Editorial written by Bloomberg Opinion Editorial Board.
The White House is trumpeting its new trade deal with the European Union, following a similar agreement with Japan, as a great victory. Both pacts impose tariffs of 15% on most exports to the U.S., along with other concessions — on the face of it, lifting the threat of open-ended trade war and reaffirming U.S. dominance. Financial markets advanced on the news.
In truth, there’s nothing to celebrate. Both deals are lose-lose for all involved. The best that can be hoped for is that the administration now moves on to other priorities before more damage is done.
In narrow economic terms, the claim that the U.S. has emerged the winner from both sets of negotiations is simply false. Tariffs are taxes. Before long, American consumers will pay most if not all of the increase in costs. And the problem isn’t just that imports will be more expensive. U.S. producers of rival products will face less pressure to compete and innovate, and they will raise their prices as well. In due course, these forces will depress U.S. living standards. Always remember, the biggest loser from tariffs is invariably the country imposing them.
Such costs might be manageable over the long term, as long as the agreements draw a line under recent quarrels over trade. European Commission President Ursula von der Leyen, who struck the deal with the U.S. over the weekend, emphasized this point in justifying the bloc’s surrender to American demands — lauding the agreement for restoring stability and predictability for consumers and producers alike.
If only. For a start, both pacts, like the one struck earlier with the UK, are better seen as framework agreements than finished deals. For example, what does Japan’s commitment to finance a U.S. investment fund managed by the White House actually entail? Hard to say. (It’s been portrayed as a $550 billion “signing bonus.” Japanese officials probably don’t see it that way.)
Under the U.S.-EU deal, some European goods will be given tariff-free access to the U.S. Which ones? Nobody knows. In both cases, many important details are yet to be finalized. Meanwhile, citizens in Japan and Europe have seen their governments humbled, which makes mounting political opposition and uncertainty all too likely.
If or when these particular deals are concluded, there’ll be new ones to strike — and the contested issues aren’t confined to trade policy. If in the future the White House aims to settle all such disputes by reviving the threat of punitive tariffs or tacitly threatening to withhold cooperation on security, von der Leyen’s vision of stability and predictability will be confirmed as a mirage.
Most dangerously, the administration’s supposed triumphs may now affirm its belief that the U.S. is powerful enough to demand submission, as opposed to genuine partnership, from countries it once saw as friends. If so, heightened instability — lethal to long-term planning, investment and global cooperation across the board — won’t be just a passing phase.
Strength through disruption is a self-defeating strategy. Sooner or later, that will become painfully obvious.
