China and the United States have agreed to a truce in the trade war they have been waging for the past two years. What is supposed to be “phase one” of a larger trade deal was signed in Washington last week.
The most important antagonisms—over China’s support for its firms and its ambitions to upgrade its economy technologically—are unresolved. And tariffs on the two countries’ exports to each other remain much higher than when the conflict began, averaging around 20 percent.
But another trade war could be building up, this time between the US and the European Union (EU). Donald Trump complained in Davos last week that the EU “have trade barriers where you cannot trade, they have tariffs all over the place.
“They are frankly more difficult to do business with than China.”
He is obsessed especially with German car exports to the US and continually threatens to slap tariffs on them.
Foreign Policy magazine recently ran an article with the headline, “Europe is the New Front in Trump’s Trade War.”
And Trump is right. The EU is a tough nut when it comes to trade. The real success of European integration has been to construct a huge continental single market governed by a system of regulations made in Brussels.
Many non-European firms implement these regulations in order to get access to this market—something that causes resentment in Washington.
The EU’s main priority with Brexit is to keep Britain as what one expert called a “regulatory satellite”.
Its preparations for negotiating a Free Trade Agreement with Boris Johnson aim above all to prevent “competitive undercutting or freeriding” by British firms. It is demanding the right to punish Britain for what it defines as breaches of the deal.
Funnily enough, though, the latest front in the brewing transatlantic trade war puts Britain in the firing line. Trump met European Commission president Ursula von der Leyen in Davos and announced he expected a trade deal with the EU before the US presidential elections in November.
This seems unlikely. Discussions over trade in manufactured goods have stalled in particular because France refuses any negotiations over agriculture. Protecting French farmers from international competition has been a priority in Paris since the 1950s.
But the most immediate flashpoint is over digital taxes. France and Britain are among a number of states that want to tax US IT giants such as Facebook and Google. The latter make money out of their citizens but operate from fiscal paradises that shield them from taxation.
Steve Mnuchin, the US treasury secretary, responded last week to British plans by saying, “If people just arbitrarily want to put taxes on our digital companies, we will consider putting taxes arbitrarily on car companies.”
He’d already constructed a package of tariffs on £1.8 billion of French goods in retaliation for France’s digital tax.
Ironically it was the French that caved, despite their traditional complaints about US domineering.
French finance minister Bruno Le Maire and Mnuchin quickly agreed to suspend both the tax and the tariffs while seeking an international deal on digital taxation.
It was the British who hung tougher. “We make our own decisions in relation to taxation and we will continue to do so,” Downing St said. This probably reflects the fact that the Tories have decided to prioritise a trade deal with Brussels over the one they are also pursuing with Washington.
The US is Britain’s biggest trading partner, taking a fifth of its exports—but the EU takes 45 percent.
There was another flare up last Sunday. US commerce secretary Wilbur Ross threatened to retaliate if the EU carried out a plan to tax carbon imports.
These conflicts reflect more than Trump’s protectionism. The huge IT companies represent the lead sector of US capitalism, and he’s defending them despite their bosses’ political hostility.
We’re seeing a growing struggle between three trade blocs—the EU, the US, and China, each with their own regulatory regimes. Smaller powers such as Britain are liable to get squeezed.