United States and Europe Forestall Trade War With Preliminary Agreement, Further Talks

WASHINGTON — The United States and the European Union stepped back from the brink of a trade war Wednesday, after President Donald Trump said the Europeans had agreed to work toward lower tariffs and other trade barriers, and to buy billions of dollars of U.S. soybeans and natural gas.

The surprise announcement, made by Trump and the president of the European Commission, Jean-Claude Juncker, defused, for the moment, a trade battle that began with Trump’s tariffs on steel and aluminum exports and threatened to escalate to automobiles.

“We’re starting the negotiation right now, but we know very much where it’s going,” Trump said, standing next to Juncker at a hastily scheduled appearance in the White House Rose Garden.

Juncker said, “I had the intention to make a deal today, and we have made a deal today.”

The two sides, he said, agreed to hold off on further tariffs and work toward dropping the existing ones on steel and aluminum, while they tried to work out a deal to eliminate tariffs, nontariff barriers and subsidies on industrial goods, excluding autos.

It was hard to say, given Trump’s bluster and unpredictable negotiating style, if the agreement was a genuine truce or merely a lull in a conflict that could flare up again. Twice, Trump’s aides have negotiated potential deals with China, only to have him reject them and impose further tariffs. Cutting these trade barriers to zero would be an extraordinarily complex political challenge on both sides of the Atlantic.

And Trump stepped back from punitive tariff threats for some relatively minor European concessions: the purchase of soybeans to make up for a steep falloff of buying by China, and the promise to purchase liquefied natural gas once the U.S. builds more LNG export terminals, which are far away. For weeks, the president has portrayed the EU as fleecing America with unfair trade, but he put away his saber as farm state Republicans were begging for relief.

“I think it’s helpful that they made some progress today with the European Union, and I think we really emphasized that we need to keep the momentum up and get the deals as soon as we can,” said Sen. John Hoeven, R-N.D, who was at the White House for the announcement.

Europe’s pledge to buy more natural gas gives Trump a talking point with Russia, after he vowed to compete for orders in Europe, where Russia is the largest supplier. The lack of natural gas terminals, though, means that this windfall is years in the future. Still, Trump called it “a new phase in the relationship between the United States and the European Union,” a striking change in tone from his recent trip to Europe, when he referred to the European Union as a “foe” and criticized its most important member, Germany, for its dependence on Russian gas.

The two leaders made the announcement before more than a dozen Republican lawmakers, who had expressed growing alarm at the president’s protectionist actions, which they said were harming farmers. Republicans said they were summoned to the White House believing they were there to negotiate. Then they were ushered into the Rose Garden for the announcement.

“We arrived there and then we became eye candy on the set,” said Sen. Pat Roberts, R-Kan., who was singled out by the president for his farm advocacy.

Trump, in turn, had expressed irritation with the Republican resistance, saying it washobbling him in his negotiations.

“When you have people snipping at your heels during a negotiation,” he said on Twitter, “it will only take longer to make a deal, and the deal will never be as good as it could have been with unity. Negotiations are going really well, be cool. The end result will be worth it!”

The Trump administration has already imposed billions of dollars of tariffs on the EU for what it has labeled unfair trade practices, raising costs for companies and consumers and roiling a traditionally close alliance. Trump’s threat to go after automobiles particularly rattled the Germans, who export millions of BMWs and Mercedes-Benzes to the United States but also produce millions at U.S. factories.

Juncker was dispatched to Washington this week along with other European officials as part of a last-ditch effort to halt those tariffs. A former prime minister of Luxembourg known for his informal manner and occasional gaffes, Juncker has forged a good rapport with Trump, and the two men appeared at ease Wednesday.

“Disaster avoided,” said Bart Oosterveld, the director of the global business and economics program at the Atlantic Council. “Earlier today, our highest hopes were for a truce, and this is kind of like a truce.”

Fred Bergsten, senior fellow and director emeritus of the Peterson Institute of International Economics, said an agreement with Europe would allow Trump to focus on China. But he said that the deal seemed to have an “eerie similarity” to one with China this year, shortly before Treasury Secretary Steven Mnuchin announced that the trade war was “on hold.”

