Why has the truce been agreed and why has it hold so far? The answer should be found in the state of another big trade dispute, even more acute, between the US and China. The US has applied additional tariffs on a large part of Chinese imports, and China retaliated in kind. The US has a number of claims against China’s practices that are largely shared in the US and around the world, including in the EU, and the current Administration seems determined to obtain significant changes from China.
What the US tactically cannot afford is to fight at the same time two big trade battles – one against China and the other against the EU. The US seems determined to address its main concern (China) first, which led to the truce currently holding with the EU.
Recently however there are signs that the US and China are making some progress in finding an agreement. Talks are on-going, and the Chinese have given signs of goodwill by re-opening imports of US soybeans and approving a number of GMO varieties for US exports. The fact that the Chinese economy is not in good shape, is more dependent on trade than the US economy, and the one-party regime stability hangs on the economic welfare of the country is certainly a factor pushing Beijing towards accommodation. The self-imposed deadline is the 1st March. The outcome is uncertain, and either an agreement is found or the US has threatened to ramp-up the duties against Chinese imports.
Meanwhile the US Department of Commerce is set to present the result of its investigation on cars and auto-parts imports by mid-February. The investigation will be assorted by proposals and it is expected that additional tariffs will be included.
Where do we stand in this high stake, high uncertainty, trade dispute?
If the US and China find an agreement, the US will be in good shape and have freer hands to engage with the EU. Although ramping-up pressure on the EU does not enjoy the wide level of support in the US as pressing China, it would most likely come in with a choice for the EU between negotiating a trade deal potentially favorable to the US or face additional tariffs on some imports (no doubt cars).
In this scenario the pressure on the EU to negotiate a TTIP-light, including agriculture but excluding a number of other contentious issues like investment and public procurement, would be very strong. And the pressure of Germany, the main loser if cars are targeted, on France and others to agree on those terms would be as strong.
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