What does a TRUMP presidency look like?

[Norgy]

The important thing for Trump is to crash the dollar so the foreign debt becomes more bearable.

[crazy canuck]

I'm not aware of any mechanism that the EU possesses to actually enforce these "promises", particularly in those outrageous amounts. This deal just looks like "we'll take 15% and walk away".

Again, my personal theory is that Trump sees tariffs as a revenue-raising mechanism and a PR exercise for himself. He's certainly not going to drive an industrial renaissance with embargo-like tariffs for most industrial metals.

The deal is more like, we will let Trump say there is a 15% tariff, but the exemptions are going to cover most of the meaningful items. And yes, the agreement that x billions will be invested or bought by private entities is nothing but window dressing for the MAGA faithful.

[Razgovory]

What is the tariff on American goods going into Europe?

[The Minsky Moment]

What is the tariff on American goods going into Europe?

Tariffs will be zero, but imports will have to qualify under EU rules, which practically excludes certain agricultural products.

[The Minsky Moment]

For cars, that creates a bit paradox situation: if you import the steel, aluminium and copper to assemble a car in the US, you pay 50% import tax. Components from China also have a 30% import tax, those from EU and Japan have 15% (so not differentiating).

I guess it increases competitiveness if you source all your materials and components locally. But then those materials and components will likely be more expensive than those sourced globally due to comparative advantage elsewhere.

You've precisely identified the colossal stupidity at the core of Trump's trade policy.  Whatever deals Trump tries to make can't make up for the steady machinegunning of America own economic feet through the metal tariffs.  The 15% rate is about what is needed to equalize the cost advantage of foreign made vehicles resulting from the tax on raw materials that domestic US manufacturers must pay.   That's why the automakers and Japan and Europe can just shrug the tariffs off.  It's the American consumer that is screwed with a massive regressive tax.

[Zanza]

Competition (and reduced demand from other economic policies?) prohibits just raising prices by 15% though, so the automakers will share the pain with the consumers.

[Bauer]

Also, a reorganization of the global supply chain into a less efficient one will in theory drive up prices for everyone to some extent.

[Zanza]

Also defence purchases of hundreds of billions, energy purchases of 750 billion and investments of 600 billion were part of the deal. Apparently that's just roughly what the EU buys and invests in the US anyway...

It isn't, actually. It stipulates at least on energy buying $250bn/yr over the next 3 years. This actually represents more than the total value of all U.S. energy exports, annually. The U.S. exports around $101bn worth of crude oil, $54bn of LNG, and $10bn of metallurgical coal. The EU could become the sole customer for all 3 of those and would still not hit the $250bn/yr targets.

EU's total energy imports annually are $236bn in crude oil, $51bn of LNG and $6.5bn of metallurgical coal. While that is enough, if the EU shifted all its purchasing to US source, to use up the deal terms, the issue of course would be it is extremely unlikely the EU could shift such a vast amount of energy purchases from a global market to the U.S. as a single source. And, as noted above, if they did so--the U.S. doesn't produce enough exports to supply this. Now, the U.S. could theoretically supply all the LNG and metallurgical coal--but the problem with that is U.S. companies just sell on the open market, many of them already have contracts to sell these goods to destinations in Asia etc, they aren't going to just make themselves single source suppliers for EU purchasers, and the U.S. doesn't operate a command economy in which it can require that, either.

Thanks. I should have looked up those numbers before posting.

So then it's just another random figure for Trump to boast.

[Sheilbh]

It's not obvious to me that giving in is the right policy for Europe. It might be, but I wonder if escalation wouldn't have been more effective with a bully like Trump.

Yeah - from what I've read over the last few months Merz has been pushing very hard for a deal (any deal?) and others, such as Macron are more reluctant.

But this is, as Olivier Blanchard formerly of the IMF has said, arguably the weakness of the EU. It's strength is its size as a market which works, but it's weakness is its size. It is difficult to take tough, bold, politically consequential decisions when you have to align 27 member states - so will often end up with the easiest route.

Having said that, I'm not sure which is right. I've got a lot of sympathy with both sides. I think also relevant is the mood music with China which initially went positive with Trump have now turned a lot more sour - there's a fairly strong tit-for-tat escalatory dynamic on trade between China and Brussels at the minute. I think it's a bind for Europe that in engaging with two difficult partners it would be best to do so from a position of strength, but doing that would require a willingness to take a short-term hit (and might not even work in the long term).

