Slowbalisation

The steam has gone out of globalisation

A new pattern of world commerce is becoming clearer—as are its costs


WHEN AMERICA took a protectionist turn two years ago, it provoked dark warnings about the miseries of the 1930s. Today those ominous predictions look misplaced. Yes, China is slowing. And, yes, Western firms exposed to China, such as Apple, have been clobbered. But in 2018 global growth was decent, unemployment fell and profits rose. In November President Donald Trump signed a trade pact with Mexico and Canada. If talks over the next month lead to a deal with Xi Jinping, relieved markets will conclude that the trade war is about political theatre and squeezing a few concessions from China, not detonating global commerce.

Such complacency is mistaken. Today’s trade tensions are compounding a shift that has been under way since the financial crisis in 2008-09. As we explain, cross-border investment, trade, bank loans and supply chains have all been shrinking or stagnating relative to world GDP (see Briefing). Globalisation has given way to a new era of sluggishness. Adapting a term coined by a Dutch writer, we call it “slowbalisation”.

The golden age of globalisation, in 1990-2010, was something to behold. Commerce soared as the cost of shifting goods in ships and planes fell, phone calls got cheaper, tariffs were cut and the financial system liberalised. International activity went gangbusters, as firms set up around the world, investors roamed and consumers shopped in supermarkets with enough choice to impress Phileas Fogg.

Globalisation has slowed from light speed to a snail’s pace in the past decade for several reasons. The cost of moving goods has stopped falling. Multinational firms have found that global sprawl burns money and that local rivals often eat them alive. Activity is shifting towards services, which are harder to sell across borders: scissors can be exported in 20ft-containers, hair stylists cannot. And Chinese manufacturing has become more self-reliant, so needs to import fewer parts.

This is the fragile backdrop to Mr Trump’s trade war. Tariffs tend to get the most attention. If America ratchets up duties on China in March, as it has threatened, the average tariff rate on all American imports will rise to 3.4%, its highest for 40 years. (Most firms plan to pass the cost on to customers.) Less glaring, but just as pernicious, is that rules of commerce are being rewritten around the world. The principle that investors and firms should be treated equally regardless of their nationality is being ditched.

Evidence for this is everywhere. Geopolitical rivalry is gripping the tech industry, which accounts for about 20% of world stockmarkets. Rules on privacy, data and espionage are splintering. Tax systems are being bent to patriotic ends—in America to prod firms to repatriate capital, in Europe to target Silicon Valley. America and the EU have new regimes for vetting foreign investment, while China, despite its bluster, has no intention of giving foreign firms a level playing-field. America has weaponised the power it gets from running the world’s dollar-payments system, to punish foreigners such as Huawei. Even humdrum areas such as accounting and antitrust are fragmenting.

Trade is suffering as firms use up the inventories they had stocked in anticipation of higher tariffs. Expect more of this in 2019. But what really matters is firms’ long-term investment plans, as they begin to lower their exposure to countries and industries that carry high geopolitical risk or face unstable rules. There are now signs that an adjustment is beginning. Chinese investment into Europe and America fell by 73% in 2018. The global value of cross-border investment by multinational companies sank by about 20% in 2018.

The new world will work differently. Slowbalisation will lead to deeper links within regional blocs. Supply chains in North America, Europe and Asia are sourcing more from closer to home. In Asia and Europe most trade is already intra-regional, and the share has risen since 2011. Asian firms made more foreign sales within Asia than in America in 2017. As global rules decay, a fluid patchwork of regional deals and spheres of influence is asserting control over trade and investment. The European Union is stamping its authority on banking, tech and foreign investment, for example. China hopes to agree on a regional trade deal this year, even as its tech firms expand across Asia. Companies have $30trn of cross-border investment in the ground, some of which may need to be shifted, sold or shut.

Fortunately, this need not be a disaster for living standards. Continental-sized markets are large enough to prosper. Some 1.2bn people have been lifted out of extreme poverty since 1990, and there is no reason to think that the proportion of paupers will rise again. Western consumers will continue to reap large net benefits from trade. In some cases, deeper integration will take place at a regional level than could have happened at a global one.

