How times have changed.
The EU/US trade framework announced last week at Donald Trump’s Turnberry golf resort in Scotland shows how far Europe has fallen. What Brussels quite bizarrely calls diplomatic success is actually strategic surrender.
The deal’s different narratives tell the real story. Washington ensured the punitive 50 percent tariffs on European steel and aluminium remain firmly in place. Brussels claims quotas, i.e. some limited tariff-reduced exceptions, will ease the pain but it does not know whether it will receive them.
What is clear, though, is that American goods get improved access to Europe. Meanwhile, with just a handful of exemptions, European products face a new 15 percent tariff wall going the other way.
You might think this all sounds a bit like New Zealand’s situation. Like the EU, our exporters have long dealt with American protectionism. And, like the EU NZ has been hit with a new punitive 15 percent tariff.
But there is an important difference: New Zealand simply got hit with tariffs. The EU also got hit with a tariff and then volunteered to buy $750 billion of American energy by 2028 and invest $600 billion in the US economy.
The origins of this framework matter. The White House had previously threatened a full-on trade war. Compared to that alternative, what the EU got was better. No wonder the EU Commission was happy, even though individual EU member states may not have been.
Thus, France called it ‘submission’, while Germany spoke of ‘avoiding unnecessary escalation’. Italy, on the other hand, praised preventing ‘devastation’. As always with the EU, there were 27 different voices, and Trump exploited these divisions masterfully.
But the real farce lies in the promises everyone is pretending to believe.
First, there is a dubious US$600 billion investment pledge. This is the amount of money European companies are supposedly investing in the US, according to the trade deal. There is only one problem. The European Commission cannot command private capital to invest in other countries.
Even in the EU, private investment decisions are still made by company boards, not politicians making promises. Everyone, of course, knew this. But pleasing Trump demanded theatre and big numbers.
The second promise is for the EU to triple its energy imports from the US. This would require the biggest infrastructure upgrade in decades. New Liquefied Natural Gas (LNG) terminals will not magically appear because of a press release.
Europe would still need new storage facilities. The physical bottlenecks to dramatically increasing American energy imports will take longer than a few years to overcome. We are talking about an extra 90 billion cubic metres per year, yet Brussels signed the deal anyway.
Still, there is another irony to all the EU’s pledges. Europe has now-promised imports of American gas are not compatible with its official climate policy.
If Europe somehow achieved these import targets by 2028, it would lock in fossil fuel dependence through to the 2040s. You do not build billion-dollar terminals to abandon them after a few years. As a reminder, the EU’s target was to cut its emissions 90 percent by 2040.
But that now seems like a fantasy when the same EU vastly expands its gas infrastructure to avoid even harsher US tariffs. So, it is fair to say that the trade deal with the US puts a big question mark over Europe’s climate policy.
Yet the actual damage to the European economy will be even more substantial. For many Mittelstand firms, Germany’s small and medium-sized companies, these new trade barriers could be the difference between survival and closure. Germany’s economy is already in recession, and many companies are in a tight situation.
No wonder some larger European companies are considering shifting parts of their production to the US. BMW is expanding in South Carolina. Mercedes is growing its Alabama plant. Volkswagen is currently looking for American sites.
Each factory built in the US is one not built, or closing, in Europe. These are not just flows of capital from Europe to the US. They go along with research jobs, engineering clusters and entire industrial ecosystems, which are now uprooting themselves.
All these issues are making the EU’s trade deal with Trump damaging for Europe. Effectively, it is the EU’s strategic capitulation to the US.
Then again, did the Europeans have a choice? When your defence depends on American goodwill, you have no leverage on anything else. Trump grasped this intuitively. Why negotiate when you can threaten destruction and watch European leaders scramble?
For decades, European politicians have loved talking about “strategic autonomy.” But the deal they got last week proves it has only ever been empty rhetoric. Real autonomy would have required three things that Europe lacks: energy independence, military strength without American protection, and politicians willing to accept short-term pain to achieve these goals.
As it turns out, Europe never had the political resolve to deal with any of these issues. It did not have it at the level of its member states or the EU level, either. This left the EU in a weak negotiating position – a position Trump crudely exploited.
Even then, Europe’s deal may turn out even worse than it looks now. Because if Europe fails to import all the gas it promised to import, and if it also fails to provide the US$600 billion of investment into the US, that will give Trump the justification for inflicting further pain in the future. He could just say that the Europeans did not keep their part of the deal, never mind that it had been unrealistic from the start.
The founders of NATO would not recognise what has happened to the transatlantic relationship. What started as an alliance of partners has become a protection racket where one side pays tributes to avoid economic destruction.
At least New Zealand avoided this kind of deal. It puts the tariffs our own exporters face into a different perspective.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
The deal’s different narratives tell the real story. Washington ensured the punitive 50 percent tariffs on European steel and aluminium remain firmly in place. Brussels claims quotas, i.e. some limited tariff-reduced exceptions, will ease the pain but it does not know whether it will receive them.