“We have seen something like this movie on the other major trade front only a couple of months ago, and I would just hope that it would not play out in the same way, which at the moment seems to be a stalemate with China,” Bergsten said.

But Republicans were happy to declare victory. “There’s an emotional uplift, because this is the first big breakthrough,” said Rep. K. Michael Conaway, R-Texas and the chairman of the House Agriculture Committee, who was at the event. He added that it “demonstrates the president believes he’s on the right track, and it’s hard to argue that he’s not.”

Trump did not promise to remove the tariffs on shipments of steel and aluminum coming from Europe, and the Europeans did not promise to lift their retaliatory tariffs. But he said that the tariff issues would “get resolved as part of what we’re doing.” In May, the U.S. began levying tariffs on roughly $7.7 billion of steel and aluminum exported from the EU, which goaded the Europeans into imposing taxes of their own on $3.3 billion of U.S. products and challenging the United States at the World Trade Organization.

Juncker had called the U.S. tariffs and the cycle of retaliation they had invoked “basically a stupid process,” saying the Europeans would now be forced to respond in kind.

“We will now impose tariffs on motorcycles, Harley-Davidson, on bluejeans, Levi’s, on bourbon. We can also do stupid,” he added.

Trump had threatened to substantially escalate this conflict with another round of tariffs, this time on the automobile industry. European countries, especially Germany, are major exporters to the U.S., although they also produce many cars domestically. The United States imported $183.8 billion of cars, sport utility vehicles and minivans last year, $46.6 billion of them from the EU.

In a hearing in Washington last week, representatives from car companies and foreign governments gave testimony on the proposed tariffs that was almost uniformly negative, punctuated by concerns about rising prices for consumers, shrinking profits for companies and decreased access to markets abroad.

The European Union believes “that this current investigation lacks legitimacy and factual basis and would lead the United States into a breach of international law,” David O’Sullivan, the EU ambassador to the United States, said at the hearing.

European officials have said they are drawing up a list of additional levies on roughly $20 billion of U.S. products, including food, machinery and high-tech goods, in case the car tariffs go into effect.

But they worry that the tit-for-tat trade actions are merely locking Europe and the United States into a destructive cycle of relations that will leave consumers and companies on both sides of the Atlantic worse off.

Trump has denounced the EU for charging a 10 percent tariff on imported cars, running a trade surplus with the United States and maintaining barriers to U.S. farm products, saying this month that the Europeans were “possibly as bad as China” when it comes to trade.

Economists have challenged these claims. They counter that average tariffs across both nations are extremely low, and that the U.S. trade deficit is more a function of broader economic factors, like the U.S. savings rate, than any specific tariffs. Even in the realm of automobiles, the United States charges only a 2.5 percent tariff on imported cars, but it has a 25 percent tariff on foreign trucks and maintains higher levies on many other products.

“Tariffs are low throughout the industrialized world,” said Justin Wolfers, an economist at the University of Michigan. “Basically, if you said there’s no more tariffs to reduce, you would barely be wrong.”

In a briefing Tuesday, a senior European official said that Juncker was prepared to discuss two options to revive the trading relationship — either an agreement that would involve many of the world’s biggest auto exporters slashing car tariffs together, or a trade deal between Europe and the United States that would be limited to certain products.

The European Union has struggled to figure out what exactly the United States would like to gain through talks, and whether the Trump administration is negotiating in good faith, the senior official said.

White House officials have described their tariffs as a negotiating tool to secure better trade agreements. But meanwhile, the Trump administration has shelved previous talks with Europe over a broader trade agreement, called the Transatlantic Trade and Investment Partnership.

If the issue is lowering tariffs, the EU has proposals ready to reduce them, negotiators say. But they worry that the president’s real preoccupation is the U.S. trade deficit, an issue both government officials and economists say Europe is largely powerless to alter. On Wednesday, the president continued to refer to the trade deficit as a scorecard for failed negotiations, a practice economists have condemned.

“Every time I see a weak politician asking to stop Trade talks or the use of Tariffs to counter unfair Tariffs, I wonder, what can they be thinking?” he wrote on Twitter.

“Are we just going to continue and let our farmers and country get ripped off? Lost $817 Billion on Trade last year,” the president added, incorrectly citing the 2017 U.S. deficit in goods, which was $810 billion. “No weakness!”