Yet slowbalisation has two big disadvantages. First, it creates new difficulties. In 1990-2010 most emerging countries were able to close some of the gap with developed ones. Now more will struggle to trade their way to riches. And there is a tension between a more regional trading pattern and a global financial system in which Wall Street and the Federal Reserve set the pulse for markets everywhere. Most countries’ interest rates will still be affected by America’s even as their trade patterns become less linked to it, leading to financial turbulence. The Fed is less likely to rescue foreigners by acting as a global lender of last resort, as it did a decade ago.

Second, slowbalisation will not fix the problems that globalisation created. Automation means there will be no renaissance of blue-collar jobs in the West. Firms will hire unskilled workers in the cheapest places in each region. Climate change, migration and tax-dodging will be even harder to solve without global co-operation. And far from moderating and containing China, slowbalisation will help it secure regional hegemony yet faster.

Globalisation made the world a better place for almost everyone. But too little was done to mitigate its costs. The integrated world’s neglected problems have now grown in the eyes of the public to the point where the benefits of the global order are easily forgotten. Yet the solution on offer is not really a fix at all. Slowbalisation will be meaner and less stable than its predecessor. In the end it will only feed the discontent.


Emmanuel Macron receives a lesson in populist politics

The French president will never be a man of the people but he is trying to make amends

Philip Stephens



There is nothing overly complicated about Emmanuel Macron’s struggle with the angry insurgency of France’s self-styled gilets jaunes. A president who stormed the citadels of the French political establishment en route to the Elysée Palace, and who has since pushed through an impressive array of reforms, turns out to be not so good at, well, politics.

Satisfaction with the way the yellow-vested protesters have punctured Mr Macron’s Jupiterian presidency is not confined to la France profonde. We have been watching the retreat from Moscow, a paid-up member of the Parisian elite said the other day of the president’s troubles.

Last summer Mr Macron marked his first year in office by celebrating a victory in Moscow for France’s football World Cup team. And now? A spate of ministerial departures and the weekly appearances on the streets of the gilets jaunes have seen his ratings fall.

At a time when governments across Europe are being destabilised by the growing distance between rulers and ruled, Mr Macron ignored one of the more elementary rules of politics. His government of super-smart technocrats barged its way into the relationship between voters and their vehicles. Cars do not matter much for metropolitan elites. But outside the big cities, they are a vital expression of individual freedom and an essential tool of daily life.

The French president is not the first to make such an error. In 2000 a young and hitherto hugely popular prime minister by the name of Tony Blair looked on helplessly as British fuel depots were blockaded by protests against rising prices at the pumps. The nation shuddered to a standstill. The lesson was learnt. During nine of the 10 years since the 2008 financial crash, British governments have frozen fuel taxes.

Colliding attitudes towards cars offer about as good a measure there is of the political estrangement within much of Europe between prosperous cities and struggling provincial towns and rural areas. In the 2016 Brexit referendum, most of Britain’s great metropolitan centres backed EU membership. The Leave vote came in provincial cities and towns. Remainers can take the bus or Undergound; for Leavers a car often is the only way to school or workplace. The well-heeled worry about air quality; their provincial cousins about the price of a tank of petrol.

The car, a Parisian friend reminded me the other day, has a particular significance in French politics. During the 1950s, the economic demands of the Poujadist movement, from which today’s gilets jaunes draw inspiration, came close to laying low the Fourth Republic. The establishment was saved only because fast-spreading vehicle ownership provided a safety valve for the grievances of small town France.

Mr Macron’s misfortune last autumn was that a long-planned increase in the fuel tax followed a succession of market-driven price rises and coincided with a government safety initiative cutting the speed limit on secondary roads. To add insult to injury, the government also toughened up safety checks on the older vehicles that fill the roads of rural France. An attack on living standards became an assault on the essential freedoms of many French citizens.

