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Trump seen turning sights on EU in 2020 as next big trade fight looms

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Trump seen turning sights on EU in 2020 as next big trade fight looms

The relative calm settling over the global trade landscape may be short-lived.

With Chinese Vice Premier Liu He due to arrive in Washington next week to sign a trade accord with the U.S., a replacement for NAFTA making its way to President Donald Trump's desk and an agreement with Japan in the bag, some might be tempted to sit back and admire their work. Others, emboldened by their successes, might look for a new target.

Many observers see President Trump falling into the second category and say that he has Europe in his sights.

The two sides have many issues to fight over. U.S. tariffs on European steel and aluminum from 2018 remain in place, and Washington has vowed to impose tariffs of up to 100% on $2.4 billion of annual imports of French goods like champagne, beauty products and handbags in response to France's digital services tax signed into law in July 2019 that targets companies like Amazon.com Inc. and Apple Inc.

Meanwhile, the two sides are still in a decades-long World Trade Organization dispute over the legitimacy of state aid provided to the French aircraft manufacturer Airbus SE and the U.S. aerospace company Boeing Co.

"The short answer is yes, the administration will turn its attention to Europe," Marjorie Chorlins, senior vice president for European Affairs at the U.S. Chamber of Commerce, said in an interview. "We have some work to do to avoid falling further down a rabbit hole in terms of where we are in the relationship."

Auto tariffs are the least likely to be imposed due to their sheer size and scope, but are the most concerning, she said.

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Trump has dangled the possibility of a 25% tariff on imports of automobiles and auto parts, including those from Europe. That threat remains on the table despite an expired time frame for imposition. The threat sparked a sharp rebuke from Brussels and has left automakers worried that such a move will devastate demand for their cars in the U.S.

The newly seated European Commission has stated its intention to be more aggressive and push back against what they perceive as unfair or discriminatory trade practices, Chorlins said. "So you've got a recipe for further tensions because both sides are sort of cranky with each other," she said. "I think it may get worse before it gets better."

Trade victory

Trump's major goal to claim trade victory is to eliminate trade deficits with global partners, and the EU ranks among the top offenders according to this zero-sum view of world trade. The U.S. goods trade deficit with the EU in 2018 was $169.3 billion, an 11.8% rise over 2017 and a 77.1% rise over 2008, according to federal data. Through the first 10 months of 2019, it was already close to $150 billion.

Trump has taken particular exception to the EU's aversion to accepting more U.S. agriculture products in a sought-after bilateral trade deal due to concerns over their quality, a spar that culminated with the White House announcing that the EU vowed to nearly triple annual duty-free imports of U.S. beef.

The EU is keen to avoid any "phase one" or other mini deals like the one Beijing agreed to with the U.S., Chris Rogers, research director of S&P Global Inc.'s trade-focused Panjiva division, said in an interview. "An overarching point is that the EU will only accept a full trade deal, so I'd say the inclusion of ags or otherwise is kind of a moot point."

'Resist bullying'

The EU will be "seeking a reset" of the partners' relationship over the metals tariffs and the digital services tax retaliation threats, newly installed EU Trade Commissioner Phil Hogan recently told The Irish Times.

Hogan, who is slated to meet with U.S. Trade Representative Robert Lighthizer in mid-January, also said there is "no point in getting into the details of resolving trade irritants" unless there is an agreement on a common trade agenda.

Meanwhile, von der Leyen is entering the fire as the new European Commission president. "As a former defense minister, she probably doesn't think that trade wars are easy to win," Peter Allgeier, a deputy trade representative under the George W. Bush and Obama administrations, said in an interview.

"The last [European] Commission's strategy was to resist [Trump's] bullying, and it looks like the new commission is going to do the same," Bill Reinsch, an international business researcher at the Center for Strategic and International Studies in Washington, said in an interview. "If you look at [European Commission President Ursula] von der Leyen's agenda on things like climate change, tax policy, high tech and the role of the WTO, it seems they are clearly moving in a different direction from us. Look for fireworks."

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Global ripples

With U.S.-EU tensions rising and the trade war with China still not over, trade is a leading cause of trepidation among major executives worldwide.

An annual survey of 750 world CEOs by the Conference Board found that uncertainty about global trade was the executives' second-biggest external worry in 2020. According to Challenger Gray & Christmas Inc., a job services firm, U.S. employers announced 11,688 job cuts in December 2018 due to trade tensions and 5,881 more due to tariffs.

"With some resolutions occurring in the trade war and strong consumer spending in the fourth quarter, companies appear to be taking a wait-and-see approach as we head into 2020," Andrew Challenger, vice president of the firm, said in the report.

The U.S. and China are due to sign their phase one agreement to partially halt their ongoing trade battle on Jan. 15. The agreement includes a U.S. promise to roll back its massive tariffs on Chinese goods and a Chinese commitment to buy U.S. farm goods. The development marks a glimmer of progress in an otherwise damaging conflict that has affected nearly every U.S. sector that sources goods from or exports products to China.

Trump said that the U.S. would enter phase two negotiations with China shortly after the conclusion of phase one, but not all analysts are sure that the two sides can reach an agreement soon.

"I'm expecting tedious negotiations with China on phase two and little progress," Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, said in an interview. "But to keep the economy and the market humming, Trump will not escalate trade tensions with China."