Why Did The US Europe Trade War Suddenly Cease Fire?

On the eastern time of July 25th, President Trump reached an agreement on trade issues with the chairman of the European Commission Jean-Claude Junker at the White House. The two sides agreed to restart negotiations and no longer impose new tariffs during the negotiations. They are committed to eliminating the existing tariff barriers, improving the trade volume between the services sector and agriculture, and reducing subsidies for domestic automobiles and industrial products. Meanwhile, the Junker also reduces doubts about the escalation of trade wars between Europe and the United States.

At one point, it threatened to impose high tariffs on Europe. Why did Trump suddenly reach a "truce" agreement with Europe at this time?

A temporary cease-fire in the US and Europe

Trump's trade war in Europe began in June 1st of this year. Trump imposed tariffs of 25% and 10% on imports of steel and aluminum products from the European Union. Then the European Union fought back with agricultural products as weapons. Since June 22nd, the European Union has imposed tariffs on products imported from the United States worth 2 billion 800 million euros, including motorcycles, agricultural and sideline products, tobacco and steel products.

Since then, Trump has repeatedly mentioned that it will consider tariffs on the EU car, if the real tax will hit the German auto industry.

Just as all parties concerned were worried about the escalation of trade friction between the United States and Europe, Trump sent a message the day before the chairman of the European Commission, Juncker, said: "I have a proposition that the United States and the European Union should cancel all tariffs, barriers and subsidies at the same time."

This idea was approved by Juncker, and the two sides issued a joint statement in July 25th.

Trump and Juncker issued a joint statement at the rose garden of the White House.

Trump said that the EU will increase its purchase of liquefied natural gas and soybeans to the United States, and the two sides will initiate dialogue and agree to cooperate to reduce zero subsidies, zero tariff barriers and zero subsidies for non automotive industries.

In addition, the two sides also need to increase cooperation in services, chemicals, pharmaceuticals, medical equipment, soybeans and reduce trade barriers.

The EU has promised to buy more liquefied natural gas exported from the us to make the EU's energy supply more diversified.

In addition to reiterating the points mentioned by President trump, Juncker said that during the negotiations, both sides agreed to no longer impose new tariffs, including car products, unless "one party suspends negotiations."

In addition, the EU and the United States agreed to work together to reform the rules of the World Trade Organization (WTO).

Trump called this a very important day for free and fair trade, and later on twitter sent a picture of two people embracing each other, showing that the European Union and the United States love each other.

Why did we suddenly reach a "truce" agreement?

From the above point of view, each side has concession.

The United States took a step back and temporarily did not levy taxes on imported cars, while the European Union said it imported more American soybeans and natural gas.

Why did the negotiations between the German and French presidents fail, and Juncker made a crucial step?

Obviously, Juncker was prepared for the visit to the United States. He also knew Trump's "negotiation art".

In July 2nd, according to the financial times of the British media, the European Commission issued a written material to the US Department of Commerce, which warned that if the US government struck punitive tariffs against car imports, it could trigger global retaliation against US exports of up to US $300 billion, while the European Union and other major economies were also preparing a series of countermoves, involving US trade volume of up to US $294 billion, accounting for 19% of us merchandise exports in 2017.

The core of the negotiations is on the car.

In fact, Trump had threatened to impose a 20% tariff on the European Union's cars and their components, perhaps just a "negotiation art". This move can cause a significant blow to the EU, especially Germany, but it also "hurt one thousand of the enemy's own eight hundred".

Although the United States accounts for 25% of the total vehicle sales in the EU, the European Union's manufacturing of cars in the United States accounts for 1/4 of the US motor vehicle output, and German car companies such as Daimler, BMW and Volkswagen Group have factories in South Carolina, Alabama, Mississippi and Tennessee, and these States are the votes for the Republican Party.

According to the data released by the German automobile manufacturers association, German automobile manufacturers and suppliers provide up to 116500 jobs in the US.

In fact, in June 20th, Richard Grenel, the US ambassador to Germany, submitted a plan to the Trump administration. The plan put forward that the European Union abolished 10% tariffs on cars exported to the United States and other countries, and the 2.5% tariffs the European Union exported to the United States would be abolished.

It can be seen from the talks between Europe and the United States that the scheme has played a role.

Another factor that can not be ignored is that in July 6th, the European Union and Japan reached a framework agreement on the agreement on economic and partnership between Europe and Japan (EPA), which will be implemented as soon as possible next year.

This is the largest bilateral trade agreement reached by the two sides after 5 years of negotiations.

The scale involved 638 million people, 21 trillion US dollars GDP, accounting for nearly 1/3 of the global economy.

When the zero tariff agreement was reached, neither side mentioned Trump, but there is no doubt that this is a common defense against protectionism in the United States.

Another reason for the US and European Agreement is farmers.

Farmers were one of Trump's most important voters. They helped Trump overcome Hilary in the 2016 general election, but they have become the first victims of Sino US trade war.

After the Sino US trade war broke out, China accumulated 615 thousand tons of US soybean orders in June.

Soybean futures prices on the Chicago Futures Exchange (CBOT) fell 20% to 10 years.

The mid-term elections are coming soon. In order to appease farmers, Trump has repeatedly reiterated his support for customs duties, and has repeatedly said that "farmers will be the biggest beneficiaries" if they are a little patient.

In order to make up for the losses of farmers and farmers in the trade friction, Trump announced in July 24th that he would directly grant farmers $12 billion, which is unprecedented in scale.

The money will come from the US Department of the Credit Companies (CCC) of the Ministry of agriculture without congressional approval.

But the government's subsidy is not a permanent solution. Given the long-term nature of Sino US trade war, the subsidy is also difficult for American farmers to feel secure.

At this time, for Trump, the EU's action can be timely.

"The European Union almost immediately began buying large quantities of soybeans, a huge market, mainly buying large quantities of soybeans from farmers in the Midwest."

Trump proudly addressed the White House.

Of course, in addition to soybeans, the EU may buy more American agricultural products.

But whether the US and Europe really "cease-fire" is hard to say, after all, Trump has never been a regular guy.