The measures could each be justified on its own terms. Put them together and they delineated the gulf between the worldview of a technocrat in the Elysée and the harsh realities of life for those beyond the Paris ring road. Appearances also matter. Mr Macron’s prime minister and cabinet would not be out of place on the Paris catwalks. Only the 71-year-old foreign minister, Jean-Yves Le Drian, has looks that blend with those in the sticks.

The president is making amends. He has frozen the fuel tax, raised benefits for those on the minimum wage and restored relations with the provincial mayors he had previously shunned. He will never cut it as a man of the people, but a much trumpeted national consultation invites citizens to have their say in shaping the future.

Listening and, more importantly, being seen to listen, is a good start. Marine Le Pen, leader of the renamed National Rally party, offers the protesters nothing but scapegoats and snake oil. The scapegoats are the elite, Muslim immigrants and the EU; the snake oil an economy crouching behind the walls of fortress France. There is nothing here but anger and bile. But like populists everywhere, Ms Le Pen has one big strength — a half-convincing pretence that someone is paying serious heed to the grievances of the left behind.

Mr Macron’s reform agenda has been unfairly traduced. True, some early tax breaks for the rich sent a confusing signal. But, fundamentally, his reforms — in education and training, welfare and taxation — are shaped to widen opportunity. The best answer to populism is a new economically inclusive social contract that answers the grievances of those pushed to one side by technological advance and globalisation.

This is the battle to be fought in the May European elections. But Mr Macron is all but alone among European leaders in promoting such a contract. He is not getting much help. This week he joined Germany’s chancellor Angela Merkel in signing a new Franco-German co-operation treaty. It has some useful elements, particularly in the area of mutual defence. But Berlin had to be dragged to the table. Ms Merkel is fluent in the language of European solidarity. The practice falls far short. Yet Germany, as much as any, needs Mr Macron to succeed.


How Can We Tax Footloose Multinationals?

Apple, Google, Starbucks, and companies like them all claim to be socially responsible, but the first element of social responsibility should be paying your fair share of tax. Instead, globalization has enabled multinationals to encourage a race to the bottom, threatening the revenues that governments need to function properly.

Joseph E. Stiglitz

tax protest

NEW YORK – In the last few years, globalization has come under renewed attack. Some of the criticisms may be misplaced, but one is spot on: globalization has enabled large multinationals, like Apple, Google, and Starbucks, to avoid paying tax.

Apple has become the poster child for corporate tax avoidance, with its legal claim that a few hundred people working in Ireland were the real source of its profits, and then striking a deal with that country’s government that resulted in its paying a tax amounting to .005% of its profit. Apple, Google, Starbucks, and companies like them all claim to be socially responsible, but the first element of social responsibility should be paying your fair share of tax. If everyone avoided and evaded taxes like these companies, society could not function, much less make the public investments that led to the Internet, on which Apple and Google depend.

For years, multinational corporations have encouraged a race to the bottom, telling each country that it must lower its taxes below that of its competitors. US President Donald Trump’s 2017 tax cut culminated that race. A year later, we can see the results: the sugar high it brought to the US economy is quickly fading, leaving behind a mountain of debt (the US deficit passed the trillion dollar mark last year).

Spurred on by the threat that the digital economy will deprive governments of the revenues to fund function (as well as distorting the economy away from traditional ways of selling), the international community is at long last recognizing that something is wrong. But the flaws in the current framework of multinational taxation – based on so-called transfer pricing – have long been known.

Transfer pricing relies on the well-accepted principle that taxes should reflect where an economic activity occurs. But how is that determined? In a globalized economy, products move repeatedly across borders, typically in an unfinished state: a shirt without buttons, a car without a transmission, a wafer without a chip. The transfer price system assumes that we can establish arms-length values for each stage of production, and thereby assess the value added within a country. But we can’t.

The growing role of intellectual property and intangibles makes matters even worse, because ownership claims can easily be moved around the world. That’s why the United States long ago abandoned using the transfer price system within the US, in favor of a formula that attributes companies’ total profits to each state in proportion to the share of sales, employment, and capital there. We need to move toward such a system at the global level.