What is clear, though, is that American goods get improved access to Europe. Meanwhile, with just a handful of exemptions, European products face a new 15 percent tariff wall going the other way.
You might think this all sounds a bit like New Zealand’s situation. Like the EU, our exporters have long dealt with American protectionism. And, like the EU NZ has been hit with a new punitive 15 percent tariff.
But there is an important difference: New Zealand simply got hit with tariffs. The EU also got hit with a tariff and then volunteered to buy $750 billion of American energy by 2028 and invest $600 billion in the US economy.
The origins of this framework matter. The White House had previously threatened a full-on trade war. Compared to that alternative, what the EU got was better. No wonder the EU Commission was happy, even though individual EU member states may not have been.
Thus, France called it ‘submission’, while Germany spoke of ‘avoiding unnecessary escalation’. Italy, on the other hand, praised preventing ‘devastation’. As always with the EU, there were 27 different voices, and Trump exploited these divisions masterfully.
But the real farce lies in the promises everyone is pretending to believe.
First, there is a dubious US$600 billion investment pledge. This is the amount of money European companies are supposedly investing in the US, according to the trade deal. There is only one problem. The European Commission cannot command private capital to invest in other countries.
Even in the EU, private investment decisions are still made by company boards, not politicians making promises. Everyone, of course, knew this. But pleasing Trump demanded theatre and big numbers.
The second promise is for the EU to triple its energy imports from the US. This would require the biggest infrastructure upgrade in decades. New Liquefied Natural Gas (LNG) terminals will not magically appear because of a press release.
Europe would still need new storage facilities. The physical bottlenecks to dramatically increasing American energy imports will take longer than a few years to overcome. We are talking about an extra 90 billion cubic metres per year, yet Brussels signed the deal anyway.
Still, there is another irony to all the EU’s pledges. Europe has now-promised imports of American gas are not compatible with its official climate policy.
If Europe somehow achieved these import targets by 2028, it would lock in fossil fuel dependence through to the 2040s. You do not build billion-dollar terminals to abandon them after a few years. As a reminder, the EU’s target was to cut its emissions 90 percent by 2040.
But that now seems like a fantasy when the same EU vastly expands its gas infrastructure to avoid even harsher US tariffs. So, it is fair to say that the trade deal with the US puts a big question mark over Europe’s climate policy.
Yet the actual damage to the European economy will be even more substantial. For many Mittelstand firms, Germany’s small and medium-sized companies, these new trade barriers could be the difference between survival and closure. Germany’s economy is already in recession, and many companies are in a tight situation.
No wonder some larger European companies are considering shifting parts of their production to the US. BMW is expanding in South Carolina. Mercedes is growing its Alabama plant. Volkswagen is currently looking for American sites.
Each factory built in the US is one not built, or closing, in Europe. These are not just flows of capital from Europe to the US. They go along with research jobs, engineering clusters and entire industrial ecosystems, which are now uprooting themselves.
All these issues are making the EU’s trade deal with Trump damaging for Europe. Effectively, it is the EU’s strategic capitulation to the US.
Then again, did the Europeans have a choice? When your defence depends on American goodwill, you have no leverage on anything else. Trump grasped this intuitively. Why negotiate when you can threaten destruction and watch European leaders scramble?
For decades, European politicians have loved talking about “strategic autonomy.” But the deal they got last week proves it has only ever been empty rhetoric. Real autonomy would have required three things that Europe lacks: energy independence, military strength without American protection, and politicians willing to accept short-term pain to achieve these goals.
As it turns out, Europe never had the political resolve to deal with any of these issues. It did not have it at the level of its member states or the EU level, either. This left the EU in a weak negotiating position – a position Trump crudely exploited.
Even then, Europe’s deal may turn out even worse than it looks now. Because if Europe fails to import all the gas it promised to import, and if it also fails to provide the US$600 billion of investment into the US, that will give Trump the justification for inflicting further pain in the future. He could just say that the Europeans did not keep their part of the deal, never mind that it had been unrealistic from the start.
The founders of NATO would not recognise what has happened to the transatlantic relationship. What started as an alliance of partners has become a protection racket where one side pays tributes to avoid economic destruction.
At least New Zealand avoided this kind of deal. It puts the tariffs our own exporters face into a different perspective.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
4 comments:
Why, in all the talk of how bad the deal is, is there never any mention of the tariffs the EU has happily put on products coming in. Now that their is push back it is all so unfair.
There isn't a politician in the world who does not know about Trump's character and it's many flaws.
Why do they all simply capitulate to him, and appease him ?
Shades of Hitler.
The most protectionist part of the world that has not fulfilled it's defense responsibilities has been found out.
The EU is a disgrace in the field of heads I win tails you loose in everything.
It may yet work out well for them and the world as they discover the virtue of true open trade, but I do not hold my breath in anticipation.
EU had a choice and they chose the ridiculous Zero Carbon et al agenda . The sooner NZ follows US and drops the green agenda the sooner we will have energy security and growth
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