Trump is smashing a 'phenomenal' deal he already has

By Lionel Laurent

Donald Trump’s tariff blizzard has wiped trillions off the US stock market, raised the risk of recession and infuriated allies everywhere. And for what? China is retaliating, as is Canada, and France and Germany are pushing Brussels to take a tougher stance. Not exactly the “phenomenal” negotiating offers that the Trump administration had expected.

The irony is especially palpable in Europe. It’s hard to imagine a counteroffer better than the setup the US already has: An integrated, pliant, US-aligned market of 440 million people worth $1.5 trillion a year in transatlantic trade. That estimate includes $976 billion in goods commerce, which is now at risk from Trump’s 20 per cent blanket tariff, and $500 billion in services trade, now at risk from European retaliation.

America’s dividend from this relationship is clear to everyone except Trump and his entourage, who talk of being “screwed” by the European Union; this, despite the fact that the EU relies on the US for almost two-thirds of arms imports; half its liquefied natural gas; and over 70 per cent of cloud services such as those supplied by Microsoft Corp. or Google parent Alphabet Inc., which gets half its sales from outside the US. Tech CEOs are describing Trump’s tariffs as the “biggest debacle ever seen.”

There’s no doubt that the unequal distribution of trade gains in both Europe and the US is fueling anger among the left behind — and even Europeans take issue with Ireland’s tax arrangements and Germany’s trade surplus. But there’s no doubt on the Old Continent about which side is winning geopolitically and economically. As far back as the 1950s, America saw European integration as a way to mold a fractious continent into a lucrative market that would serve its own security interests; it was an accurate prediction.

Perhaps the Trump administration’s hope is simply to blackmail Europe into even greater dependency: What if the EU agreed to buy even more of those guns, gas and gadgets from the US in exchange for lower tariffs?

The problem is that Trump’s bullying behavior has made Europe both less able and less willing to make America great again. Pending a US U-turn, continental taxpayers are set to be angrier and poorer with less room to spend. Making Europeans “stronger,” as the European Central Bank’s Isabel Schnabel puts it, should be the focus. In export-led Germany, Economy Minister Robert Habeck is calling for pressure that would make Trump “buckle.” In France, former banker Emmanuel Macron is tearing up the pro-business script and calling on firms to pause American investments. It’s obviously not up to him, but the combination of an economic downturn and erratic US policy may produce a similar effect.

And if pleas from Italy and Spain for a more measured approach fail, brace for a costlier outcome of Trump’s hubris: Retaliation that puts Silicon Valley in an even worse position. Given predictable counter-tariffs on Harley-Davidson Inc. motorcycles or Florida orange juice haven’t moved the needle, there’s mounting support for targeting US tech using regulatory barriers or the EU’s anti-coercion instrument — a tool designed to resist economic bullying from the likes of China or the US. It would require time and unity to deploy, but could restrict US access to European consumer and procurement markets. That means even more pressure on Apple Inc. or Amazon.com Inc.

Obviously, talk is cheap and trade wars, expensive. The hope remains for a negotiated outcome, even if it’s unlikely to be the “free trade” Elon Musk apparently wants. But the more Trump smashes up his EU allies, the more likely that they will see dependence on the US as a geopolitical price not worth paying. Former International Monetary Fund chief economist Olivier Blanchard reckons that a “great reallocation” EU strategy is now looking possible: Make life harder for US tech, shift defense spending to Europe away from the US and seek out like-minded partners in Asia, Latin America and Africa.

Trump seems to view trade wars as an extension of class wars and culture wars. For the rest of the world, it’s real economic warfare. Hence why a poll in France found almost two-thirds of people across the political spectrum, from far left to far right, supported retaliating. That’s the kind of unity that happens after a frontal attack; what comes next is unlikely to be phenomenal.