EU-US trade pact causes peak confusion in Brussels

Welcome to Trade Secrets, summer edition. Filling the inimitable Alan Beattie’s shoes is a tall ask, but I will do my best to bring you some perspectives from Brussels on the EU-US trade deal signed by leaders last month. Like other pacts brokered by President Donald Trump, it was implemented via a broader executive order on Friday and a high-level joint statement, which has yet to be released.

The fallout has not been enough to derail the deal, but the criticism has been heavy. For reference, the French prime minister called it a “dark day” for Europe, and take a look at Marc De Vos’s excoriating take in Trade Links below. Charted Waters (where we look at the data behind world trade) is on, you guessed it, US tariffs.

My name is Alice Hancock and I normally cover climate and energy policy in Brussels when not moonlighting on trade.

When is a deal not a deal?

Alan noted last week how many of Trump’s so-called deals are really more like loose agreements or “vibes”. Vietnam and the US are still unsure of what the 20 per cent tariff rate actually means. Japan is less than clear about where the profits of its promised investments in the US are destined.

The EU-US trade pact has caused peak confusion in Brussels. Last Monday evening, the White House put out a “factsheet” explaining the “colossal deal”. Among other items, it said the EU would now pay 15 per cent tariffs on cars, pharmaceuticals and semiconductors. Steel and other metals would continue to face 50 per cent levies.

One day later, the EU put out its own explainer saying that pharmaceuticals, for example, will not be subject to additional tariffs until the US has ruled on the outcome of ongoing Section 232 investigations. Steel, Brussels said, would be subject to tariff rate quotas above which, critically, the 50 per cent tariff would come into effect.

You can read here about the disarray concerning champagne and other wines after US officials said booze would be subject to the headline 15 per cent rate. Brussels has since confirmed that.

The European Commission later described the joint statement that was expected to formalise the deal as a “platform” or “road map” for further development of the trading relationship, a spokesperson said. France’s President Emmanuel Macron told his cabinet the EU had not been “feared” enough.

As one EU diplomat put it, the two sides were always going to be fundamentally at odds: “We as bureaucrats like to have things on paper, but they are dealmakers.”

The lack of formality might give the commission room to manoeuvre around one tricky element though: a lack of World Trade Organization compliance.

Offering one country favourable rates without a trade agreement — such as the EU offering the US a zero-tariff rate on industrial goods — could be seen as discriminatory under WTO rules.

Perhaps that doesn’t matter, as Sam Lowe, partner at Flint Global, says: “The WTO as an institution can do next to nothing about anything, so in that sense the US and EU can do whatever they want.”

“This is more of a question about how the EU — which publicly positions itself as a rules-based body that wants to uphold the rules-based trading system — can justify giving lower tariffs to the US even though there isn’t a real trade agreement in place,” he says.

But, points out Dmitry Grozoubinski, senior trade adviser at Aurora Macro Strategies, there is a “legal fig leaf” where the EU can claim these are interim provisions on the way to a free trade agreement.

“If you throw enough lawyers at it, you can make a letter of the law case that you are not blatantly against . . . One thing that is mitigating the damage to the system here is that everyone understands that dealing with the Trump administration is a sui generis situation,” he adds.

World Tariff Organisation?

Speaking of, where does this new world of “vibey” deals leave the arbiter of global trade?

It’s a very good question, Penny Naas of the German Marshall Fund says. Clearly common consensus is that the WTO is long overdue large reform. EU trade commissioner Maroš Šefčovič even mentioned that this would be part of EU-US co-operation in trade going forward. “Fostering our joint efforts to tackle pressing global challenges, such as the much-needed reform of the WTO,” the Slovak politician said last Monday.

“There is a global discrepancy in global tariff rates. [Trump] is right on that and there are developing countries where tariffs are too high,” says Naas.

One senior EU diplomat, in a wry mood, suggested the WTO be branded the “World Tariff Organisation”, and that the bloc tell Trump “we need an organisation to run all these different schemes”.

In more seriousness, the WTO named Jennifer Nordquist, who has served in both Trump administrations, as its new deputy director-general last week. “It doesn’t look to me that the US will walk away,” Naas says.

Lowe at Flint Global says: “All Trump is doing calls into question the rules-based trading system. But at the moment the main impact is just between the US and other countries.” There would be “much bigger issues” if other countries started “blatantly ignoring rules” when trading with each other.

Charted waters

Trump has raised US tariffs to their highest level since the 1930s and he has struck fewer than 10 of the 90 deals he promised in 90 days.

Trade links

• Marc De Vos lays out some hard truths for Europe here: “The leading multilateral free trade block in the world has failed to stand up for trade.”

• Noah Barkin of the German Marshall Fund unpicks what a frosty summit in Beijing between EU and Chinese officials means for a relationship that was supposedly set to warm up in the face of Trump.

• Taiwan was one of the first trading partners to start talks with Trump after his “liberation day”. But its lack of a deal has increased fears about weakening US security support.

• What’s going on in Argentina? FT Latin America editor Michael Stott talks to Alejandro Werner, former head of the IMF’s western hemisphere department and founding director of the Georgetown Americas Institute, about Javier Milei’s surprisingly steady hand.

Trade Secrets is edited by Harvey Nriapia