Below is the translation of an analysis from RIA Novosti based on data from US sources. Commentary and bracketed annotations are by Vince Dhimos.
Doomed to failure: how Donald Trump drove himself into a corner
March 8, 2019
MOSCOW, March 8 - RIA Novosti, Maxim Rubchenko. Trade talks between representatives of the European Commission and the United States began in Washington. The acuteness of the contradictions between the Old and the New World practically obviates any chance of success for the meeting, which puts Donald Trump in a very unpleasant dilemma: either he will come to elections with lost trade wars, or - with a large-scale crisis in the stock market.
From the European Union, EU Trade Commissioner Cecilia Malmström and Secretary General of the European Commission Martin Selmayr are participating in the Washington debate. The United States is represented by Trade Representative Robert Lighthizer and Director of the National Economic Council Larry Kudlow.
According to the official version, the parties plan to discuss the implementation of summer agreements on the normalization of trade between the United States and the European Union. In July 2018, Donald Trump and European Commission President Jean-Claude Juncker agreed that Washington and Brussels "will work on zero tariffs, zero non-tariff barriers and zero subsidies for non-automotive industrial goods."
In addition, the Europeans then promised to increase purchases of American chemical products, medicines and medicines, as well as agricultural products: in particular, soybeans, the import of which has been drastically cut by China.
However, in recent months, the trade contradictions between the Old and New Worlds have been greatly aggravated. In the fall, the US Department of Commerce, at Trump's request, launched a large-scale investigation into whether the supply of European cars was not harmful to the United States.
On February 17, the Department submitted a report to the president. Judging by leaks from the White House, the main conclusion turned out to be quite as expected: the import of cars from Europe to the USA should be reduced.
On February 20, Trump officially announced his intention to introduce in the next three months penalties of up to 25 percent for imports of European-made cars if the EU does not begin negotiations on a new trade agreement.
However, the Europeans, under the pretext that the preparation of a comprehensive transaction will take a very long time, are offering instead a large-scale agreement to conclude a number of agreements on certain industrial goods. Firstly, on free trade in cars and spare parts for them, as well as in metals (aluminium and steel), for which Washington introduced duties last spring.
At the same time, they proposed postponing indefinitely the EU agreement on agricultural products, "because this topic will inevitably require lengthy discussions."
Indeed, there is no consensus on agricultural trade, even within the EU. Particularly tough against the increase in supplies from the United States is France, which has a strong farm lobby.
However, for Donald Trump, the issue of marketing agricultural products is becoming more acute. In early February, American farmers held a demonstration in Washington demanding an end to the trade war, which has led to massive farm bankruptcies.
“You have had farms that ceased operations and went bankrupt because of this trade war,” members of the Farmers for Free Trade movement said in an appeal to Trump.
In this situation, the US president wants the new US-EU trade agreement also to extend to agricultural products. And to directly link the issue of agricultural products with duties on cars.
So, at the end of February, Trump once again stated that the high export figures of European automakers - primarily German automakers "are achieved through dishonest business practices."
Europeans are not ready to give up either. French Secretary of State for the EU, Jean-Baptiste Lemoyne, said that "the European Union is not going to negotiate in the face of threats."
Given the sharpness of the contradictions between Washington and Brussels, no positive results can be expected from the ongoing negotiations. This means that in May, Trump could bring the trade war to a new, more destructive level for both sides. However, it is not likely that he will dare to do it.
No way out
According to experts, the head of the White House has actually driven himself into a trap. On the one hand, he has so often boasted that thanks to his economic policy, the quotes of American stocks have risen to record highs, which in fact made him a hostage to the stock market indices.
According to Bloomberg, citing sources at the White House, Trump considers the good dynamics of the US stock market a key condition for his re-election in 2020. And for the sake of keeping stock indices from collapsing, he is even ready to make concessions in trade negotiations with China.
It seems that he will have to do likewise in the dialogue with Brussels, because the EU is already preparing a response to possible car duties. As reported by the media, European officials have compiled a list of American goods subject to retaliatory duties, including American cars, chemicals, coal, as well as products of Xerox, Caterpillar, Samsonite and other trade items, with a total volume of imports to Europe of about 20 billion euros (22.7 billion dollars).
On this news, quotes for Xerox and Caterpillar fell by 3-4 percent. If it comes to real duties, the fall will be measured in double digits. And this may well become the trigger of a new stock market crisis, with many analysts saying such a crisis is inevitable either this year or next.
For Trump, associating his re-election in 2020 with the situation in the stock market, such a scenario is highly undesirable. But, on the other hand, neither can he make serious concessions in trade matters.
Last week, the US Customs Administration published the latest foreign trade data. The main result: in spite of all duties and economic wars, the trade deficit by the end of last year had grown to a record 621 billion dollars since the global financial crisis. This is 12 percent more than in 2017, before the outbreak of trade wars. [see this report]
The reasons for the increase in the steel deficit are, on the one hand, the decline in exports (mainly agricultural products), and on the other - the growth of imports due to the increase in purchases of foreign food products, consumer goods and computer equipment.
In early March, the London Center for Economic Policy Research (CEPR) published its assessment of the loss to the US economy from Trump's trade wars. [original CEPR report here]
The authors of the report, Mary Amiti, Assistant Vice President of the Federal Reserve Bank of New York; Stephen Redding, Professor at Princeton University, and David Weinstein, professor at Columbia University, calculate that the wars have already cost the country and its citizens $19.2 billion.
The Americans paid $12.3 billion to the US government in the form of additional tariffs and lost $6.9 billion as a result of the rise in price of some goods due to the local shortages caused by the reduction in deliveries from abroad.
These results also fail to reinforce Trump’s campaign platform. Therefore, in the trade debates with the European Union, he can only repeat the tactics used in the disputes with China: constantly announce successful negotiations and promise the conclusion of another trade deal profitable to the United States "in a month." And then a month later, and then another month later, and so on until right before the very presidential elections.
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