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Why is nobody talking about the trade deal that EU stroke with Trump
TLDR is that EU makes Trump a blowjob and in return they get the privilege to swallow. The deal is one sided and quite good for the US. The other thing is that if EU is hoping to weather the storm and then it will be off - yeah right. There won't be a person as stupid as Carter in the white house anytime soon. No matter if 2028 is dem or rep year - this deal will be requested to be honored.
Trump's idea to sell access to US market is not without merits even if it is implementation is botched as hell. And no one is brave enough to even propose retaliation.
I think this so-called "deal" is very silly. Obvious points:
This is significantly further from being an actual deal than the UK "deal" was - the UK "deal" was thin but the UK and US announcements were sufficiently similar that you could imagine smart people who wanted to do a thin deal closing the gaps over the course of negotiating the legally binding agreement. This looks suspiciously like a kayfabe deal (similar to ones Trump did with Canada an Mexico back in March) where von der Leyen allows Trump to announce a yuge win while giving up very little of substance - the only part of the deal which is likely to actually happen is cutting EU tariffs on US manufactured goods from an average 1.6% to zero.
There are two ways this can blow over in less time than it takes to negotiate the legally binding deal (which, even if it is possible, will be of order a year). One is that the legality of the tariffs works its way up to SCOTUS who (correctly) say that the President does not have the authority to do what Trump is doing. The other is that the impact of the tariffs on US manufacturing (which is net hurt by the tariffs, both because there are higher tariffs on raw materials than on manufactured goods, and because tariffs hurt disproportionally hurt complex supply chains in general) and US consumers forces the final TACO. I personally rate the chance of SCOTUS overturning the tariffs at 75% and the chance of a TACO over the summer at 20%, for an overall chance of 80% that the political environment is completely different by the time the deal could be ratified.
Midwestern MAGA (including Vance) or Dems will want to renegotiate the deal because they will want to change the underlying industrial policy (of promoting natural resource exports at the expense of US manufacturing). Continuity Trump will want to renegotiate it because Trump renegotiates everything as a matter of course.
The craziest thing here is that the Trump administration is trying to negotiate an accounting identity. Trump is bragging about securing $600 billion in investment pledges. But the whole point of the new approach to tariffs is to reduce the trade deficit, which is equal by accounting identity to net foreign investment in the US. The only way the EU can invest $600 billion in the US is by running a trade surplus, which is precisely the thing Trump says he wants them to stop doing.
If the deal actually happens, it would be bad for American manufacturing (partly because of the de-escalating tariffs, but most importantly because exporting $250 billion a year of energy will mean diverting energy away from domestic industry). But I don't think that bothers MAGA - as I say here, at the level of vibes MAGA want to go back to exporting natural resources like in the good old days, not to reindustrialise America. And if the deal actually happens it would be great for American natural resource producers.
Lets see what happens with China.
Mostly this. There's probably more to be said about that optics of the deal than the substance, not least because of the multitude of interests in inflating / signal boosting the more propagandastic elements for, well, propaganda. At the end of the day, though, it doesn't 'make' people buy stuff, and almost certainly includes a lot of purchasing that would already happen regardless.
I do think one of the more salient / relevant / 'why this deal will pass despite the critics' is that it puts an end (for now) the tariff issue, whereas deliberately trying to scuttle it would re-raise the issue and likely lead to higher. As much as, say, Paris will love to hate on this bill and decry it and so on, the BATNA tariff is higher, not lower, to the tariff in this agreement.
I suspect- though can't say with too much confidence- that another of the elements of this deal is how it will probably shape the European military modernization funds. A lot of the most recent discussion on the face-saving/'what's really in it' has focused on the limits of compulsory purchasing. However, a bigger issue is if EU-wide funding mechanisms will have the 'buy Europe' clauses that were being pushed for. I wouldn't be surprised if even if this deal doesn't 'make' anyone buy US military goods, it also undoes legal restrictions on EU funds being used for that purpose. As in, no one has to buy American, but at the same time people can buy American with funds that were previously being advertised as excluding American.
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And is now firing people for similar! If he wants Powell to lower rates, bad job numbers would help...
How is monetary policy an accounting identity?
A lot of monetary policy thinking starts with MV=PY which is an accounting identity.
For non-economists - M is the total quantity of money in the economy, V is the number of times each dollar is spent in a year, P is the price level, and Y is real GDP. So we say that the total amount of money spent is equal to nominal GDP. A lot of monetarist and monetarist-adjacent macroeconomics is arguing about which elements in this accounting identity are causes and which ones are consequences.
