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If there’s one thing that US President Donald Trump’s tariff vandalism has done, it’s to stress test trading partners’ ability to make and execute trade policy at speed. The latest put under this pressure is the EU, which reacted with startled affront last weekend when Trump suddenly threatened its exports with a 30 per cent tariff.
This last week has shown us one situation where the EU’s trade policy machine has worked with persistence and precision. It has also revealed a rather more important one in which it is flailing, the flaws in its institutional structure being matched by a failure of imagination about how to overcome them.
First, the modest good news. After almost exactly 10 years of negotiation, Brussels obtained a “political agreement” with Indonesia for a bilateral trade deal. This will further widen its footprint in east Asia. Such announcements can cover up a lot of continued gaps in negotiating positions with warm-words aspiration, but a political agreement creates a degree of expectation which generally leads to the real thing.
Rash prediction here, but I suspect the EU’s deal will do more for Europe’s long-term economic engagement with Indonesia than will Trump’s supposed deal with Jakarta this week for the US. The US version (on the usual nonbinding basis) gave American exports zero-tariff access to the Indonesian market while charging a 19 per cent duty on goods coming the other way.
The EU deal reflects its traditional trade machinery at work: a negotiating mandate from the member states pursued by the commission in years of painstaking detailed talks. When the EU had a problem with Indonesia, in the form of the country’s restrictions on exports of nickel ore to build up its own processing industry, it engaged via the slow and detailed process of a WTO case.
The EU is discovering, though, that this negotiate-and-litigate approach doesn’t work with Trump. I wrote even before Trump was elected that trying to engage rationally with him on trade would be like playing chess with an angry rhino. This has proved to be an uncomfortably accurate metaphor.
Some European officials seem to have difficulty grasping that Trump viscerally dislikes the EU on principle. The bloc is everything he isn’t: supranational, legalistic, multilateralist and socially progressive — or, as he might term it, “woke”. It should not have been a shock to Brussels that EU negotiators tried to engage with their interlocutors for weeks in their usual measured and iterative fashion and still got clobbered with the tariff threat.
During Trump’s first administration, the then commission president Jean-Claude Juncker moved at speed (and without a member state mandate) to defuse threats of tariffs by bamboozling the president with specious offers to buy soyabeans and liquefied natural gas. It was a neat trick, but Trump’s dislike of the EU means a similar approach might not work again.
The EU is also currently displaying one of its unhelpful traditions, an outsize obsession with its car industry. It’s an old and oft-repeated Brussels saying but it’s uncomfortably true: EU trade policy is determined by Germany, German trade policy is determined by manufacturing, German manufacturing is determined by the car industry and thus EU trade policy is ultimately determined by Volkswagen.
The commission attempted to tell German Chancellor Friedrich Merz last month that his precious car industry could not emerge from contact with Trump unscathed, but the old instinct won out. Negotiations between Brussels and Washington at the moment are focusing on a blindingly complex two-way deal for auto trade devised by the EU side which is having some difficulty getting traction in Washington. The literal is also metaphorical: the EU builds precisely engineered vehicles of trade law only to find they’re in a demolition derby with Trump at the wheel of a monster truck.
Meanwhile, the EU postponed one thing that might impress Trump — the package of countermeasures it had prepared for Tuesday — in an attempt to let the talks play out. Moderate and proportionate retaliation only after negotiation has failed, rather than hitting the US hard and fast, is not going to impress the US president. Doing nothing and watching Trump’s tariffs damage the US economy would also be an entirely reasonable strategy, but fear of the hit to car exports is preventing that.
The EU learning to do something for the first time at speed is not generally an edifying spectacle. The shambolic response to the Eurozone sovereign debt crisis from 2010 onwards or the first few months of the rush to procure Covid vaccines after the beginning of the pandemic come inevitably to mind. There are a variety of approaches it could take to relations with the US, but at the moment it is taking none of them with unity and conviction. Trump is unlikely to be impressed or intimidated by what he’s seen so far.
