The World Trade Organization is broken, ridiculous, bad, unfair. That was how Donald Trump talked publicly about the WTO until this week – until that Wednesday ruled that the US has the right to request 7.5 billion compensation from the European Union.
“This is a nice win,” the president said during a press conference at the White House on Wednesday. According to him, the victory comes not just now, fifteen years after the country filed a complaint against the European countries that would unfairly support its “own” aircraft manufacturer Airbus, to the detriment of the American Boeing. It is, said Trump, “because they think I hate the WTO. They want to make sure that I am happy. “And:” The WTO is now deciding in our favor, because they realize that they can no longer get away with it, to the detriment of the US. ”
The American president thus turned an institutional decision into a personal decision, entirely in line with his own perspective on international trade and diplomacy. It is all a matter of personal relationships: this way the boldest negotiator can take advantage of his competitors.
This brutality is no longer a surprise for the European Union. The fact that Trump is indeed eagerly making use of the WTO permission to levy taxes was widely expected in Brussels in recent months. But still: had you told Euro officials a few years ago that this old conflict about state aid to aircraft manufacturers, which has been going on since the turn of the century, would escalate like that, nobody would have believed you.
It shows how quickly the geopolitical reality has changed and how much Europe is struggling to adapt to it. After all, where trade was a way for the EU to come closer together, Trump is now using the same trade to oppose other states for internal political gain.
Last year, after a visit from committee chairman Jean-Claude Juncker to Trump, the cold seemed to be out of the air for a while. They came with a joint statement, which, however, contained few guarantees. It is ironic that the fact that it is now the WTO – just as a symbol of the old, multilateral world order as the EU itself – is used by Trump as an attack weapon. Just as ironic as the institution that was established to settle trade conflicts is now the stage for a new step towards an imminent trade war.
The EU is clinging to the WTO by constantly emphasizing that the US has also been condemned by the trade organization for providing state aid to the aircraft industry. If two parties are to blame, Brussels argues, can we still work it out together? And if not, Europe likes to play this game of “trade war according to the rules”. Trade Commissioner Cecilia Malmström threatened this week that the US is pushing the European Union in a direction “where we have no other option than to take countermeasures.”
But while the US makes good use of the ‘accidental’ timing of the WTO’s final verdict in the midst of a trade war, the EU is hampered by just such a coincidence: that the Boeing case at the WTO took about nine months at the Airbus. case is lagging behind. The EU wants to be firm and play by the rules, and will therefore be forced on its hands in the coming months.
In the meantime, the US is trying to cause cracks in the closed block of member states that is the EU. Not only the aircraft industry is affected, but also Italian agriculture, due to taxes on cheese, and the whiskey industry. You already heard sulking noises from those sectors this week: why do we have to pay in a conflict over planes? If the levies actually start to have an effect, that will increase even further.
The challenge for Brussels now is to preserve unity. That is not easy, because the interests vary widely and the pressure is intensified by the US. At the same time, the kind of deal that Trump is trying to force with the escalation – which gives America more flexible access to the European food market – could hit the agricultural sector hard. The European Commission will insist on this in the coming period: that only a comprehensive agreement can and will be concluded that is as favorable as possible for the steel, car and peasant sectors.
The tough language of Trump will in any case soon get a stronger response. Phil Hogan, the new EU Trade Commissioner who will take office on November 1, is known for his verbal outliers. The Irishman recently promised to “wrestle a game” with Trump to “teach him a lesson about trade policy.”
In Brussels there are also people who hope that Hogan’s nationality may also play a positive role. If he manages to put pressure on the large and influential Irish diaspora, that could be beneficial for Europe.
The Second front
The big question is: has the US actually benefited from its response to the WTO ruling? Immediately after the ruling, the Americans came up with a laundry list of European goods on which they will charge high import tariffs from October 18 with the blessing of the World Trade Organization. With this they have opened a second front in a global trade war. With China in the east, with Europe in the west.
If you take President Trump’s word, every percentage point of rates in the form of dollars – “billions of dollars!” – will flow to the treasury.
In the meantime, economists have explained often enough that this is not the case – the US Peterson Institute recently concluded that consumers are now going to be affected by the trade war. And so they must assume that Trump has other intentions with his protection measures. It may be that he wants to force the countries he finds in this way to make concessions in negotiations for a bilateral trade agreement.
The US president said Thursday that a Chinese delegation will arrive in Washington next week for new talks. He demands that China be serious about combating patent theft and that it will stop artificially lowing the value of its currency. The latter is also a reproach from Trump to the European Union: by making the euro cheap through low interest rates, Europe creates a favorable trading position for products.
But in the meantime, not only the Chinese and European economies are suffering from the trade war, but also in the US there are signs of a weakening economy after an exceptionally long period of expansion. Figures from the manufacturing industry, investment figures, they all point to a flattening of growth or even shrinkage. Recent reports from the WTO and from the OECD point to the trade war as the cause.
That could indicate that Trump has another advantage in mind in his course of action. “After all, he sees the same data as all of us,” said James Knightley, chief international economist at ING bank in New York. Knightley suspects in the rather confusing signals and decisions from the White House how political motives guide economic policy. “It seems that internal political problems, such as the impeachment investigation that has been announced, are leading Trump to a more aggressive trade policy.”
American business becomes “pretty nervous” from the unpredictable president, Knightley said. “That’s why they postpone investments.” According to him, what Trump needs is, quickly, a big win: a new trade agreement with which he can smell. “And China is the biggest fish.”
Abaigael Schlomski is an accomplished economist and financial journalist with over a decade of experience in the industry. He is a regular contributor to EconomicInform, where he provides in-depth analysis and expert commentary on the latest economic trends and events. With a keen understanding of the financial markets and a talent for breaking down complex economic concepts for a general audience, Maurice is a trusted and respected voice in the field.