Commerce Secretary Wilbur Ross appeared on CNBC earlier today to discuss the status of U.S-China trade discussions, the latest issues with tariffs on French goods, and the bigger picture issues within the EU that we previously discussed.
Ross highlights the additional tariffs on China scheduled for December 15th are currently still planned to take effect unless something substantial changes in the position of China.  Additionally, and interestingly on the French and EU tariffs, Secretary Ross reminds the financial pundits of the $7.5 billion WTO authorized award against the EU that would be in addition to the $2.4 billion in tariffs now scheduled for French products.

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Pay attention to what Ross says in that interview; the administration is being remarkably open and consistent.  Given the adversarial position exhibited by French President Emmanuel Macron today; and against the backdrop of continual EU intransigence on trade reciprocity; I suspect once the USMCA is passed we are going to see a *severe* shift in tone within the U.S. trade position toward both China and the EU.


Germany will be hit hard on their export auto sector, and France will be hit hard on exported luxury goods.  Then, depending on the outcome of Brexit and the unpredictable stupidity of U.K. political leadership, the U.K. could gain trade position – or the U.K. could join the group of designated EU losers who *will* see years of economic contraction.
The U.S. economy is strong; all the fundamentals are solid. However, the multinationals on Wall Street -invested overseas- are more exposed. There is nothing that China and the EU can do to stop the de-globalization process; and efforts to stimulate their economy, more quantitative easing (pumping money) while the global supply chains are being shifted, are futile… they need “structural reform.” The multinationals are holding cash, waiting to see how it plays out.
The more a nations’ economy is dependent on exports, the more exposure they have to the inherent downsides of de-globalization. U.S. companies that are invested in these nations will naturally see diminishing returns on investment over time; some rapidly. President Trump’s trade policy is controlling the speed of that investment contraction.
The exposure of the multinationals keeps the stock market twitchy, yet the Main Street USA economy is thriving.
China’s economy is dependent on selling products to the U.S. in order to receive dollars. China takes those dollars and then purchases industrial goods from Europe. If China gets less dollars they purchase less from Europe. In essence both China and the EU are dependent on receiving dollars from a maintained trade imbalance. President Trump has begun resetting that imbalance… that is the current status of the global economic flux.
So what is the “structural reform”?  This is where the EU needs to accept their economic model will no longer work if the global economy is changed.
Specifically:

♦The EU has benefited from their one-way tariff system against U.S. industrial goods.  They have also used non-tariff barriers to keep their position.  Now they need to change their perspective and embrace reciprocity in new trade agreements; or else Trump will use the strength of the U.S. market to pummel them with tariffs.

♦The EU has used their one-sided tariff and trade system as a key part of their overly generous social and worker benefits.  If they don’t change the level of social payments and begin to ‘structurally’ change their social benefits, again they will suffer when the one-sided financial benefits are removed.  They won’t be able to afford their social system without the one-sided trade benefit.

♦The EU has over-regulated their industrial base and attached themselves to burdensome regulatory standards; specifically worsened by their Paris climate treaty and changes within their energy programs.  The compliance standards in combination with the increased costs and less global income is a perfect storm for contracting economic growth.

These are the types of EU reforms that are needed in an era where President Trump has purposefully stalled the process of globalization and is resetting global supply chains.  The Trump policies that bring massive amounts of wealth back into the United States has created the dynamic where the EU must adapt or contract.
In essence Titan Trump is engaged in a process of: (a) repatriating wealth (trade policy); (b) blocking exfiltration (main street policy); (c) creating new and modern economic alliances based on reciprocity (bilateral deals); and (d) dismantling the post WWII Marshal plan of global trade and one-way tariffs (de-globalization).
There are trillions at stake…