July 06, 2018
US ambassador in Berlin and German car chiefs in direct trade talks
From time to time there are stories stranger than anything fiction writers would come up with. One of those was yesterday's report of a secret meeting at the US embassy in Berlin between Richard Grenell, Donald Trump's man in Germany, and the chiefs of the German car industry. This is where the EU/US talks about trade are now taking place, apparently. Grenell seems to have made an offer of a zero-tariff regime, which the German car chiefs enthusiastically endorsed. It might end Donald Trump's threat of a 20 or 25% important tariffs on European cars. The stock market reacted with enthusiasm to these trade talks, as shares in German car makers rose by 5% at some point.
There a couple of small problems with this scenario. For starters, there is no indication that Grenell has an actual mandate. It looked like he was acting in his own entrepreneurial capacity. Ever since his arrival in Berlin a couple of months ago, he has been a bit of a loose cannon, very much like Trump himself. We noted a tweet by an AfD MP yesterday who noted approvingly that Grenell is one of the few people who seem to be really at ease when talking to them. He reminds us a bit of that deluded US academic in the UK who managed to occupy newspaper headlines over a year ago with the fake claim that he would be Trump's ambassador to the EU.
FAZ points out that there could be a lot of problems with these so-called trade talks. The authority to negotiate external tariffs rests with the EU, not with bilateral ambassadors and the chiefs of VW, Mercedes and BMW, all of whom attended. Another problem is that France and Germany have diametrically opposed interests. France does not export cars to the US and would thus not be affected by Trump's tariffs. On the contrary, a multilateral free-trade zone where tariffs are reduced to zero among a group of participants would open up the French car market to competition from Japan and South Korea. Toyota has a market share of 4.3% in France, and would expect to benefit massive from a 10% price cut.
WTO rules are also not conducive to such types of deals. Multilateral deals are possible in theory, but only if all other WTO members agree. If the US, the EU and South Korea entered into a free-trade agreement, China and India would be able to raise a case in the WTO. FAZ writes that Cecilia Malmström is not enthusiastic. Jean-Claude Juncker and Malmström are going to visit the US at the end of the month to discuss trade.
The big question is whether Trump would go for it. The answer is impossible to know. There is more coherence to his trade policy than to his other policies. If his goal is to increase car production in the US - which is our impression - then it would make no sense for him to agree a zero-tariff trade zone. If the EU eliminates its tariff on cars, the price of imported cars would drop by 10%, but the market share of US cars is unlikely to rise. Another problem is posed by non-tariff barriers. One of the reasons why US cars are so much more expensive when sold in the EU - apart from the tariff and the VAT - is the cost of modification to comply with EU single-market rules. The US argues - with some justification - that these rules constitute a hidden non-tariff barrier. So we don't think that Trump would fall for this.