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Trump and EU leader agree to work toward eliminating tariffs and declaring a cease-fire in trade war

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Trump and EU leader agree to work toward eliminating tariffs and declaring a cease-fire in trade war
Issue Time:2018-07-26

In return, the EU will make unspecified purchases of U.S. soybeans and liquefied natural gas, the president said.

After a White House meeting, the two men also vowed to work toward eliminating all tariffs on many industrial goods, a resumption of dialogue that could help repair fractured relations between the longtime allies.

Even the limited deal was welcome news to those concerned that Trump’s trade policies are causing instability and uncertainty for the global economy. The U.S. and EU have a $1-trillion bilateral trade relationship, the largest in the world. Stock futures surged Wednesday afternoon on news of the agreement, despite the lack of details or firm commitments.

Just days after Trump called the EU a “foe” on trade, he spoke of the “close friendship” with the 28-nation pact and predicted a “new phase in the relationship between the United States and European Union.”

Trump said neither side would impose new tariffs as long as talks continued.

In addition to dropping his threat to impose 20% tariffs on imported autos and auto parts, Trump promised to “resolve the steel and aluminum tariff issues.” Trump earlier this year imposed steep tariffs on imported steel and aluminum, which prompted the counter-tariffs from the EU.

As part of the deal, Europe promised to buy an unspecified amount of U.S. soybeans and build more terminals to import liquefied natural gas. More soybean purchases, which Trump said would start “almost immediately,” would bring relief to farmers in politically key states who have been hurt by retaliatory tariffs, especially from China. On Tuesday, Trump announced a $12-billion aid program to help American farmers hurt by Trump’s trade war with China.

Juncker said Europe looked forward to bolstering cooperation with the U.S. on energy. “This is also a message for others,’’ he said, an apparent reference to Europe’s current reliance on Russian energy imports.

“I had the intention to make a deal today,’’ Juncker said. “And we made a deal today.”

Analysts described the meeting as moderately successful, especially given the low expectations on both sides of the Atlantic.

“Juncker didn’t come to reset relations or to have some massive 2.0 [trade] plan,” said Bart Oosterveld, director of global business and economic programs at the Atlantic Council. “His mandate was to stop the bleeding, and that’s what may have happened.”

Philip I. Levy, senior fellow at the Chicago Council on Global Affairs, said the early reports from the meeting sounded “just like the kind of agreement reached with China last year — some purchase promises and a pledge to talk more.”

“In China’s case, that led to trade war, not trade peace,” Levy said. “The warming of relations and any delay in additional protection would be welcome, but this does not seem like a lasting solution to the president’s tweeted concerns.”

Trump has repeatedly complained about the EU’s merchandise trade surplus of about $150 billion with the United States, and in particular has targeted Germany and its auto industry. Trump has said the EU’s existing 10% tariff on auto imports is unfair in light of the 2.5% duty that is assessed by the U.S. The U.S. tariff on imported trucks, however, is 25% compared with 10% by the EU.

The conditional truce with the EU will be welcomed by lawmakers and others in Washington who have worried that the U.S. was alienating allies at a time when it needed them to join together to focus on China and its trade practices.

Ahead of Juncker’s visit, House Ways and Means Committee Chairman Kevin Brady (R-Texas) met with EU Trade Commissioner Cecilia Malmström on Tuesday. Brady said he told her: “We need to align together to stop China from cheating. We recognize there are other trade winds occurring, but we need to remember we all have the same stake on stopping and confronting China.”

Whether the EU and the U.S. would now work together on China remains to be seen. As recently as December, the EU, U.S. and Japan agreed to jointly address China’s trade practices. But since then transatlantic ties have been strained further by Trump’s pullout from the multi-party deal on Iran’s denuclearization and the president’s persistent jabs at the North Atlantic Treaty Organization and EU trade.

Trump and Juncker, in saying the two sides would start talks, in a sense agreed to revive free-trade negotiations that were initiated by the Obama administration. But those talks were suspended two years ago and Trump has made no move to advance them.

“It’s basically the start or renewal of working-level discussions that have been dormant for awhile,” said Oosterveld. The outcome of Wednesday’s meeting, he said, “appears to be some easing of tension and resumption of dialogue. That’s the silver lining today.”

As Trump began his meeting Wednesday with Juncker, he stressed the need for “a level playing field for our farmers, for our manufacturers, for everybody.… If we could have no tariffs, and no barriers, and no subsidies, the United States would be extremely pleased.”

Trump had tweeted essentially the same remarks on Tuesday and also said something similar at the conclusion of the G-7 leaders’ summit last month in Quebec. And in remarks after his meeting Wednesday, Trump said: “This is why we agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.”

Juncker was more restrained in his remarks, saying: “We have identified a number of areas on which to work together. Work towards zero tariffs on industrial goods. And that was my main intention, to propose to come down to zero tariffs on industrial goods.”

As a practical matter, trade analysts said, neither Trump nor the EU was likely to be able to deliver on zero tariffs and barriers on all goods. Both sides have sacred cows that are protected from foreign competition and will be politically difficult to overcome, especially agricultural goods in Europe and things like sugar and trucks in the U.S.

After he imposed so many new tariffs and tweeted on Tuesday that “Tariffs are the greatest!,” experts questioned whether Trump is really after tariff-free trade. What Trump wants are unilateral concessions from trading partners, said William Reinsch, a trade expert at the Center for Strategic and International Studies. Trump’s thinking, he said, is that “we’ve given and we’ve given for 30 years. Now you concede, I give you nothing.”

As for why Trump then has called for zero tariffs in recent days, Reinsch said it was to deflect criticism — often from his own party — that he is a protectionist.

“It’s a clever move on his part,” Reinsch said. “If the EU rejects [Trump’s call for no tariffs], he’s the free trader and the EU is the protectionist. If they agree to negotiate ... and if they fail to deliver first, Trump’s also the good guy.”

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