EU: Lowering Auto Talk Expectations

Published on July 25, 2018

EU officials are dampening expectations right ahead of the widely anticipated summit over auto and trade tariffs today between US President Donald Trump and European Commission President Jean-Claude Juncker, who will be accompanied by trade commissioner Cecilia Malmstrom.

*** From what we understand, the EU is not coming with any “substantial offer” to Washington, but rather with some broad proposals intended to keep a dialogue alive and to avoid further escalation. EU officials are concerned about the raising of expectations last week by National Economic Council Director Larry Kudlow, and they see his comments to some extent as “bullying tactics” to pressure them into concessions in the negotiations. ***

*** The European delegation itself appears to have very low expectations of an agreement coming out of the meeting, especially at this stage, and Juncker will try to again present “rational arguments” for why the trade dispute escalation does not make sense. Juncker will repeat that while the EU may have a surplus with the U.S. in the trade of goods, the U.S. has a surplus with the EU when it comes to services, so the two cancel each other out. ***

*** That of course is the exact point German Chancellor Angel Merkel also made to Trump at last month’s G7 summit, to no avail, and so will clearly not carry the day. With that in mind, Juncker and Malmstrom will also present what we expect to be a very vague plurilateral sectoral agreement to serve as the basis for further discussions, as has been leaked to the press, to the US team. ***

*** The EU is prepared to continue not just discussions on car tariffs, but also on imports of U.S. gas, and on the reform of the WTO that Trump hates so much. But, official stress, they will do that only in the context of a broader trade deal between the U.S. and the EU, an there will be no movement on single items like cars alone. ***

*** To make sure Trump knows that slapping import tariffs on EU-made cars would not go unanswered, the EU is already preparing a list of U.S. goods that could be targeted in retaliation, should Trump go ahead with the car tariffs. That threat, however, appears less than clear, as EU car and car part exports to the U.S. are worth 51 billion euros, while the EU seems to have so far identified a list of U.S. exports worth only some 9 billion euros it could retaliate against. If needed, we are sure they can find more. ***

European officials will also remind the Trump administration that the Commission is in charge of trade policy and setting tariffs for the whole 28-nation bloc, so any attempts by Trump to strike individual deals with individual countries will simply not legally be possible.

Washington may try and continue to exert pressure on some big exporters like Germany, which would be most affected by a U.S. tariff on cars, but Berlin, too, realizes that it is the EU as a whole that has a much more powerful negotiation position with the U.S. than Germany alone. Both legally and politically, the EU will stick together on this one.

The idea of the meeting is to engage the U.S. in dialogue, show willingness to discuss things further, in this way maybe appease Trump, and give both sides time to negotiate some arrangement, preventing the escalation of tariff wars.

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