Easy first step, sure. I trust Wilbur Ross, Peter NeNavarro and Co.
Asides. Marketwatch mentions a Chinese purchase increase of 9400% for soybeans! Fuel exports up 230%, and the Chinese stock market down 23%.
New GDP growth number out tomorrow!
I hope you’re right but believe you’re overlooking the distinct possibility that the US could wind up worse off on net – the point I made using several specific examples. Not to mention the chance that the EU could drag its feet for a protracted period. And as I keep saying, don’t obsess over individual GDP quarters – if only because they can be two-edged swords.