Outside the Box: How the Trump-Juncker meeting could lead to a trade-war truce

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President Donald J. Trump will meet European Commission President Jean-Claude Juncker and European Union Trade Commissioner Cecilia Malmström at the White House in Washington on Wednesday to discuss the future of transatlantic trade in light of the dramatic deterioration in the transatlantic relationship.

The official EU line ahead of the White House talks: “There are no offers. This is a discussion, it is a dialogue and it is an opportunity to talk.” This is wise given that current economic as well as domestic political realities embolden Trump’s trade strategy and don’t incentivize him to offer the EU a mutually beneficial deal.

The timing might be ripe, however, for a truce and a quick win in the near future, with the potential of a forward-looking agenda in transatlantic trade relations. Trump has increasingly received pushback from fellow Republicans, the private sector as well as the U.S. workforce for his plan to impose tariffs on cars and car parts. A solution that avoids a spillover of the trade war into the auto sector would not only be beneficial for U.S. relations with other countries, but also appease critical voices at the national level—a win-win for Trump.

Just days before the meeting with the European delegation, Trump threatened to slap tariffs on all Chinese exports to the United States. By threatening to escalate trade relations with one of the United States’ two largest trading partners (the other one being the EU), Trump might be trying to intimidate European negotiators and may have given us some indication of what negotiations with the EU will look like.

Trump’s “negotiation-by-threat-and-intimidation” style is underlined by his warning that he would impose tariffs on all imports of automobiles and auto parts into the United States on the grounds of national security concerns. Such a move would not only gravely impact the EU, it would also adversely affect global supply chains.

Read: Tariffs are ‘the greatest,’ Trump says ahead of EU chief’s visit

What conditions embolden Trump’s strategy?

Internationally, Trump’s approach to trade does not seem to scare global investors too much. Financial markets have remained relatively unchanged despite the president’s constant threats of tariff increases and the potential of these tariffs to disrupt markets and global supply chains.

On the European side, the very makeup of the EU as well as rising national tensions among key member states influence the United States’ negotiating position. EU member states have given the European Commission the mandate to negotiate trade deals on behalf of the bloc. While negotiating en bloc puts European member states on an equal footing with the United States, it also means the Commission has to represent the interests and national priorities of 28 member states, who would all be differently affected by potential tariffs.

Any union is only strong if it speaks with one voice, but France and Germany don’t see eye to eye on what the European delegation should offer Trump on Wednesday. France has denounced Germany’s appeal for more flexibility in the negotiations and a potential deal with the United States.

On the U.S. side, there are several domestic economic and political factors that strengthen the president’s hand. These include:

• Retaliatory tariffs from China, the EU, and others are often gradually implemented and take time to bite;

A recent poll by the Pew Research Center shows that Republicans overwhelmingly agree (73%) with the president’s tariff strategy;

• While Congress has started to push back on Trump’s trade strategy and there is suggested legislation to curb the president’s power on issuing tariffs based on national security considerations, Republicans will be wary to push for something that will leave their party divided ahead of the midterm elections in November;

• The U.S. dollar EURUSD, +0.0941% not only continues to be strong, it also reached its highest index level DXY, -0.10% in a year last week;

• Unemployment continues to be at record lows.

Read: Trucker strikes and tariffs: Whirlpool lists the reasons for its earnings miss

Potential for a truce?

While the European delegation does not plan to make any concrete offers to Trump, the U.S. president’s tweet ahead of the meeting—“Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs”—reads very differently from the official EU line.

Trump’s tweet, coupled with the belief that “we are the ‘piggy bank’ that’s being robbed,” indicates that he goes into Wednesday’s meeting to “negotiate a deal.” While the EU has repeatedly stated that it is not willing to negotiate with a gun pointed to its head, there may be a way to merge both sides’ expectations.

See MarketWatch’s trade-war tracker: Here are the new levies, imposed and threatened

But how do we get there?

A bilateral deal between the EU and the United States to cut industrial tariffs, or a plurilateral agreement to rid the world of car tariffs, are just two of the many ideas circulating among experts. Negotiations or any offer by the EU are only an option if the U.S. administration agrees to refrain from issuing car tariffs and abolishes (or at least pauses) its recently issued tariffs on European steel and aluminum. In return, the EU could offer to unilaterally eliminate tariffs on auto imports, which have been a sticking point for Trump. This scenario would calm the transatlantic relationship, allow Trump to declare a win, and pave the way for future dialogue to deepen transatlantic economic ties.

This would not be a big concession for the EU. The three largest exporters of cars to the EU are Japan, Turkey, and South Korea—two of which (Japan and South Korea) the EU recently concluded trade agreements with that will ultimately lead to the elimination of car tariffs for both countries.

A truce should be negotiated with the understanding that negotiations on more substantial negotiations, including extensive regulatory cooperation and the elimination of certain tariff and non-tariff barriers to trade, will start on a technical level in the upcoming weeks and months. This would potentially breathe fresh air into the Transatlantic Economic Council, a forum that was established in 2007 to help guide and deepen transatlantic economic cooperation.

While expectations from Wednesday’s meeting are low, the stakes are high. No one wins in a trade war.

Marie Kasperek is an associate director in the Atlantic Council’s Global Business and Economics Program. This was first published on the Atlantic Council’s blog—“Let’s Talk About Trade