Implications of EU-US trade truce

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U.S. President Donald Trump and President of the European Commission Jean-Claude Juncker walk together before speaking about trade relations. Reuters

European Commission President Jean-Claude Juncker and US President Donald Trump reached a compromise last Wednesday to resolve their trade conflicts. The EU pledged to expand imports of soybeans and liquefied natural gas from the US. Washington agreed to hold off on US tariffs on cars and auto parts from the EU. The two sides also said they would seek to eliminate tariffs, trade barriers and subsidies for non-automotive industrial goods.

Wednesday’s compromise between Washington and Brussels greatly eased trade tension between the two sides, but did not completely solve their problems. It will be a huge challenge to realise zero tariffs between the two. Consensus will be hard to reach within the EU and Mr Trump will likely break his word again. Yet the possibility exists that the two will turn their compromise into serious negotiations and a final agreement. At least there is the likelihood the US will slow its conflicts with Europe and focus on countering China.

Against this backdrop, analyses from the following perspectives are necessary.

Has China ever expected Beijing and Brussels to jointly fight the US? Beijing was willing to see the EU opposing US unilateralism, but it did not think China and the EU could become allies against Washington in the trade war. Nor did Beijing count on Brussels to help China in reducing tariff pressure from the US.

Both the US and Europe are developed societies, with a similar level of industrial and technological capabilities. They are also more or less of equal strength in dealing with tariff disputes. China is a developing country, which was the legal identity of China in its accession to the WTO. China has a huge GDP, but given its supersized social scale, uneven development and relatively backward development of production in most areas, it is unfair to ask China to assume the full responsibilities of a developed country. Mr Trump’s core requirement is that Beijing and Washington must trade with each other under the exact same conditions. This is like making a middleweight boxer fight a heavyweight: China will be at a disadvantage.

The EU and Japan recently announced the establishment an open trade zone and that Brussels will abolish tariffs on 99 percent of imports from Japan. If the US and the EU can go toward the same direction, a zero-tariff trade zone will be gradually formed among developed economies. In that case, China will be forced to reduce its import duties. Beijing would find it hard to expand its trade ties with other nations.

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