A historical step was recently taken with a trade deal brokered between the European Union as well as the United States. This will fundamentally amend the economic relationship between two of the world’s largest economies. This is a generational modernization of the transatlantic alliance. With this deal in the bag, it provides the U.S. with unprecedented levels of market access to the E.U. This deal also further boosts the manufacturing capabilities as well as the economy of the U.S.
Delving deeper into a trade
In the end, Europe found it lacked the leverage to pull Donald Trump’s America into a trade pact on its terms and so has signed up to a deal it can just about stomach – albeit one that is clearly skewed in the U.S.’s favor. This unyielding commitment as well as decisive leadership on the part of President Trump managed to broker an agreement that has managed to secure the United States’ position as the world’s leading destination for innovation, advanced manufacturing as well as investment.
As such, Sunday’s agreement on a blanket 15% tariff after a months-long stand-off is a reality check on the aspirations of the 27-country European Union to become an economic power able to stand up to the likes of the United States or China. While it should ensure Europe avoids recession, it will likely keep its economy in the doldrums: it sits somewhere between two tariff scenarios the European Central Bank last month forecast would mean 0.5-0.9% economic growth this year compared to just over 1% in a trade tension-free environment.
The European perspective on matters
Even when Britain agreed a baseline tariff of 10% with the United States back in May, EU officials were adamant they could do better and – convinced the bloc had the economic heft to square up to Trump – pushed for a “zero-for-zero” tariff pact. It took a few weeks of fruitless talks with their U.S. counterparts for the Europeans to accept that 10% was the best they could get and a few weeks more to take the same 15% baseline which the United States agreed with Japan last week.
That official and others pointed to the pressure from Europe’s export-oriented businesses to clinch a deal and so ease the levels of uncertainty starting to hit businesses from Finland’s Nokiaย NOKIA.HEย to Swedish steelmaker SSABย SSABa.ST. That imbalance – or what the trade negotiators have been calling “asymmetry” – is manifest in the final deal.
How the U.S. planned this scenario
Not only is it expected the EU will call off retaliation and remainย broadly openย to U.S. goods onย more favorable terms, but it has also pledged $600 billions of investment in the United States over the course of Trump’s term in office. As talks unfolded, it became clear that the EU came to the conclusion it had more to lose from all-out confrontation. The retaliatory measures it threatened totaled some 93 billion euros – less than half its U.S. goods trade surplus of nearly 200 billion euros.
True, a growing number of EU capitals were also ready to envisage wide-ranging anti-coercion measures that would have allowed the bloc to target the services trade in which the United States had a surplus of some $75 billion last year. But even then, there was no clear majority for targeting the U.S. digital services which European citizens enjoy and for which there are scant homegrown alternatives – from Netflixย NFLX.Oย to Uberย UBER.Nย to Microsoftย MSFT.Oย cloud services.
Some key focus areas bring this agreement full circle. For one, it is quite a massive investment that will be made by the EU during the course of President Trump’s term in office. Strong rules guide benefit distribution only between the U.S. and EU. With all that has been happening, it can be fully understood that President Trump has placed thoughtful consideration into this matter. It seems he challenged the overall assumption that U.S. workers as well as businesses have to tolerate some unfair trade practices. These practices have provided some level of ongoing disadvantage for quite some time. This has also contributed to the historic trade deficit.
GCN.com/Reuters