Trump’s haphazard approach looms large over trade agreement

If US politics was dominated last week by the fallout from US president Donald Trump's meeting with Russian leader Vladimir Putin, this week the focus turned firmly to trade, as the US president grappled with the real-world implications of his much-vaunted trade policy.

European Commission president Jean-Claude Juncker’s visit to the White House on Wednesday went better than expected – so much so that the two leaders held an impromptu press conference in the Rose Garden.

The European Union appears to have averted a deepening trade war – for now.

The EU agreed to import more soybeans from the United States, buy more liquefied natural gas (LNG) from the US, and lower industrial tariffs, concessions that appear to have won over Trump.

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Both sides agreed to essentially put further trade measures on hold as they begin “negotiations” on lowering tariffs to zero.

Berlin in particular welcomed the news that tariffs on EU car imports are off the table for now. The reception from Paris was cooler, with France wary of any trade agreement that could impact agriculture. President Emmanuel Macron has underlined French concerns.

While Brussels may have won a reprieve from Washington, questions remain.

The steel and aluminium tariffs introduced by the US earlier this year, though up for negotiation, will remain in place for the moment – a cost that will continue to impact EU producers, not least Aughinish Alumina in Limerick.

Similarly, the Trump administration’s track record of sticking to verbal trade agreements is shaky – it is just a few months since treasury secretary Steve Mnuchin said that the trade war on China was “on hold”, only for the president to call for more concessions from Beijing a few days later.

Trump’s about-turn

Others questioned how the concessions offered by the EU side will work in practice. The US produces mostly genetically-modified soybeans which may not be welcomed by European customers. Officials close to Wednesday’s discussions say that they simply explained to the president that there are no EU tariffs on US soybeans, and that European companies have been buying more because of the recent fall in price – facts that were seized upon by the president as proof of a growing EU market for the product.

Similarly, the cost of shipping LNG to Europe is prohibitive. Though the prospect of reducing the EU’s dependence on Russia for gas imports is attractive, importing LNG from the US could cost twice as much as it costs to transport gas from Russia to western Europe – never mind the fact that the US’ capacity to export more LNG is years away as it awaits the construction of more export terminals.

None of this appeared to bother Trump, however.

“Great to be back on track with the European Union. This was a big day for free and fair trade!” a clearly delighted Trump tweeted from the White House on Wednesday night, posting a picture of himself and Juncker embracing in the Oval Office.

“Obviously the European Union, as represented by @JunckerEU and the United States, as represented by yours truly, love each other!” he said.

Only hours earlier Trump had declared “tariffs are the greatest!” having previously called the EU a “foe”.

While the about-turn by Trump may be down to good negotiating skills from the European side, it was also helped by timing. The European entourage arrived in Washington just as Trump was feeling the heat domestically on trade. The US president needed a win.

Aid for farmers

On Tuesday, General Motors cut its full-year earnings forecast, citing the effect of higher steel and aluminium costs. Ford and Fiat Chrysler followed suit.

The US president’s trade policy is also beginning to hurt farmers, as buyers of US food products retaliate for tariffs imposed by the US. While polls suggest that large Republican states like Nebraska, Kansas and Idaho are likely to stick with their president at the ballot box, frustration is building among farm groups about the long-term impact of sanctions on US exports like pork and soybeans. In particular there is concern that US exporters may be permanently locked out of international markets, if buyers of US exports go elsewhere for their products.

High-profile advertisements have been running on US cable networks in recent weeks from farm groups calling on politicians in Washington to protect free trade.

Faced with a growing political backlash from farmers, on Tuesday, the Department of Agriculture unveiled a $12 billion package of aid for farmers. But the package prompted something of a revolt within Trump’s party, with many Republicans aghast at the prospect of a Republican president giving handouts to farmers.

“If tariffs punish farmers, the answer is not welfare for farmers. The answer is remove the tariffs,” said Senator Rand Paul.

Senator Bob Corker of Tennessee also criticised the administration for “offering welfare to farmers to solve a problem they themselves created”.

Given this domestic political context, Trump badly needed a positive news story on trade this week. Heralding a deal with the EU allowed him to show his wavering supporters that he could deliver on trade. EU negotiators cannily exploited Trump’s need to prove his trade credentials this week, even if his trustworthiness as a partner is still up for debate. A major transatlantic trade war may have been averted, but this week the world got a glimpse of the US president’s incoherent and haphazard approach to trade policy. What his next step will be is anyone’s guess.