How that is actually done, however, makes a great deal of difference. If the formula is based largely on final sales, which occur disproportionately in developed countries, developing countries will be deprived of needed revenues, which will be increasingly missed as fiscal constraints diminish aid flows. Final sales may be appropriate for taxation of digital transactions, but not for manufacturing or other sectors, where it is vital to include employment as well.

Some worry that including employment might exacerbate tax competition, as governments seek to encourage multinationals to create jobs in their jurisdictions. The appropriate response to this concern is to impose a global minimum corporate-income tax. The US and the European Union could – and should – do this on their own. If they did, others would follow, preventing a race in which only the multinationals win.

Since its inception, the OECD/G20 Base Erosion and Profit Shifting Project has made an important contribution to rethinking the taxation of multinationals by advancing understanding of some of the fundamental issues. For example, if there is true value in multinationals, the whole is greater than the sum of the parts. Standard tax principles of simplicity, efficiency, and equity should guide our thinking in allocating the “residual value,” as the Independent Commission for the Reform of International Corporate Taxation (of which I am a member) advocates. But these principles are inconsistent either with retaining the transfer price system or with basing taxes primarily on sales.

Politics matters: the multinationals’ objective is to gain support for reforms that continue the race to the bottom and maintain opportunities for tax avoidance. Governments in some advanced countries where these companies have significant political influence will support these efforts – even if doing so disadvantages the rest of the country. Other advanced countries, focusing on their own budgets, will simply see this as another opportunity to benefit at the expense of developing countries.

The OECD/G20 initiative refers to its efforts as providing an “Inclusive Framework.” Such a framework must be guided by principles, not just politics. If the goal is genuine inclusiveness, the top priority must be the wellbeing of the more than six billion people living in developing countries and emerging markets.


Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His most recent book is Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.


Equities Turmoil Throws Europe’s Largest Bank Off-Track

BNP Paribas is forced to cut strategic targets after terrible fourth quarter

By Paul J. Davies



Investment banking was tough for many at the end of 2018, but at Europe’s largest bank by assets, BNP Paribas , BNPQY 1.00%▲ it was bad enough to throw its strategic plans off track.

The French bank cut its expectations for revenue growth Wednesday, increased its cost-cutting targets and cut its overall return on equity target for 2020 to 9.5% from 10% after reporting disappointing 2018 numbers. Most of the changes were down to its investment bank. 





Analysts were already doubtful about BNP’s return targets. Some, such as RBC Capital Markets, thought its new revenue growth forecast of 1.5% would still draw skepticism from investors.

The French bank’s equities business was the biggest disappointment in the fourth quarter. Not only was activity weaker in general, but it also suffered valuation losses on equities and derivative positions held on its books and took a big loss unwinding hedges on a large U.S. index derivative position.




BNP Paribas Jean-Laurent Bonnafé speaking at the bank's news conference in Paris on Wednesday.
BNP Paribas Jean-Laurent Bonnafé speaking at the bank's news conference in Paris on Wednesday. Photo: Christophe Morin/Bloomberg News 


Equities were BNP’s brightest spot in 2017 and the first half of 2018 after a big push into the hedge fund business brought strong revenue growth. That momentum evaporated in the fourth quarter with the losses it suffered cutting revenue by 70% versus the comparable period a year earlier. The rebound in stocks in 2019 so far should reverse some valuation losses, but the U.S. hedging loss is permanent.

BNP now has to do more of what most other banks have already done: weed out less profitable customers and low-returning business. It has already decided to close a trading desk that made bets with the bank’s own funds.

However, the market outlook isn’t great: More market volatility that is short, sharp and difficult to manage seems likely this year. Investors need reassurance that the slip-ups in equities won’t be repeated.


Sentiment Speaks: Metal Market Extremes Test Your Mettle

by: Avi Gilburt


Summary
 
- Metals are setting up a much bigger rally to come later this year.

- I still think we see a pullback before the bigger rally takes hold.

- We have one more potential pitfall in the coming months in the metals complex.
     
