The White House publicity apparatus, with help from the President himself, has been underlining Trump’s negotiating success in his dealing with tariffs on EU products. If I understand correctly, though, the net result of the recent talks are that tariffs on EU autos imported to the US will be lower than before, and that the EU will consider buying up to 10x the amount of hydrocarbons from the US that it currently does. No firm commitment, however. So this sounds like a substantial negotiating win for the EU.
Of course, this may not be all that surprising. The EU is no babe in the woods when dealing with contentious trading partners. Just look at its own history of internal discord. There was the case of Greece, which faked its national accounts for years, so that it would continue to qualify for membership. Then there’s the right-wing quirkiness of the former Warsaw Pact members. The lunacy of Brexit is maybe the icing on the cake. In any event, however, Brussels is not lacking in experience with difficult negotiations. And it may have concluded from watching Mr. Trump in action elsewhere in the world that public deference to his perceived negotiating ability may have been at least as important a US objective as the actual outcome.
I’m not sure what to think about the results. They seem to be bad for GM and Ford. That said, continual protection from foreign competition hasn’t done anything positive that I can see for their world market share. I also think we’re either at, or more likely past, peak world hydrocarbon usage. So any agreement that encourages development of new supply in a mature market is most likely going to exert downward pressure on prices. Worst hit will likely be firms that answer the “drill, baby, drill” call.
Would stock market rebound if tariff is cut? Or this time is worse such that Fed easing is needed? Thanks
Hi. I think this is a particularly hard time to make sense of what’s going on in the US. I think the most important near-term issue is the activity of ICE arresting and deporting large numbers of workers. This will result in, at best, a slowing of GDP growth, and at worst a GDP decline. It’s also causing a large falloff in tourism, both on ethical grounds and fear of being caught up in ICE violence. I’d put tariffs as #2. There’s the fact of tariffs. But there’s also the issue that the level of a given tariff seems to be subject to change at Mr. Trump’s whim. And in the case of recent tariff negotiations, what Japan and the EU say differs very markedly from what Trump is saying. This is being reported in a way that suggests that Trump has lost enough cognitively that he doesn’t fully appreciate what he’s agreed to. As to interest rates, there seems to be a substantial worry among foreign holders of Treasuries (domestic holders, too) that Trump wants to use lower interest rates to create inflation that will decrease the real value of the large (and growing) amount of government debt. This happened once before, during the 1970s. The result was an economic trainwreck, Treasuries at 20% yields and a decade of domestic pain to restore order. Because of this, it’s not clear to me that the financial markets would think of an interest rate cut as a plus.