Sure there are accounting identities involved. But the way I interpret the phrase is as saying that the action favored by Trump has a necessary consequence because of such an identity. For example, if your assets increase, either your liabilities or equities increase.
This is not the case for employment (what the comment I was replying to mentioned). There is no accounting identity in monetary economics (that I know of) which links interest rates and employment. There is the Phillips curve, but we can argue about the slope, causality, etc.
Lowering interest rates is not crazy, even if Trump suggests it. Even Milton Friedman recommended it.
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What he really needs to do is negotiate tariffs with Powell instead of the Europeans. Powell has more of what he wants, and is a better negotiator.
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One sided yes, good for the U.S. no. Fundamentally a 15% tariff is still just making the economy less efficient for no benefit besides some tax revenue that could to collected in less distortionary ways. Plus, unlike keeping tariffs that already exist which at least reduces disruption at the cost of long-term growth, new tariffs actively cause disruption. Pretty much the only possible advantage would be slightly increasing resiliency to trade disruptions, and even that isn't that likely because the inherent instability of tariffs imposed by the President without Congress means investors are unlikely to make long-term investments based on avoiding the 15%. Imposing tariffs without retaliatory tariffs in return is like if the U.S. bombed some EU factories and got them to agree not to bomb the U.S. in return, it's one-sided but that doesn't mean it's beneficial.
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Yeah, Trump won this particular round of chicken. Of course, another way to spin it is that 15% tariffs are not a world-shattering amount, especially to the numbers he originally proposed. But all in all, it seems a bit more than just a token amount to allow him to save face.
If two people are in a positive-sum, mutually beneficial relationship then it is very likely that one of them can leverage the relationship for short term gains. "If you really love me, you will cancel on your buddies and go watch that movie I like with me tonight instead" will probably work fine the first time you pull it if your partner is invested in the relationship. On the short-term, tangible level, that is a clear win.
But just because long-term consequences may be more difficult to quantify, that does not mean that they are not there. Every time you pull a stunt like this, your partner is adjusting their valuation of your relationship a tiny bit downwards. Eventually, your partner might suddenly decide to move out and dump you.
Mutually beneficial trade relationships are not so different. I would argue that for past decades, both the US and the EU have immensely profited from the free trade with each other. Zero tariffs are a rather obvious Schelling point. But now Trump with his zero-sum mindset is in charge, and thinks that either the US is fucking someone over, or it is getting fucked over. In the short and medium term, the EU needs trade with the US, so they can not afford a trade war. In the long term, Trump is a red flag. If I was the EU, I would be working hard to secure other trade deals with other nations, so that when another MAGA president decides in a decade that he will not settle for anything less than 30% unilateral tariffs, we are in the position to tell him to fuck off.
What other nation nations? Witch China which we talk down to, with Russia which we hate, with India that will never develop, with Africa that is doomed, with south america that is firmly in US sphere of influence or with Australia, Japan, Korea that depends on US for protection, all while we are crybabies about bullshit like human rights.
We could create a potent anti US union - but we will actually have to do what other players do - play realpolitik. Not play "performative morally superior" just because a century ago some people did bad things.
Exactly. There is no alternative. China and Russia are the only other independent players in the world besides the USA, and China is the only one with a comparable size economy.
If a President decides to squeeze the imperial provinces, they will get squeezed.
Now, the genius move would be to build momentum with these trade deals to try to squeeze China in the near future. China also can't afford to walk away from the table. Let's see how it plays out.
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The deal is very good for the US but all the spending pledges are, as with Japan, pure fiction and essentially the counterparty just tallying up broad estimates of outbound foreign investment, government procurement and so on. The “EU” has no mechanism to force $750bn of investment, no framework to make it happen, and certainly can’t force sovereign governments to spend x amount on their own militaries in American weaponry. But, as the Gulf Arabs also figured out, if you add together all of your companies’ total spending in the US over the next y years that was already going to happen, it sounds like a big number.
As far as trade deals go, the EU sacrificed a a moderate amount to continue exporting at near-current levels to the US. The tariffs are too low, given huge US salary differentials for skilled manufacturing, to reshore manufacturing that is currently done in Europe to the US. But tariff revenue will rise and, on the margins, some US skilled manufacturing will become more competitive.
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