 
    
I am often asked by many to see the type of analysis I provide to our members of the Market Pinball Wizard. So, rather than write a separate public article on metals this week, I am going to re-publish my analysis posted to my members over the past weekend. However, I am leaving the charts out, as I have to leave something that is exclusive to my members.
 
So, this was posted this past weekend:
 
Extremes are the hallmark of the metals market. And those that handle the extremes best are usually the ones who do best in the metals market.
 
Consider the extremes we experienced in August and September of 2011. Gold had days where it would rally $50 in a single day during its final parabolic move. Moreover, everyone you spoke with would express their certainty that gold would soon eclipse the $2,000 mark, on its way to much higher levels.
 
Yet, I remained steadfast in my analysis which suggested the $1,915 region would provide us with a top. While the market continued $6 higher than my expectation, I think we all recognize what occurred at that time.
 
This was also no different when the multitudes were expecting sub-$1,000 gold back in 2015/2016, while we were pounding the table about a major bottoming in the complex, as we were buying miners in the last quarter of 2015. And, again, last year, as gold was dropping into the end of the summer, and many were again certain of sub-$1,000 gold, we were standing in the breach, with our analysis suggesting there was no set up to break below $1,000 gold at that time also, noting that we expected to be bottoming.
 
The main point is that metals move to extremes in sentiment, and you need to understand that if you intend on allocating your money into this volatile complex. And, our longer-term members have been battle-hardened, standing shoulder to shoulder with us in the past, as we have together conquered these sentiment extremes through the years.
While our members have trusted our analysis through the years because we have consistently provided highly accurate analysis, many have come to expect perfection. And, believe me, I wish we could always provide perfection. I also take it as a compliment that our members hold us in such high regard that they develop such high expectations of our work.
 
But, markets are not linear, and do not always fit the patterns we track in the exact fashion in which we lay them out. While I wish they would react exactly as we always outline, human beings are fallible and are not always going to be exactly right. Nor can one truly see the future with absolute clarity. And, the last time I looked, I am still human and the metals market was still a non-linear environment. The market proved that by moving through my ideal resistance region in GDX this past week.
 
However, silver has still followed through on all our expectations, from bottoming at the end of 2018 exactly where we called for it (noting the downside was likely complete since the pattern was “full”), and rallying 5 waves off that bottom into early 2019. But, it is clear that the GDX did not abide by my primary expectations. And, while I wish I could be 100% correct in each of my expectations, unfortunately, there will be times I will not. GDX proved that to be the case this past week.
 
So, I want to take a moment to again explain my perspective in analysis, and how I came about my expectations. And, oddly enough, GDX has still not proven that we are in wave 1 off the lows just yet, despite moving just beyond my ideal resistance region.
 
Over the last several months, I have outlined two specific reasons that have caused me to view this rally as a corrective rally. And, neither of those reasons have changed. The first is that the initial move off the lows in GDX was a clear 3-wave structure. The second reason was that we did not see a completed structure at the lows struck in September of 2018. While I have maintained an alternative that the bottom may be in place, as I have noted in yellow on my daily chart, those two reasons have maintained it as my alternative.
So, now that the GDX has pushed through my target zone by approximately 40 cents, and may still see another push higher, we are still sitting within the down trend channel which has contained this price action within the last two years.
 
Moreover, our Fibonacci Pinball method suggests that once we begin a 3rd wave, the 1st wave of that 3rd wave will rally to AT LEAST the .382 extension of waves I and II. In our case, that would suggest the market should take us at least to the 25 region for that 1st wave. It also suggests that a 2nd wave retrace in that instance would point us back down to the 19/20 region.
 
So, not only do we have several reasons to view our primary count as still quite viable, the market has still not attained its minimal standard expectations for a 1st wave off the lows suggesting that we have begun the next bull run. And, when the metals market does not attain at least minimal expectations in a trending move (as it often exceeds those expectations), I still have to present the chart as annotated on the daily GDX chart for these reasons.
 
