After a G7 meeting at which his behaviour was eccentric even by his own high standards, Donald Trump has added new and complex layers to the question of how on earth the other big trading powers should deal with him. This is one of the few areas in which experience does not necessarily bring wisdom. The US president’s actions are now so volatile that each extra piece of data, if anything, makes it harder rather than easier to discern his decision criteria and create a game plan accordingly.
Anyone who thought he was playing a cunning game about boosting votes in the heartlands, for example, has to explain why he is doubling down on tariffs against China despite increasing cries of pain from American farmers hit by retaliation.
So, with a nascent US-Japan trade deal emerging, deadlines ahead for the EU and tensions escalating with China, how do those involved plan on dealing with Mr Trump?
Japan’s proposed agreement — cutting farm tariffs for US exporters to the same level as under the Trans-Pacific Partnership, in return for a bit more market access for industrial goods — is out of the same playbook as the EU’s manoeuvre last summer. A year ago Jean-Claude Juncker, president of the European Commission, started talks about a minimal deal on industrial tariffs to give Mr Trump just enough to hold off imposing car tariffs.
Unlike the EU deal, the outline Japan agreement has the benefit of being designed to avoid a US congressional vote, which would have been unlikely to succeed given the narrowness of the deal. But leaving aside domestic opposition in Japan, it has something unfortunate in common with the EU agreement: it will quite possibly violate World Trade Organization rules by failing to cover “substantially all the trade”.
By agreeing to such narrowly focused talks in defiance of WTO principles, the EU was always likely to start a trend towards countries signing quick partial agreements with the US just to get Mr Trump off their back. It is disturbing that even Japan, champion of the multilateral system, seems to be succumbing. Mr Trump could always lose patience and impose car tariffs on the EU anyway. As Simon Evenett, professor of international trade and economic development at Switzerland’s University of St Gallen, says in a good paper on the EU’s response to Mr Trump, the appeasement strategy looks fragile and more of a tactic to buy time.
As for the EU itself, it is moderately optimistic that Mr Trump will be content with imposing tariffs related to the Airbus ruling rather than reaching for car tariffs as well, when the deadline for deciding the latter comes up in November. But that could be upended at any time.
Meanwhile, China has maintained the same course for a while, continuing to retaliate against the US with selective tariffs that are as tightly targeted as possible. China has also evidently become more adept at recognising when Mr Trump is talking with any degree of seriousness. His sudden outbreak of bonhomie directed at Chinese president Xi Jinping during the G7 aroused very little enthusiasm in Beijing.
One tactic that no big trading power has tried is simply to do nothing. Don’t react to WTO-illegal US tariffs, don’t start talks as long as those tariffs are in place, get on with liberalising trade outside the US relationship. Difficult politically, of course, but it could at least be a valuable exercise in divining Mr Trump’s psychology.
Some pause for Boris Johnson as he eyes US trade deal
The theatre of UK politics continues to descend from light farce towards dark tragedy. On Wednesday the Queen agreed to the prime minister’s request to suspend parliament — usually a routine event, but certainly not for five weeks or under such circumstances — to try to prevent MPs stopping the country sliding towards a hard-deal Brexit.
Part of Boris Johnson’s strategy is to convince the public and MPs that a no-deal outcome wouldn’t be as bad as all that. The latest wheeze was reviving the idea of a quick bilateral deal with the US as soon as the UK has left the EU, which set off a frenzy of investigation into Mr Johnson’s protests against American food hygiene laws that prevent British-made pork pies from entering the US market.
It would be easy enough to make such an agreement as long as the UK basically gave in to US demands. A quick and dirty deal has been done before involving the US and an ally. Beginning in 2003 — when ideological soulmates (and comrades in the Iraq invasion party) Australian prime minister John Howard and US president George W Bush were in power — a bilateral deal between the two countries was negotiated and signed in little over a year.
Unfortunately, it won Australian companies, and particularly their globally competitive beef and sugar farmers, very little access to the US market. Still, it fulfilled a short-term PR function, and perhaps that’s all Mr Johnson needs.
Dealing with Donald Trump on trade has become increasingly difficult, not easier, with time, complicating the calculations of all America’s trading partners, writes Free Trade co-author James Politi.
Partly, this is because the cycles of escalation and reconciliation have become shorter, more intense and less predictable — a trend that has been on vivid display with China but is also noticeable with the EU and which stunned Mexico earlier in the summer.
A notable exception may be Japan, where we have now been in a protracted phase of conciliatory dealmaking that could result in an agreement next month.
The idea of ignoring the Mr Trump, rather than responding to him, will sound very appealing in many capitals, but the rub is that not playing his game may trigger even more of the US president’s ire.
The number: $689bn
The value of estimated worldwide remittances by workers in 2019, surpassing foreign direct investment to developing countries, according to the World Bank.
In 2000, trade between China and Africa was about $10bn, according to the China Africa Research Initiative (Cari) at the Johns Hopkins University School of Advanced International Studies in Washington. By 2015, it had peaked at more than $200bn.
● Outlook for US corporate profits dims as trade war bites (FT)
● African governments are trying to put together a continent-wide trading area (FT)
● The US has blacklisted more than 20 of Huawei’s R&D sites worldwide (Nikkei Asian Review)
● The Federal Reserve should discourage Trump’s trade war by refusing to loosen monetary policy to compensate, says a former New York Fed president (Washington Post)
● The Trade Talks podcast discusses Germany’s controversial trade surplus