Stephen Moore, a former economic adviser to US president Donald Trump, told the BBC last week that Trump’s threat to slap a blanket 50 per cent tariff on all EU goods entering the US from June 1st, later extended to July 9th, was not so much the US bullying Brussels but an expression of frustration at the lack of a deal.
“I think he was hoping that by now we would have the EU coming with some kind of deal on the table, and so far that hasn’t come,” Moore said.
The traditional view is that Trump is using the US’s economic and financial heft to coerce his trade rivals into concessions: the logic being they need the US more than the US needs them. The UK has already been rolled over.
But the bond markets, the ultimate sanctioners, are taking an increasingly dim view of Trump’s trade tactics.
This is because the markets see tariffs as inflationary and the US’s giant $36 trillion (€31.6 trillion) debt as a looming threat to the Washington’s fiscal health.
Trump’s tax and spending Bill, which passed through the US House of Representatives by a single vote last week, is threatening to lob another $3.8 trillion on to this debt mountain over 10 years.
These debt concerns saw Moody’s downgrade Washington’s credit rating last week and criticise US politicians for not taking action to improve the country’s fiscal position.
Might this local financial pressure be driving Trump’s frustration? It could, in theory, allow the EU to drive a better bargain.
Trump can’t reside interminably in this on-off tariff threat paradigm without inflicting some serious damage to the US economy. The US economy is fast becoming Trump’s Achilles’ heel.
Investors are said to be shifting their money out of US markets to Europe and Asia as they price in a possible US recession and a consequent global slowdown.
As Deutsche Bank noted in a recent report, the US needs both intermediate and end-consumer goods from China and is a long way from producing much of them itself.
“In the stand-off between empty shelves in the US, and shallower pockets in China, the jury seems to have landed on stocking the shelves,” it said.
The same logic surely applies to the EU.
Trump’s 50 per cent tariff threat elicited a relatively constrained market reaction, suggesting few believe he will follow through on it.
So what might an EU-US deal look like?
Given the time constraint, it might look like the UK deal, a 10 per cent tariff from the US on all EU imports with limited EU retaliation and a few sector-specific deals.
Brussels typically takes a de-escalatory tack with Trump. It’s unlikely to follow China’s bullish path and face down the US but also unlikely to be as supine as London.
In response to Trump last week, EU trade commissioner Maroš Šefčovič said the transatlantic relationship needed to be “guided by mutual respect, not threats”.
The EU is one of Washington’s largest trading partners, sending more than $600 billion in goods last year and buying $370 billion worth, suggesting the EU has a lot more to lose.
But that’s only when you consider goods. Trump rarely mentions the big trade surplus Washington has with Europe when it comes to services.
Trump’s Tech Bros are deeply antagonistic to Brussels for its various regulatory clampdowns but the EU is also one of the biggest buyers of US-produced tech services.
And European Commission president Ursula von der Leyen hasn’t ruled out a levy on the digital advertising revenues of tech multinationals if negotiations fail.
