Has the EU-US trade war really been cancelled?

Matthew Partridge talks to John Springford of the Centre for European Reform about Trump's trade war with the EU, and whether the current detente can continue.


Jean-Claude Juncker and Donald Trump: an uneasy detente
(Image credit: 2018 Getty Images)

With Brexit now less than nine months away, it's easy to forget that our imminent departure from the EU isn't the only negotiation that Brussels is involved in. Last week, Donald Trump and Jean-Claude Juncker surprised many people when they announced an agreement to seemingly avert the trade war that many people had been expecting. While Trump has hyped this as a major breakthrough, many people have been more sceptical. John Springford, the deputy director of the Centre for European Reform, kindly agreed to discuss the implications for the deal with us.

The success of the deal "is yet to be seen", says Springford. After all, "it's not an agreement in itself, just an agreement to start talking about talks". It may have prevented Trump from escalating tariffs, but there are "lots of reasons why it could go wrong": Trump hasn't ruled out following through on his threat to impose additional tariffs on European cars; and many European countries, especially France, are unenthusiastic about the wider deal that Juncker and Trump hinted at. All in all, things "are still very shaky".

Some optimists are arguing that the deal could lead to the Transatlantic Trade and Investment Partnership (TTIP), being resurrected, but it's far more likely that the ultimate result will be a simple free trade agreement that removes tariffs on industrial goods. France is opposed to any attempt to remove restrictions on agriculture, while the US is unlikely to open up its public procurement process. Similarly, it's unlikely that we'll see any meaningful reductions in non-tariff barriers. The difference in regulatory philosophy between Europe and the United States are too different. Even if we do get an agreement it will take around 3-5 years to negotiate.

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So, will there be any winners from these talks, especially given that American and European tariffs are already quite low?

Winners and losers from a trade war

Springford is a political analyst, not an investment adviser, so he wasn't able to give us any specific advice, but if his analysis is correct, it might be worth looking at the US car manufacturers Trump's decision to impose tariffs on steel and aluminium hurt them by pushing up the cost of key raw materials. So if the apparent dtente between Brussels and Washington does lead to Trump revoking them, it could boost their margins.

Springford also thinks that the deal is also positive in that it shows that "Trump finds it difficult to act when the Republican Party and his businessman friends go against him". While the Republicans "haven't exactly stuck their necks out on the issue of trade, there have certainly been grumbles at his protectionist leanings". On the other hand, it might just be that Trump "will re-focus his ire away from Europe and towards China" rather than change his attitudes to trade more generally. This is good news for European firms, but bad news for Asian companies and those who have their production facilities in the Far East.

The perception that Brussels has successfully faced Trump down marginally strengthens the hand of those who want Britain to remain in the customs union after Brexit. Still, the most likely outcome of the Brexit negotiations is that Britain and Europe agree a "fudged political declaration" which Theresa May could use to claim that she has got something similar to the Chequers deal. This would enable both sides to avoid a no-deal Brexit (the chances of which Springford puts at only 10%) and allow Britain to benefit from a transition period.

However, this would only buy both sides another 18 months. After that, they would need to start transforming such a general and non-binding declaration into a proper exit agreement. With both sides still at loggerheads on a variety of issues, "all bets are off" with everything from a simple free trade agreement to a Norwegian style agreement still on the table. In fact, because both Parliament and the parties are still divided on Europe, Springford "wouldn't be surprised" if there wasn't another election next year to finally achieve a national consensus.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri