The intransigent European Union is hitting a dead end with immovable Trump on the issue of tariffs.  The resulting dynamic is what we would expect given 75 years of the Marshall Plan (European Recovery Plan) as part of the EU’s only point of reference.

In order for the EU to maintain its socialistic form of government, it needs to continue the economic benefits from one-way tariffs that exploits the American consumer market.  President Trump’s plan to force reciprocity is against its entire economic foundation.  The EU simply cannot fathom life without the status quo.

In many ways the EU is in the same position as Canada. From its perspective, economic reciprocity is not sustainable; it would have to change its social compacts. This is the core of the conflict.

The EU trade delegation hit a brick wall in Washington DC, as the U.S. trade team reiterated the baseline tariffs are not something within the negotiation dynamic.

BRUSSELS — The European Union is weighing a provisional trade deal with the United States that would maintain a 10 percent tariff on most exports, the European Commission told EU ambassadors on Friday.

The EU executive reported back after a crucial round of talks in Washington on Thursday, in which Trade Commissioner Maroš Šefčovič sought to head off a threat by President Donald Trump to impose a 50 percent tariff on all European goods from July 9 if no deal is reached.

In addition to the baseline tariff, conversations would continue on providing relief to specific industry sectors such as cars, two national officials cited top Commission officials as saying.

The outcome fell short of expectations in European capitals after the Commission’s trade negotiating team had previously said the possibility of “up-front” tariff relief for some industries was under consideration. The U.S. levies 25 percent tariffs on cars and 50 percent on steel and aluminum. (read more)

As we highlighted in term-1, these ongoing negotiations with the EU on the issues of trade are extremely challenging.  However, in term-2 President Trump’s position is much simpler; why keep arguing about the same problem only to end up in negotiations of intransigence?

Instead, if the EU is going to continue negotiations as a collective, President Trump is now favoring just sending the EU a letter informing them of the tariff rates applied to each of their industrial sectors.  This is the most direct and impactful way to end the stalemate.

The EU cannot fathom the new level of ambivalence carried by President Trump, and by extension his trade team, toward the conversation.  There is no level of countervailing tariffs the EU can announce that impacts the position of Trump.  Even if the EU were to end all trade with the USA, that only feeds into the goals and objectives of the Trump administration.

The EU has no power in this dynamic beyond its purchasing power, and if the EU doesn’t want to level the purchasing – thereby maintaining a trade deficit, then Trump will equalize the financial imbalance with tariffs.

Canada is in the same position, hence its alignment with the EU.