However, as I have outlined in the past, a move through the 22.30 region suggests to me that the probabilities for that lower low for GDX in the 16-17 region have been reduced, and I “feel” they are maybe 50/50 at this point in time. I will allow the weaker charts I follow to lead me in the coming weeks about when downside expectations can be reduced below 30%.
 
As far as the GDX is concerned, I want you to keep things in perspective. My next larger upside target is minimally within the 36/37 region in the GDX (assuming we maintain support in the 16/17 region), and I don’t think we will be heading to that target until we see at least a 2nd wave retracement.
 
As for me, as I have outlined in my live videos and in answers to your questions about how I am hedging for a potential decline in the miner’s complex, I am using the weaker charts for my hedging vehicles. I am including one such chart this weekend – NEM. We have reviewed this chart many times over the last year. Thus far, it has retained its expectation for another drop.

However, due to how high it has now rallied, if it is going to see a lower low, it may take a much more complex path down to the ideal target region on our chart. As you can see, should we drop again, that drop may only be the [c] wave to complete an a-wave in that last decline. That could mean we would see another b-wave rally before NEM completes its downside structure, and could push out bottoming for many months. While I would certainly prefer a more direct completion to this pattern, I will be reducing the hedges I maintain as we approach the 29 region, assuming we drop in 5 waves projecting to that level.
 
And, alternatively, should NEM see a sustained break out over the high struck in January (and, yes, I expect you to look at the chart to understand what I am saying here), then it would suggest that the low in NEM may have already been struck, and I would be reducing my hedges significantly, and will be positioned overwhelmingly net long in the complex. I will then be searching for the point at which I would want to be building leveraged long positions in the complex. Moreover, should this break out occur, I think the NEM can outperform in the near term as it catches up to the rest of the complex in trying to complete its 1-2 structure off the low, as presented in green. Therefore, I think this chart may be a good barometer of the market in the coming weeks, and I will likely include it in my reports until this region has been resolved.
 
As far as silver and GLD are concerned, they too suggest a 2nd wave retracement should be seen. Both seem to completing 5 waves off their 2018 lows, and may even see one more (4)(5), as highlighted as an alternative in silver. Yet, silver has now completed what can be considered a minimal 5 wave structure off the lows we identified in real time last year. But, I think the next bout of weakness in the complex can be bought, with the expectation for a major rally later this year, depending on how long the next pullback takes. In fact, should GLD break 120, I may even add a small “buy” box on the chart. And, the range of that box will depend on exactly where GLD tops out in this wave (I).
While we have noted for some time that this complex has been quite bifurcated, with some charts still retaining potential for lower lows relative to 2018 lows, and others having already bottomed, I am still of the belief that the next bout of weakness in the complex will likely be the last opportunity to buy into the complex before the next major rally begins. And, as noted, the next major rally should rival that seen in the first half of 2016, and may even potentially exceed it.
 
Lastly, I have added my long trading plan to the daily gold chart. As you can see, after we complete this current rally, I expect a corrective wave (II) pullback, which will be confirmed once we break below 120GLD. After that wave (II) completes, we will likely be off to the races in what we will either be in wave (III) of 3, or a c-wave rally. And, the strength of that rally may take many by surprise, especially if it is the heart of the 3rd wave for which we have been preparing for quite some time.
 
I expect we will strike at least the 138 region, but the projections seem to be pointing to the 145-150 region for that next rally for the GLD. After the rally to 145-150 completes, it will be the ensuing pullback back down to the 130 region which will tell us about whether the long-term bull market has begun in earnest, or if there is indeed a lower low in gold sitting out there, pointing us back down to the 700-900 region.
 
Consider what sentiment will be like when we do rally back up to the 145-150 region in GLD. And, while many will clearly abandon all consideration about any potential to break below 1000 at that time, I view this point in time as the most important we will face since we bottomed back in late 2015 and early 2016.
 
