Skeptic France about Trump-Juncker trade deal favoring German cars; EU’s unity in peril

On Wednesday 25 July Jean-Claude Juncker, President of the European Commission (on the right) met with the American President Donald Trump at the White House, in Washington D.C.. © European Union, 2018/Source: EC – Audiovisual Service / Photo: Etienne Ansotte.

The Trump-Juncker trade truce and pledge for ‘zero tariffs’ seems to have left everybody happy, especially Berlin, but the French said don’t uncork ‘les champagnes’, at least not yet. In detail, last Wednesday, the American President Donald Trump and the European Commission President Jean-Claude Juncker met in the White House and struck an agreement about the trade relations between the two pillars of the Western world.

After months of aggressive rhetoric, mainly coming from Washington about taxing the imports of European – aka German – cars and following heavy tariffs on European steel and aluminum, the two men said they found common grounds. They initiated negotiations aimed at building a trade arrangement, and hopefully, a deal. The EU exclusively represents the trade interests of all its member states and thus Juncker committed the entire club. France, though, appeared reserved. Let’s take one thing at a time.

A petite TTIP?

If things evolve as broadcasted after the White House meeting, it will be like a petite Transatlantic Trade and Investment Partnership (TTIP), the much contested full trade deal that Brussels and Washington buried alive two years ago. Reportedly, the good results of the Trump-Juncker meeting have to be credited to the deal making abilities of the two men. People close to the deal say the European leader was excellently prepared for the encounter, a proof that the EU Commission is the most effective public administration of the globe.

According to the EU-US Statement issued after the Trump-Juncker Washington D.C. meeting, the two sides agreed to lower or even zero the tariffs and the non-tariff barriers on industrial goods and cars and the European Union agreed to raise her imports of US natural gas. The two sides also promised to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products and soybeans. The US will refrain from increasing the tariffs on European cars, at least for the negotiations period, and if all goes well, Washington will take back the tariffs already imposed on imports of European steel and aluminum. On top of that, Brussels promised to support Washington in the trade rows with Beijing and work together ‘with likeminded partners to reform’ the functioning of the World Trade Organization.

Who got what?

Some major American news media like Reuters and Wall Street Journal have termed the deal as a Juncker win. They downplay the European pledges calling them cost-free. The promised increases of the European imports of gas and soybeans, are termed market driven or distant future dreams. True, after the imports of American soybeans being taxed by China, their price has fallen already prompting the European livestock breeders to import more of that feed. About the increase of American Liquefied Natural Gas (LNG) imports in the EU, the necessary port installations may take years to construct.

Still, it’s not at all clear if all that was a Juncker win. It suffices to consider what Juncker got in return for agreeing on zero tariffs on imports; Juncker got just the suspension of Trump’s threat to impose a 20% – 25% tax on imports of European cars. The temporary adjournment of the realization of a threat is not a gain in every negotiation. Only the German car exporters – Daimler-Mercedes, VW, Audi and BMW – would have been willing to give anything to the Americans, just to avoid this possible new tax on their exports to the US. More than a million automobiles were exported last year from Germany to the US. Has Juncker prioritized the interests of the German car industry? Yes, very possibly.

Prioritizing Germany?

The proof of that is the negative but so far taciturn but strong reaction from Paris. The French did not yet suggested uncorking the champagnes. Then Paris sources observed that public health issues, protection of the environment. Possibly France will insist on protecting the internal market equilibrium, aka quantitative protection from imports. Arguably all those factors are not negotiable with the Americans. That may mean a full French veto against Juncker’s openings to German car makers.

On top of that, under the WTO rules, zeroing the EU tariffs on imports of foreign cars cannot be restricted to the US. The French car industry will suffer badly – not the German automotive sector – if American, Japanese, South Korean and Chinese cars are imported duty-free in Europe. In a wider horizon, zero or very low tariff international trade favors Germany, a country fully dependent on exports for her wellbeing.

Is EU’s unity in peril?

In conclusion, what Juncker did in Washington may prove to be a bomb in the foundations of the European Union. His favors to the German car industry were appreciated in the capital markets. Last Wednesday, VW stocks rose by 3.3% and BMW gained 3.7%. France, though, may react powerfully against Juncker’s White House agreement.

On 12 July, The European Sting published a lead entitled, “Trump doesn’t only target Germany, aims to crack the entire EU”. This dreadful prospect has not disappeared, not yet. It remains to be seen how the negotiations between the EU and the US will progress during the next few months.