America’s trade relations with its allies are extremely fragile
AFTER A TRIP to France for the centenary of the end of the first world war, President Donald Trump quickly turned his Twitter feed over to trade-related tirades. On November 12th he opined that “Trade must be FREE and FAIR!” The next day he complained about French tariffs on American wine, concluding “Not fair, must change!” A day later came another reminder of the brittleness of transatlantic trade relations, when reports emerged that Mr Trump was meeting his officials to discuss an investigation launched in May into whether imported cars and car parts threaten America’s national security. If it concludes that they do, he can impose whatever trade restrictions he wants.
The idea that importing cars from close allies threatens America is barely plausible. In reality the investigation is intended to strong-arm trading partners into concessions. The tactic met with some early success. In July Jean-Claude Juncker, the president of the European Commission, and Mr Trump agreed to work towards a world with no tariffs, non-tariff barriers or subsidies for non-auto industrial goods.
But the hostilities have been postponed, not called off. There are warning signs that they may soon resume. A meeting on November 14th between Cecilia Malmström, the European Union’s trade commissioner, and Robert Lighthizer, the United States Trade Representative, was supposed to secure an “early harvest” from July’s agreement, on areas of regulatory co-operation. It ended with no joint statement. Next is supposed to come a formal trade deal. That will be much harder.
The first problem is what will be included. This was supposedly settled in June. “President Juncker was crystal-clear, saying that agriculture would not be in the deal,” said Ms Malmström on November 13th. The Europeans may fear that America’s hormone-injected, genetically modified foodstuffs will drive their small farmers out of business. But America also has a powerful agricultural lobby. It has been more than usually ravenous for new export opportunities since China put tariffs on American farm produce in retaliation for American tariffs on Chinese industrialised goods. Not only is that lobby well represented on the congressional committees that Mr Lighthizer must consult, but there is a case that excluding agriculture from the talks would break the terms of the legislation on which Mr Lighthizer’s authority rests. Add that to Mr Trump’s tweets about French wine, and it is likely that agriculture will reappear on the agenda.
If that happens, trade relations are likely to deteriorate. A month ago Mr Lighthizer notified Congress of his plans to start negotiations, and he has until mid-December to tell them what the objectives will be. If they include agriculture, said Ms Malmström on November 14th, she would not start scoping a deal. And if talks end, tariffs on cars and car parts could soon follow.
Even without agriculture, any deal could be hard for European governments to sell to voters. When the EU and the Obama administration were negotiating the Transatlantic Trade and Investment Partnership, a deal since put on hold, thousands of protesters took to European streets. At the time, 86% of Germans and 84% of French people told Pew, a pollster, that they had confidence in Barack Obama to do the right thing on world affairs. Just 10% of Germans and 9% of French respondents now say the same of Mr Trump.
European negotiators dearly wish to avoid higher tariffs on their auto exports. But their spines may be stiffened by the example of America’s reworked trade deal with Canada and Mexico. Even though new terms were agreed on last month, the American administration has not yet lifted tariffs on imports of steel and aluminium from its neighbours. The appeal of bowing to pressure palls if it is unlikely to make the pressure stop.
This article appeared in the Finance and economics section of the print edition under the headline “Warning shots”
