Trump says US, EU must cut all tariffs ahead of key talks

Bloomberg

President Donald Trump said that the US and the European Union (EU) should eliminate all tariffs, barriers and subsidies, with the bloc’s trade chiefs set to present him with proposals in that direction in a crunch meeting at the White House.
“I have an idea for them. Both the US and the EU drop all Tariffs, Barriers and Subsidies!” Trump said in a tweet. “That would finally be called Free Market and Fair Trade! Hope they do it, we are ready – but they won’t!”
European Commission President Jean-Claude Juncker and EU Trade Commissioner Cecilia Malmstrom are due to meet with Trump in Washington. They plan to signal the bloc’s willingness to negotiate a bilateral trade agreement with the US on manufactured goods, or a so-called plurilateral sectoral agreement between all major car exporters which would cut or eliminate tariffs on automobiles globally.
The overtures are a last-ditch attempt to dissuade him from imposing tariffs on European car exports to the US, in what could deal a serious blow to the 28-nation bloc’s economy.
“We are here to explain and find out how to prevent a trade war,” Juncker said in an interview with German public broadcaster ZDF before the meeting, adding that he’s not overly optimistic. The EU is prepared to retaliate “immediately” if talks fail, he warned.

Europe’s Retaliation
The commission, which manages trade relations on behalf of all 28 nations in the EU, is preparing a list of retaliatory measures on American goods worth $20 billion should the US impose car tariffs, Malmstrom said. “It would be more general, like farming goods, machines, high-technology products and others,” she said in an interview.
Highlighting the complexity of the talks, hours before Trump called for the elimination of all tariffs he tweeted that “tariffs are the greatest.” He has also singled out the EU as a “foe” of the US because of its trade surplus, and hinted that America’s commitment to the continent’s security is contingent on
resolving the spat over tariffs.
The euro and shares in European auto exporters could drop if the Washington talks result in “further escalation of the US-EU trade tensions, with President Trump sticking to his threat of additional tariffs on EU car exports and the EC President Junker threatening to retaliate,” Credit Agricole analysts led by Valentin Marinov said in a note.

Long Haul
Analysts caution that worse may be yet to come. Trump’s announcement of plans to provide $12 billion in aid for US farmers suffering from tariffs suggest that “Trump is preparing for the long haul,” said Martin van Vliet and Benjamin Schroeder of ING Bank in Amsterdam.
Trump’s demand to eliminate subsidies may add a further complication in the talks, as agricultural aid has been a pillar of the EU since its creation, making cuts to European farm grants politically sensitive and explaining why policy revamps in the bloc have been done gradually over 20 years.
More generally, global tensions over agricultural trade have pitted rich countries such as the EU and the US keen to protect their farmers against poorer nations seeking better access to prosperous markets. At the level of the WTO, talks on lowering barriers to farm commerce have traditionally been among the most contentious.

Slug Fest
Trump’s tweet on subsidies came hours after the announcement of plans to deliver $12 billion in aid to farmers. Extra assistance would be a balm to American producers who are seeing prices drop and inventories rise because of disputes with China, Canada and other trade partners who are significant purchasers of US soybeans and other crops.
“Trump is making clear with the subsidy that he isn’t going to back off,” Rabobank analyst Michael Every said in a note. “Rather, he’s settling in for a slug-fest economic war of attrition until he gets the deal he wants.”