EU is less enthusiastic about geo-economic challenges to Donald Trump

Welcome to Trade Secrets. This is not the first time that Donald Trump’s attack on the global trading system seems a bit secondary. The FT has prescient material from markets columnist Katie Martin and a quick response from US financial commentator Rob Armstrong on the US President’s attack on the independence of the US Federal Reserve, the cornerstone of the global financial system. It is absolutely bizarre that it represents moral and even physical courage for a Fed Chairman to make a televised statement supporting the central bank’s independence against presidential bullying (my term, not Jay Powell’s), and yet here we are.

Later this week we will (probably) get a US Supreme Court decision that will show whether the institution that underpins the country’s rule of law has the guts to strike down Trump’s absurd “international emergency” tariffs.

Today’s newsletter is on whether Europe can make its geopolitical contribution. EU governments had a direct opportunity last week to make a symbolic demonstration of strategic intent by agreeing a trade deal with the South American Mercosur group of countries that has taken a quarter of a century to negotiate. Chartered Waters, Where we look at the data behind world trade is at the Venezuelan currency.

Reconstruction of the Mesozoic Mercosaurus

This is basically the basis of Jurassic ParkThe huge EU-MERCOSUR deal, which has a good claim to be the largest preferential trade agreement in history, was widely declared doomed, But it has been reconstructed from its original DNA and is now close to being released into the wild,

(Incidentally, former FT colleague Jim Brunsden and I claim authorship of the Dinosaurian sobriquet, although this artistic rendition comes courtesy of Bjorn Grozinger Mercedes-Benz is one of the companies that will do well from this deal.)

Last week, EU member states voted in favor of the agreement. It now has to pass through the European Parliament, which is unlikely to stop it.

Now, I have long been skeptical of the idea that trade deals necessarily reflect foreign policy alignment or are a good way to pursue it. (If trade had guaranteed peace, we would not have had World War I.) Famously, despite the strategic imperative to counter Chinese influence in the Asia-Pacific, the US Congress blocked US membership of the CPTPP agreement a decade ago on mundane commercial grounds, including protecting the US tobacco industry.

But the world has changed a lot since then, and any concrete treaty between governments now has greater strategic importance. While the EU is painstakingly trying to build collective military and foreign policy actions, although these areas are traditionally the preserve of individual member states, it does have bloc-wide competences in trade.

A deal including Brazil and Argentina should boost the EU’s credibility among low- and middle-income countries at a time when the US is isolating them, and their relations with China are often strained. It also offers an alternative pole of alignment to Trump’s best friend in Latin America, President Javier Milli, who has abandoned his original plan to dismantle Mercosur now that he thinks he might get something out of it.

a weak and divided response

I’ve said before that if the EU can’t pass Mercosur it can’t really do anything geopolitical, so I think it’s good that the deal was reached. But the manner of its compromise last week did not reflect collective iron will.

The agreement was passed by the Council of Ministers of the EU member states by qualified-majority voting. Five countries opposed it: not only the perennial opposition France, but also Ireland, Austria, Hungary, and Poland. Belgium did not participate, and the nations on the side represented an uncomfortably small majority of the population of the European Union.

France’s continued objections are particularly worrying, as Paris has always pushed for the EU to be more geopolitically assertive. Instead, he voted against the deal due to the same agricultural protectionism that the country has displayed with every trade deal dating back to the Cretaceous period. In its latest iteration, French farmers tried to insert a “mirror clause” into the agreement that would force foreign producers and food processors to match EU environmental and animal welfare standards.

Other opponents were also opposed on similar grounds. Ireland, fearing criticism from protesting farmers, hit the “eject” button at the last minute, despite the country’s Europe minister being the country’s Europe minister. lamenting in public Irish opposition to the deal.

The issue here is not particularly the substance of the agreement, which itself does not place much emphasis on strategic power. The EU has long prided itself on being a regulatory superpower by exporting its standards through trade. But, as a matter of geopolitical credibility, the “Brussels effect” doesn’t really cut it in a hard-power world where the US is threatening to invade Greenland. In itself, the essence of the agreement is not really going to draw South America into the EU’s orbit. Brazil and Argentina will continue to sell most of their soybeans to China, and the future of their auto markets will pivot toward attracting Chinese electric-vehicle makers to set up production organizations locally rather than importing traditional combustion-engine cars from Europe.

However, an encouraging signal would have been given by governments voting unanimously and prioritizing the interests of domestic producers over geopolitical well-being. To a disturbing extent, they failed to do so. The European Commission may want to label this deal strategic, but in reality it is fundamentally another commercially oriented agreement in which export market access is traded against domestic import access. It’s good that it succeeded, I think, assuming that it does not become an ongoing liability for French President Emmanuel Macron and does not swing votes toward the populist extreme. But this does not represent a major shift towards EU trade policy becoming an instrument of geopolitical self-affirmation.

chartered water

Whether or not Trump actually cares about Venezuela’s economy (he doesn’t), his military intervention has further set back its recovery. As of Friday, the black market currency rate had fallen by about 20 percent since the capture of President Nicolas Maduro.

business link

• My colleague Martin Sandbu says the EU should assert its independence from the US, and he’s more optimistic than I am that the Mercosur deal could help.

• US Treasury Secretary Scott Besant displayed a ridiculously unconvincing commitment to international cooperation, saying the G7 rich countries must coordinate On ensuring the supply of vital minerals.

• The US trade deficit narrowed in October, although it was offset by higher non-monetary gold exports in September.

• The FT looks at the resilience of South-east Asian countries to Trump’s tariff war.

• Trump has ordered a massive withdrawal of America from many international organizations.

• A report Since December, John Kunkel of the Center for American Studies at the University of Sydney has been looking at how Australia, the country with the most sophisticated approach to economic security, should adjust its strategy.

Trade Secrets is edited by Harvey Neripia