Also, a reorganization of the global supply chain into a less efficient one will in theory drive up prices for everyone to some extent.

Yes - although it is worth saying that the purpose of states' policies and economies should not be maximising efficiency for global capital and/or consumers. That's one factor but it shouldn't be the only, or predominant one.

FWIW and this could be totally wrong (especially as a prediction for four years away and I confidently thought America would never elect Trump and that Scott Walker was the rising Republican star)....but, I have a sneaking suspicion that by 2029 tariffs will be a bipartisan consensus in the US. There may be a bit of regret that Trump did it in a disorganised and chaotic and thoughtless way but that both parties will basically have coalesced around the idea that free trade went too far and the question for US trade policy will be about how and what to protect rather than a more open model.

[The Minsky Moment]

The EU did the right thing under the circumstances.  They got a reduced rate and stability for as long as the deal holds.  Manufacturers are not at much of a disadvantage going into the US market because tariffs on input goods handicap US producers.  There will be an impact on EU exports, but it will be muted, and principally it will be the global impact of fiscal drag from higher consumer taxation + price distortion + policy uncertainty in the world's largest consumer market.

Under the deal as negotiated, the EU already got zero tariff treatment on a variety of products and they are already at work expanding that.  The EU also kept a bunch of regulatory redlines that were supposedly the main target of the US negotiators.  Unlike Trump who loses all interest in the topic after the initial headline, the EU leadership understands that what matters is the details of the deal as it gets enacted, and the EU is already hard at work tilting that more their way.

The wild card, of course, is when something happens later that gets Trump all in a tizzy, and he starts tweeting the deal into the trash bin.

[The Minsky Moment]

I have a sneaking suspicion that by 2029 tariffs will be a bipartisan consensus in the US. There may be a bit of regret that Trump did it in a disorganised and chaotic and thoughtless way but that both parties will basically have coalesced around the idea that free trade went too far and the question for US trade policy will be about how and what to protect rather than a more open model.

There may be more bipartisan support for managed trade, but farting around with tariff rates is a fool's game.  I don't think that will much outlast Trump.

[Sheilbh]

Yeah - I can see that argument. I suppose the interesting side on the EU leadership getting the detailed work point is how that plays out politically. Seeing Bayrou call it a "sombre day" for Europe with a lot of push back from European parliamentarians. I think there are similar dynamics on the relationship with China except there I think Commission is moving in a tougher direction, with Germany as a wild card.

I think it's the big question of Europe is whether all these competing pressures are going to act as a centripetal force that ends up increasing the strength and power of the Commission and a European level (including, crucially, common European debt and industrial strategy) allowing it to jump into the political, with a European demos. Or if those divisions have a centrifugal effect with Europe not making the leap to the political but instead going down the path of least resistance and continuing to focus on trying to advance in the detail. I think Germany's role is fascinating under Merz as I think he absolutely gets it on Ukraine, on infrastructure spending in Germany and possibly on common debt - but wanted a deal urgently with the US, is a bit opaque on China and the debt position is also a bit unclear.

I don't know how it'll go. Generally I think the EU advances through crisis and maybe this will help it make that transition - but I think it's a challenge on multiple fronts: war in Europe, uncertainty over security, significant economic pressures and challenging position with the two biggest economies in the world. It's a bit like my other general view that you won't make much money betting against the US...but maybe this time that'll be wrong.

[The Minsky Moment]

I think France is hollering in part because of a genuine domestic backlash but also because they expect EU negotiators to slot in a wine exemption in the final deal, which will be justified as needed to keep France on side.  The key for France was keeping the ag regulations and that seems to have succeeded.  Trump is interested in selling imaginary gas more than imaginary beef.

[Sheilbh]

To be a bit more sympathetic, I think the French, especially under Macron, have genuine ambitions for meaningful European sovereignty. And, especially for him, time is running out and Europe is still not willing to take the plunge and I think this is, for them, another missed opportunity.

I'm not sure that's wrong. But then again I think the big "what if" of the last few years was Merkel's failure to embrace Macron's European agenda after he pushed through structural reforms, controlled France's budget and many other steps to prove France was a credible partner.

[Zanza]

Interesting factoid regarding the promised investments: the first half year of the second Trump presidency was the first time ever thst German companies divested capital in the United States. Seems fairly unlikely that this deal will turn this around to achieve the promised investment bonanza.