While most of the market expected the pullbacks into the end of 2016 and then again into the end of 2018 to take gold below $1,000, those that followed us at the time know that I did not see either of those drops suggesting the potential of taking the gold market below $1,000. Yet, I want to stress again and at least prepare you now that the pullback off the upper box will be the biggest test we will face in this market in many years, and will determine if the long-term bull market I foresee has begun in earnest, or if we have yet one more bout of selling to take gold below $1,000 before that bull market finally begins. For now, my expectation is that a multi-decade bull market has begun, but I also need to have an appropriate risk management plan in place should that expectation prove to be wrong. This chart provides you with my personal plan in the coming year.

But, since this is not likely a determination we will have to make until 2020, I think we all need to focus on the buying opportunity which will likely be setting up over the next few months, which will then point us up towards that larger degree target overhead. We are finally approaching a very critical time in the metals market. So, let’s keep our emotions in check, and stay focused on what the market is telling us. There is a lot of money to be made in the coming years in this complex. But, we need to keep everything in appropriate perspective.
 
Enjoy the rest of your weekend.


Auto Investors Should Buckle Up for Tariff Threats

The German car industry could become collateral damage in tough U.S.-EU trade negotiations

By Stephen Wilmot





It hasn’t been an easy six months for auto investors, but one thing they haven’t had to worry about is President Trump threatening a 25% tax on imported cars. That may be about to change as trade talks between the U.S. and the European Union shift up a gear.

The EU on Friday unveiled its starting point for negotiations, the U.S. having published its ambitions earlier this month. Preliminary talks toward a trade deal started last July when EU Commission President Jean-Claude Juncker traveled to Washington and signed a truce with President Trump following the U.S. imposition of tariffs on imported steel and aluminum, including from Europe.

The White House agreed not to levy any more tariffs on EU products during the talks. It has a similar understanding with Japan, with which President Trump is also pursuing a trade deal.

But the U.S. and EU negotiating positions look uncomfortably far apart. The White House objectives cover all goods and services with the explicit aim of reducing an $151 billion trade deficit in goods with the EU. The EU Commission—the bloc’s executive arm—has set out a far more limited scope of negotiation, excluding agricultural products.

A Volkswagen T-Cross compact SUV is guided into a storage bay inside one of the automaker's Autostadt delivery towers in Wolfsburg, Germany.
A Volkswagen T-Cross compact SUV is guided into a storage bay inside one of the automaker's Autostadt delivery towers in Wolfsburg, Germany. Photo: Krisztian Bocsi/Bloomberg News


Food was a key sticking point in trade negotiations under President Barack Obama for a so-called trans-Atlantic Trade and Investment Partnership, which was never officially canned but remains in the deep freezer. Giving American farms better access to the European food market never played well in France, and the EU now wants to keep it off the table. Trade Commissioner Cecilia Malmström on Friday called the EU approach a “focused trade agenda that can be achieved quickly.”

The problem is that the White House needs results for farmers and ranchers, given President Trump’s rural support base. Knowing this, the EU has more than doubled its purchases of U.S. soybeans, replacing some of the exports lost to China, which has all but stopped buying the commodity from the U.S. amid ongoing trade tensions. But the White House wants broader access to EU food markets.

BMW, Daimler and Volkswagen ,Europe’s key vehicle exporters, could become collateral damage in this food fight. Republican Sen. Chuck Grassley, chairman of the Senate Finance Committee, said last week that President Trump was “inclined” to use vehicle tariffs, calling them an “effective tool” in negotiations.

There is little hope of the kind of trade deal the German auto industry wants, either. Despite President Trump’s complaints about the EU’s 10% tariff on car imports, the White House has no interest in cutting its 25% tariff on light-truck imports—a barrier that helps keep Detroit profitable. The EU’s negotiating position already takes account of “potential U.S. sensitivities for certain automotive products.”

President Trump is due to decide next month whether to impose a 25% tariff on imported cars on national security grounds. He seems likely to find some way to draw the threat out and dangle it over the coming EU trade negotiations. Auto investors should buckle up for a bumpy ride.


Israeli and Iranian Activity in Syria

Maps show current positions and recent operations in the Syrian war.

By GPF Staff