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January 09, 2019

Trump downgrades EU's diplomatic status, threatens trade war

We never believed that the truce negotiated by Jean-Claude Juncker and Donald Trump last summer would hold. Nor did we believe that Trump's apparent climbdown at the Nato summit on the 2% spending commitment would be the end of that story. We saw a tactical retreat, as Trump was clearly aware that he could only fight one geopolitical conflict at a time. He started with China in 2018, and will turn his attention to Europe this year. 

It may only be a symbolic statement, but we thought his decision to downgrade the EU's diplomatic status from embassy to international organisation is significant. The US did this without informing either the European Commission in Brussels nor David O'Sullivan, the EU's ambassador in DC, as a result of which the EU does not even known when this downgrade occurred. There is some confusion about what happened because O'Sullivan's diplomatic rank has subsequently been reinstated. The EU found out about the downgrade when they noted that they were not invited to the state funeral of George HW Bush, according to Deutsche Welle. The news organisation also cited other US-based sources as confirming the downgrade. An EU official is quoted as saying that this was unlikely to be a protocol issue since it occurred two years after the start of the administration. 

We also noted a comment by Jim Hoagland in the Washington Post who confirmed our suspicion that relationships are on the verge of turning sour again. Hoagland writes:

"With startling and ill-advised candor, he has told at least one leader of a NATO ally that his campaign to break China’s unfair trade practices is a prelude to an effort he will then lead to 'destroy' European Union practices that have created trade imbalances with the United States. The comment was taken by this leader as the nail in the coffin of transatlantic cooperation during the Trump presidency and perhaps beyond, according to an aide who recounted the conversation on condition of anonymity."

One should be careful not to extrapolate from one statement by Trump, but there is a consistency in his discourse about transatlantic relations. The trade talks that started with the Trump/Juncker meeting in July have not gone well. The EU has not agreed a unilateral abrogation of its 10% car tariff. We think it is very likely that the US will slap tariffs on imported European cars and that, as a result, European companies will move some car production to the US - as one German car executive already made clear. They will do whatever minimises their costs. 

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