From The Economist - July 18 - 2018
Sealed with a kiss
Donald Trump agrees to cease fire in the trade war with the EU. But American farmers are already suffering the consequences of his policies
PRESIDENT Donald Trump has not been shy about his admiration for tariffs. But on July 25th his love of deals appeared to prevail. Tweeting a picture of Jean-Claude Juncker, the president of the European Commission, kissing his cheek, Mr Trump heralded an advance in trade relations between America and the European Union. "A breakthrough has been quickly made that nobody thought possible!" Mr Juncker was triumphant, too, tweeting: "I came for a deal, we made a deal."
The two sides agreed to work together towards "zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods." Trade barriers in services, chemicals, pharmaceuticals, medical products and soyabeans are on the chopping block, too. Pundits were quick to point out that Mr Trump had, in fact, secured talks to negotiate something that looks remarkably similar to the Transatlantic Trade and Investment Partnership, an accord put on ice when he became president. Such a deal might be possible, but it is a lot more remote than Mr Trump's jubilation suggests.
The meeting's other outcomes have more immediate consequences. Mr Trump agreed to "hold off further tariffs", halting the threat of punitive measures on European cars and avoiding escalation into a nastier tit-for-tat dispute. Remarkably for a man said to be itching to withdraw from the World Trade Organisation (WTO), Mr Trump announced that he would work with the eu to reform it. Rather than mindlessly bashing the WTO, Mr Trump may have realised the benefits of using it to tackle China's economic misdeeds.
Given Mr Trump's mercurial personality and his peeves over America's bilateral trade deficit with the eu, the truce may prove fragile. That means the most lasting policy announcement of the week could yet be the one made on the day before Mr Juncker's arrival, when Sonny Perdue, Mr Trump's agriculture secretary, outlined a relief package of up to $12bn for American farmers hit by retaliatory tariffs from America's trade partners.
American farmers have long worried about their position on the front line of Mr Trump's trade wars. Around a fifth of their production is exported, leaving them exposed to retaliation from the likes of China, Mexico and the eu; their political heft at home makes them prime targets for foreigners trying to make the Trump administration reverse course.
The Trump-Juncker deal offered American farmers little relief. Not only was agriculture conspicuously absent from their joint statement (beyond a promise to buy more soyabeans), but the eu accounts for less than 4% of the agricultural trade flows affected by the new tariffs. By contrast, $12bn is a big increase in government support for an industry that already gets a lot. The OECD, a club of mostly rich countries, estimates that in 2016 American farms received $33bn in various types of support.
As generous as Mr Perdue's plan may be, only its outline is clear. Producers of soyabeans, sorghum, corn, wheat, cotton, dairy and pigs can expect payments. They can also expect the government to hoover up unexpected surpluses. Last, some of the cash will be spent on developing new export markets for farm products.
The subsidies are meant to fortify Mr Trump as he attacks foreign partners with tariffs and quotas. Most important, he is trying to pay off the domestic losers from his trade war with China lest they cause trouble for him and the Republican Party in the mid-term elections. So far, the move has attracted a mixed response. Zippy Duvall, president of the American Farm Bureau Federation, has thanked the administration for offering help, but will continue to argue for a "swift and sure end to the trade war". Jimmy Tosh, a Tennessee farmer, is blunter: "To hell with welfare. I want access to foreign markets."
The administration says that the farm subsidies will be temporary, and they could yet be. If Mr Trump repeats his deal-making trick with the Chinese, perhaps after combined pressure with his new European partner, the tariffs could be stripped away as quickly as they came. The question is how much damage will have been done.
Unfortunately, temporary agricultural support programmes tend to become permanent. And lost markets may prove difficult to recapture. Disrupted trade relations can shock countries into the realisation that they rely too heavily on one market. After an American soyabean export embargo in 1973, spooked Japanese companies invested in Brazil, which then grew to become a colossal competitor to America. Like real conflicts, trade wars have unintended consequences. ■
TIME WILL TELL HOW WELL THE FARMERS OF THE USA WILL DO IN THE LONG RUN OF THINGS - Keith Hunt