I thought the Brexit deal was the worst trade deal in history. But the Turnberry deal between the US and Europe is giving it a good run for its money.
The Turnberry deal fails on all counts
Call me naïve, but aren’t trade agreements meant to reduce tariffs, increase trade and benefit consumers? The Turnberry deal fails on all counts. The EU faces an across-the-board 15% tariff and even higher duties on steel, with more bad news to come this month when the US will slap tariffs on pharmaceuticals. Europe has condoned Donald Trump’s totally illegal tariff hikes, in defiance of international law. Nothing to be proud of.
On the other side of the ledger, the EU made – thankfully – empty and unenforceable promises to buy more US energy, invest $600bn in US manufacturing, and buy more US weaponry, all of which it was already planning to do. There is much irony in the self-styled freebooting US asking the EU to behave as a non-market economy like China, telling companies what to buy or where to invest.
The EU has also committed to removing tariffs on a range of US exports, from lobsters to machinery. It remains unclear whether this will be on a non-discriminatory basis or just for the US – which would be illegal. The Commission’s press briefing shed no light on this.
Europe’s naïveté meets American muscle
The EU should have been tougher much earlier, as China was. As Canada is. Instead, thinking it was negotiating a classic trade deal with a reliable partner, one based on mutual benefit, the EU time and again postponed retaliatory measures against the illegal US tariffs to give peace a chance. Trump took advantage of European naivety. Mars against Venus. The mafia bully won.
This is not only about tariffs. EU business will, with some pain, adjust to a 15% duty. Business groups initially responded with relief because things could have been far worse – a 30% tariff, a 50% tariff on metals, a 200% tariff on wines…. At least now there may be some predictability in the transatlantic relationship that will help companies plan and invest. But they will hesitate before upping investment in the US.
The reality of geopolitics
No, beyond tariffs, geopolitics dictated this outcome. In several ways. First, Trump detests the EU and wanted to punish it for both running a trade surplus (in goods only, with services they are in balance), and for being a defender of multilateral institutions. He was also determined that it should get a worse deal than the UK, to encourage the Brexiter narrative.
Secondly, the EU negotiated from a position of weakness, given the overriding priority of avoiding a trade war and breakdown of relations that could have risked the end of the US’s already lukewarm support for Ukraine. There was no alternative, to quote Margaret Thatcher. The commitment to buy more US arms was to keep the US inside the tent. We shall see if it has that effect.
Thirdly, the EU’s unity on trade policy – already fraying – is now in tatters. This agreement sounds the death knell for the EU’s vaunted common commercial policy.
The EU proved unable to use its considerable leverage as the world’s biggest trading bloc to get a balanced agreement. And it failed to get its member states to take a unified stance – notably to do what China did and impose perfectly legitimate retaliatory duties (the only language Trump understands).
This damage dates back from the restrictions imposed by Poland and others on Ukrainian imports two years ago, in blatant disregard for the single market, which Brussels accepted, and which I criticised heavily at the time.
The EU’s common commercial policy is over
With this agreement, the EU now condones the USA’s WTO-illegal behaviour. It’s very sad to see the EU so helpless. Pragmatism should have had its limits.
And it’s not over. Companies should not assume that the trade relationship has now stabilised.
The US will soon announce tariffs on pharmaceuticals, expected to also be at 15%. It’s unclear what has been agreed on cars. The two sides have still to negotiate quotas on steel and aluminium to replace the current 50% tariff.
On top of this, the US will be watching closely if Europe indeed purchases defence materiel, invests in manufacturing in rustbelt red states, and honours its promise to buy $750bn of mostly environmentally damaging fossil fuels over the next three years.
And who knows whether the US itself will stick to the deal? It has a chequered record of adherence to international commitments.
So, as Lenny Kravitz – that renowned commentator on trade policy – once tartly observed, “It ain’t over til’ its over”. Except that it is over for the EU’s common commercial policy.
China, Russia and others will be buying the popcorn and smugly watching this act of self-harm.
Article reprinted with kind permission of Euractiv
