A couple of weeks ago we wrote about a somewhat neglected side of the trade war discussion: the relationship between the United States and Europe. In a recent interview US President Donald Trump went as far as to call the European Union “a foe” of the United States due to the trade deficit with the bloc. He also threatened to impose tariffs on car imports from the EU as a countermeasure to tariffs on American vehicles that have been in place for many years. However, it appears that this disaster has been averted – for now.
After sending a warning letter to the United States against further tariffs, the European Union continued their fight against the trade war this week with a visit of the President of the European Commission, Jean-Claude Juncker. After a couple of days of negotiations, Juncker and Trump managed to agree that there will be no tariffs on European car imports to the United States. This is a huge win for the EU, who are the home to some of the leading car manufacturers in the world, including Volkswagen, BMW, Fiat Chrysler, and more. European stocks rose by 5% on this news alone, and analysts appear to be overall calmer regarding the negative impact of the trade war on Europe.
Still, the EU remains bound by steel and aluminum duties that Trump introduced earlier this year. The bloc has implemented their own retaliatory measures to shield the European economy from the tariffs, so some “warring” is still in effect between the United States and the European Union.
Moreover, some analysts have greeted the news of this most recent deal between Juncker and Trump with skepticism, due to the American President’s inconstancy. After all, earlier this year the United States and China reached a trade agreement, only to see all of their negotiations collapse just days afterwards under Trump’s criticism. In other words, the President could still change his mind about Europe and no one would be surprised.
Reasons why Trump might back out of the deal with the EU lie in his expectations regarding what Europe can do for American trade. Trump announced that based on his recent talks with Juncker, the European Union will be more open to American imports, especially soybeans. Nevertheless, this might not be feasible in practice because food, in particular agricultural products, are more heavily regulated in Europe. GMO use is widely discouraged in foods on the European market, and many of the types of soybeans grown in the United States are far too modified to meet EU standards.
Another thing the two leaders supposedly agreed on is that Europe will import more natural gas from the United States. Nevertheless, this is more expensive than importing gas from Russia, which is the current choice of many European countries. Not to mention that the leading economies in the EU such as Germany, France, and the Netherlands, have for a long time been trying to gradually switch to renewable energy sources, which would lead to a smaller demand for natural gas, regardless of the supplier.
Because there are no more specific details about the agreement between Juncker and Trump, we cannot be sure what all of the American demands are, nor whether the European Union is actually going to be able to meet them. Considering how quickly the US President can change his mind, it is highly unlikely that the markets will remain calm for long.