Europe waits for US trade to exit the age of Trump


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Hello from Brussels, where the Joe Biden Europe caravan arrives this week after the G7 summit in Cornwall.

What to make of the G7? We’ve said before that the UK has the potential to play a useful catalyst/broker-type role in global governance, but that Boris Johnson’s habit of scoring childish political points and the country’s contempt for international agreements in the Brexit process would probably undermine it. We’d claim credit as genius soothsayers of some kind — superforecasters, one might say — for the sorry events in Cornwall this weekend except, well, it wasn’t really that hard to see it coming, was it? The EU-US summit on Tuesday will involve some more grown-up conversations, though not necessarily ones with immediate results, which is the subject of our main piece today.

Charted waters looks at the fortunes of the world’s biggest rubber-glove manufacturer, since it was hit with a US Customs and Border Protection ban following an investigation into alleged forced labour practices.

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Washington laboriously reviews the situation

If you want a symbol of the changed tone in transatlantic trade talks you only have to look at the personalities involved. US Trade Representative Katherine Tai, a calm and composed technocrat, has arrived in Brussels for her first in-person meeting with trade commissioner counterpart Valdis Dombrovskis, a man for whom the adjective “imperturbable” was custom-made. We’re a long way from the combustible machismo of predecessors Robert Lighthizer and Phil Hogan.

But the substance has shifted less than the vibe. Biden’s administration has retained much more of the Trump policy than the EU would like, and it’s doing a lot of mulling things over before making changes. As far as Brussels is concerned, if US trade policy had a theme song right now it would be Reviewing The Situation, the classic anthem of vacillation from the musical Oliver!

In theory there’s a lot of potential for collaboration on supply chains and tech policy to reduce dependence on China. But in both the US and EU, such ideas are only just being developed, and the machinery for policy co-operation is still being set up. The EU has proposed a transatlantic “trade and technology council” as a forum for this and related issues. But a change in bureaucratic process isn’t exactly the apogee of global governance, and the council’s creation has aroused some internal concern from France and other member states over handing substantial negotiating powers to the European Commission. More generally, EU leaders have been clear that they aren’t going to be as confrontational towards China as Biden would like.

In the meantime there are a bunch of inherited irritants for which obvious fixes are being prevented by domestic political imperatives.

The Section 232 national security tariffs on EU steel and aluminium exports remain in place, as do the EU’s retaliatory “rebalancing” tariffs on US imports to Europe. There was some optimistic reporting last week about the tariffs being lifted by December, but that was seemingly based on an early draft of the communique reflecting the EU’s wishes rather than a final deal. In fact, commission officials suspect that the Section 232s, popular with the blue-collar voters Biden is keen to retain, are unlikely to be lifted until at least after the 2022 midterms, and perhaps the 2024 presidential election. For the moment the administration, guess what, has them under review.

Could the tariffs be converted into some other form of trade restriction that doesn’t involve absurdly labelling the EU a national security threat? Certainly, other trading partners negotiated various forms of managed trade including export quotas to avoid the Section 232s. Some of the more, let’s say, pragmatic and export-orientated member states (Germany) might just go for similar, but other EU governments and the Keepers of the International Rule-Based Flame in the commission’s trade directorate would regard it as a humiliation.

If the Section 232s don’t go by December, the EU has an unpleasant choice. It can either double its rebalancing tariffs on American goods, a move it deferred as a gesture of goodwill last month, which would hurt Biden politically and risk the Republicans taking Congress next year. Or it can keep them where they are and look weak.

Another problem being — what’s the word? oh yes, reviewed — is the US’s threatened tariffs against various EU (and non-EU) countries for digital services taxes. The obvious solution is a grand international deal on corporate taxes at the OECD. But plenty on Capitol Hill don’t like that idea. And as interminable trade disputes in the past have shown, Congress takes dictation from foreign governments on tax issues the way that God took advice on the Creation.

Finally, there are issues in the World Trade Organization. To its credit, the Biden administration almost immediately on taking office lifted Lighthizer’s de facto block on appointing Ngozi Okonjo-Iweala as WTO director-general. But Brussels has shown its irritation with the US support for a WTO patent waiver for Covid-19 vaccines, which it regards as grandstanding. And as for taking the WTO Appellate Body out of the deep freeze where the Trump administration slung it, the EU complains that the US continues to have the situation, you’ll never believe this, under review. Certainly, it seems unlikely there will be much to report by the big WTO ministerial in November and December.

Nothing positive at all to report? Well, one thing, and it’s not trivial. The exact timing is unclear, but we seem pretty close to a deal to fix the Airbus-Boeing dispute by defining and limiting acceptable state support. That would be permanent relief for bourbon fans in the EU — apparently there are some, not clear why — and wine drinkers in the US who have been caught in the retaliatory tariff crossfire. It would be a pretty good win if it genuinely ended litigation that has been going, off and on, since 2004.

This week’s summit probably comes too early for any other big breakthroughs, and the US can still get away with claiming that it needs more time to think. But by the autumn, the absence of progress on the various irritants is going to be more obvious. You can’t review forever without people thinking you’re stringing them along.

Charted waters

Remember Top Glove? The Malaysian rubber-glove manufacturer — the world’s largest — rose to prominence on the back of a pandemic-related boost in sales. It was then hit in March by a US order to seize its products on allegations it used forced labour.

Shares in the manufacturer, unsurprisingly, fell at the time. Yet, as the chart shows, Top Glove was able to recoup some of the sales lost in North America, by selling more to Asia, eastern Europe and Latin America. Claire Jones

Bar chart of sales volume by geography (%) showing US customs ban squeezes Top Glove's North America sales

Trade links

Some essential reading on the weekend’s action in Cornwall. The FT’s Gideon Rachman says the G7 was stronger on values than hard cash when it came to competing with China and Russia. The G7 agreed a “greenbelt and road” initiative to rival China’s, though again with little sense of how much money was involved.

Experts at the German Marshall Fund think-tank look at what Joe Biden’s trip to Europe might achieve. The Merics think-tank in Germany (itself placed under sanctions by Beijing) looks at China giving itself more powers to retaliate against western governments for sanctioning businesses and individuals.

A couple of podcast recommendations. Anders Aslund, expert on Russia and eastern Europe at the Atlantic Council, discusses the effect of the Nord Stream II pipeline on Europe for the European Centre for International Political Economy. Trade Talks — the team-up between the Economist’s Soumaya Keynes and the Peterson Institute’s Chad Bown — is back, with its latest edition focusing on the global tax deal.

The New Statesman ($) looks at why the UK’s Brexit stance is at risk of doing serious damage to its relationship with the US.

Last, but not least, Nikkei ($) has a great read on the importance of China Railway Express, a line that runs as an alternative way to ship everything from cars to household goods from several Chinese cities to Europe. It’s quicker than taking the goods by ship (especially right now) and cheaper than by air. Alan Beattie and Claire Jones

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