Dem
47
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The whole point of Donald Trump's blitzkrieg PR strategy is to flood the zone with "the good news" so as to win the next news cycle or two. By the time the pleasant glow starts to dissipate, he's generally moved on to the next blitz. This is true of most of his policy initiatives, but particularly his "trade deals."
When the White House announced the latest trade deal, the one with the E.U., it certainly looked like a "win" for the administration, since E.U. president Ursula von der Leyen effectively agreed to accept a 15% tariff without any retaliatory countermeasures. On top of that, she committed to $600 billion in investment in the United States, plus $750 billion in E.U. purchases of American gas and oil.
We gave Trump credit, both yesterday, and the day before, for his success (albeit with reservations in both cases). After all, we are trained academics, and we do what we can to evaluate the evidence on its own merits. In this case, that means trying to put aside our general sense that Trump is not really a very good negotiator, and that his approach to trade is haphazard and not well thought out.
However, the more we read about the deal, and the more we think about it, the more we feel like we might have been snowed by the initial PR blitz. To start with, it's now come out that the trade deal—which, again, isn't actually a trade deal, it's just a framework—was negotiated in under an hour, basically in between rounds of golf in Scotland. Does that really sound like any sort of serious process, as opposed to "let's get something on paper before the deadline, so Trump can declare a victory"? The alternative for the E.U. was to call Trump's bluff, and see if he did, or did not, chicken out again.
Beyond that, it's now clear that both of the multi-hundred-billion-dollar promises were nothing more than meaningless vaporware. We wrote yesterday that the $600 billion in investment is effectively just a helpful suggestion. The E.U. nations have no intention of putting up that money themselves, and no ability to compel private companies to do so. That means that the only way any of that money gets invested is if the private companies decide it's in their best interests. Since those companies would pursue such investments with or without a trade deal, that means that "the E.U. will invest $600 billion in the U.S." actually works out to "probably some E.U. companies will invest in the U.S., which they would have done anyhow."
When we wrote the item yesterday, we suspected that the $750 billion in energy purchases was similarly vapory, but we couldn't find anything to confirm that. Apparently, that's just because it takes a little time to gather the evidence. In the 6-8 hours after we went live, there were a whole bunch of pieces poking holes in that part of the deal. For example, this one from Politico describes the concession as a "fantasy." Readers can click through the link for the nitty-gritty, but for the pledge to become reality, the E.U. would have to triple its energy purchases from the U.S., while the U.S. would have to double its energy exports (not its European exports, ALL its exports). Neither of these things is plausible. On top of that, much of the $750 billion would be in the form of liquified natural gas (LNG). Well, even if the U.S. could produce that much LNG, and even if Europe could purchase that much, E.U. nations don't have the necessary infrastructure to store or distribute LNG at that scale.
So, it would appear that all that Trump got was an agreement from the E.U. to accept 15% tariffs without retaliating. Except, he doesn't actually have that, either. At least, not yet. Thus far, by waving his saber around, the President has secured six trade "deals." Do you know how many of those have actually been signed, however? Only one. That would be the one with the U.K., and that one was also a framework. Apparently, a more formal framework than the others, but a framework nonetheless. As we have written many times, actual trade deals are hard. The serious ones, whether they were actually adopted (NAFTA, USMCA) or were abandoned (Trans-Pacific Partnership), took years to hammer out. Last we checked, "years" is rather more time than "an hour in between golf games."
Inasmuch as there are no details yet, there is plenty of room for the E.U. (and for other trade partners) to haggle over dozens, or hundreds, or thousands, or tens of thousands, of different imports. If you want some really dry reading, take a look at this pdf of goods potentially subject to tariffs when imported into the United States. It's almost 200 pages, at a rate of roughly 40 items per page, and covers things like "parts and accessories of taximeters," "air compressors mounted on a wheeled chassis for towing," "pearl onions not over 16 mm in diameter," "aromatic esters of formic acid" and, of course, "nonaromatic esters of formic acid." After all, you don't want any esters-of-formic-acid shenanigans. Anyhow, E.U. officials have already been making noises about the details, and suggesting that there may be some significant disagreement over exactly what products are, and are not, covered by the trade framework.
At this point, let us point out a few things:
Add it up, and we wonder if Von der Leyen, although she's coming under withering fire from her colleagues, hasn't just shown the world the template for dealing with Trump: Give him some giant concessions he can brag about, even if those concessions aren't realistic or meaningful, and then go into a prevent defense, as much as is possible. The efficacy of such an approach depends, to a large extent, on whether some tariffs kick in even during the "we only have a template" phase. Nobody seems to know whether this will be the case or not, perhaps because nothing has been written down on paper, much less signed (except, again, in the case of the U.K.). And note that it's not impossible that Trump will conveniently forget to circle back and actually finish off these trade deals. While he clearly believes tariffs are magic, he can't ignore the clear economic turmoil that they've engendered, particularly at the over-the-top levels he's demanded. It could be that he decides that standing pat with tentative "wins," and avoiding the fallout of the actual tariffs, is the best of both worlds for him.
Meanwhile, Trump's announced deadline of August 1 is just days away, and there's no deal with Brazil, Canada, China, India, Mexico, South Korea, Taiwan, or Thailand, among many others. Will Trump stick to his guns? Will he chicken out? Will he announce more "frameworks" have been hammered out? We have no idea. However, note that a couple of times, he has allowed tariffs to kick in, only to lose his nerve when the stock market plummeted and, in particular, when the bond market took a turn adverse to U.S. interests. So, even if he brings the hammer on Friday, it will be at least a week or two until you can be sure it's for real, and not another KFC special.
We will also make one other observation, when it comes to Trump's dealmaking. Even if the tariffs come to fruition, and even if the trade partners do not retaliate or find other ways to undermine the deals, that still doesn't mean he's truly won. There's the possibility of economic turmoil, including inflation, which could hit the Republicans in the teeth in 2026, 2028 or both. Further, trade is supposed to be a long-term game. If the other nations of the world conclude that the U.S. is an unreliable and/or abusive trade partner, they can and will start to redirect their business elsewhere. That probably won't happen while Trump is still in office, and it might even not happen while he's alive, but the potential long-term consequences have to be at least part of the assessment.
The bottom line is that, with an additional 48 hours' worth of information and consideration, we are considerably less impressed with Trump's E.U. deal than when it was announced.
Finally, one last bit of trade-war-related news. Sen. Josh Hawley (R-MO) is about to introduce a piece of legislation, supported by Trump, that would lead to $600 "tariff rebates" being issued to all Americans. It's a clear example of trying to buy people's votes with... their own money. It's also a tacit admission that, despite Trump's claims to the contrary, the costs of tariffs are mostly borne by American consumers, not by foreign producers. If the bill actually gets to the floor of the Senate and the House, it could be very interesting, as support might not break down along party lines. (Z)