U.S.-EU Trade Talks Vexed by Drums of a Real War

(Bloomberg) --

The drums of war beating in Washington sound a lot more ominous than the kind accompanying tariff threats.

That doesn’t mean the escalating tensions between the U.S. and Iran won’t have consequences for other relationships or global trade. They could well contribute to the revival of trade conflicts that markets have convinced themselves are in the rear-view mirror now that 2020 is upon us.

But no trade or strategic relationship is likely to be tested faster or harder than the already fragile one with Europe.

The Trump administration’s decision to abandon the 2015 Iran nuclear deal that European Union powers were co-signatories to was a pre-existing source of tension, with European companies caught in the sanctions crossfire. Now that Iran has pulled the plug as well in the wake of the killing of a top Iranian general, things are unlikely to get better. 

Also causing friction were Trump’s now frozen plans to levy tariffs on imported cars and more live ones to target champagne and other French products over France’s digital services tax. Duties imposed in relation to a long-running trade feud between Airbus and Boeing haven’t helped either. 

Those issues look episodic compared to what seems a lot like a broader breakdown in trans-Atlantic relations. 

It doesn’t take much digging to establish that many in the Trump administration view the powers in Europe and institutions of the EU with an instinctive contempt. Trump, after all, has repeatedly called the EU (officially a U.S. ally) worse than China (an officially designated existential rival) on matters including trade. What irks the president and people close to him most may be Europe’s defense of technocratic multilateralism and EU officials’ refusal to bow to Trump’s tariffs and other efforts to pressure them into even pretending to make a deal on American terms (an art China may well have mastered). 

European officials, meanwhile, view Trump’s attack on the World Trade Organization and other pillars of the rules-based order as a peculiar populist’s tantrum. 

Spend any time discussing trans-Atlantic relations with European officials and the emotion you run into quickly is bemusement. They relay specific complaints about the U.S.’s refusal to engage in meaningful discussions about issues like reforming the WTO or the willingness of Washington to allow the withering of potentially substantive efforts to create a joint front to take on China over industrial subsidies and other common complaints. 

But hanging over it all like a thunderhead is a broader European perplexion with a one-time friend’s life choices.

None of that is likely to be improved by what is developing between the U.S. and Iran. 

Charting the Trade War

The U.S. Chamber of Commerce is warning that American businesses and consumers are bearing the brunt of the trade war and is calling on the administration to change course. Crunching Commerce Department data, it concludes that more than half of U.S. states are facing retaliatory tariffs on at least 25% of their exports to the EU and China.

Today’s Must Reads

• Just a phase | The Chinese trade delegation including Vice Premier Liu He plans to sign the first phase of its trade deal with the U.S. in Washington on Jan. 15.
• Service charge | The euro-zone economy edged gradually away from stagnation at the end of 2019 as services picked up to counter moribund manufacturing.
• Brexit countdown | Companies most exposed to the uncertainty surrounding the U.K.’s exit from the EU have reduced hiring and investment and lost a substantial fraction of their market value
• Change the channel | Turkey’s president said warships will be able to use a planned multibillion-dollar canal bisecting Istanbul, possibly undercutting a 20th-century agreement.
• USMCA support | Some Democratic presidential candidates are supporting the USMCA agreement while at least one other is distancing himself from the new North American trade deal.

Economic Analysis

• China boost | China’s economy showed stronger momentum in December for the first time in eight months, according to a range of early indicators, and Bloomberg Economics expects growth to improve in early 2020.
• World in 2030 | Bloomberg Economics’ 10-year growth forecasts paint a picture of continued weakness, with aging populations, barriers to immigration, and weak productivity capping growth potential.

Coming Up

• Jan. 7: U.S. trade balance
• Jan. 8: France trade balance
• Jan. 9: Germany trade balance
• Jan. 14-16: EU trade chief Phil Hogan plans trip to Washington
• Jan. 15: Trumps plans to sign phase-one deal with China

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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