NOTE: during the writing of this, the tariffs have been delayed until July 9th. Or more precisely: the EU refuses to negotiate prior to the earlier set 90-day deadline. I'm leaving the rest of the writing as is
PREFACE:
On April 2nd, Donald Trump announced tariffs on each country the US bought more from than it sold to. Because this immediately crashed the markets to the stone age, he imposed a "pause" on most countries almost immediately afterward.
...though I have to note that this is a very loose definition of pause, as most countries were instead hit with a less severe version of that number. For the EU:
* the then-active 10% rose to 20% on general goods
* steel and automobiles rose to 25%
The gambit with China then stole the spotlight: China immediately hit back with equal taxes, the USA rose theirs, and so on, until (as for now) China settled on a 10% import tax, the US on 30%.
The EU countermeasures were less profound or immediate. For one, we don't do broad import taxes but rather target the industries in MAGA countries (meaning: motorcycles, bourbon...Republican based stuff). It's also not in effect for the duration of the negotiations.
Meanwhile, the reality of the situation is starting to seep in with even the densest of US citizens: an import tax is usually payed by the end user. It's not even complicated: if you and me agree I'll sell you my xbox to you for 100 bucks, and someone busts in and demands 20 bucks on the transaction, I'm just giving you the choice: either you pay this guy and get me my 100 bucks or I'll sell the thing elsewhere. Saying I should just be happy I'd still get 80 bucks isn't going to change my mind on that.
Nonetheless, the windmills Trump is fighting here are becoming more and more apparent. Tenmu already lists the import tax when US citizens buy from them. Amazon chickened out when they wanted to do the same(1), but it's kind of hard to ignore. Heck...smaller businesses already post their recipes ("here's my total cost when I import to our store in the US...here's my total when I import the same stuff to Canada. Notice the difference?"). Others like board game producer stonemaier games directly sue the government for having expenditures in Chinese factories that they can't recuperate because they can't get their board games into the US to even potentially make a profit.
And of course it's hard to ignore Trump's tweets to walmart saying they should just "eat the cost".
...they're not eating the cost, Donald. Perhaps you should read into this thing called "capitalism"? Attempting to set store prices is straight up communism, no matter what kind of name you want to give it.
Anyhow...with this soap opera providing enough daily political clickbait, it's easy to overlook what happened on "liberation day"(2). Besides...with the China situation ending without concessions on their end, not a single deal within sight on any country(3), a growing impopularity for the measures and Trump's own dementia, I don't think anyone thought any of the rest of the tariffs were going anywhere.
Until Trump decided to drop a 50% tariff on anything from the EU( whaaat??). Effective from June 1st (WWHHAAAATTTT???).
ANALYSIS:
As I've mentioned in another thread (link=https://gbatemp.net/threads/american-economy-in-a-tailspin.668241/), I don't consider it bad news. And since I know that sounds strange (I'm from Belgium, which is about as central EU as it gets), I should elaborate more...
Most important: the EU markets go in red over the announcement. I can nuance it, but not deny it: that's not a good thing. There's no pretending otherwise. The goods we ship to the USA brings us wealth, and as my small scale example showcased earlier: we have to choose not to sell our proverbial xbox'es to the US anymore...but not selling isn't good for our economy. So...what do we do with those things?
There's broadly 3 options:
1) sell anyway. Despite Trump's truth social rants, companies will increase the price so it's the average US Joe that'll pay more. But of course it doesn't take a genius that consumers will just buy the exaxt same stuff at 50% extra. It's not like they're THAT happy to support their government. What's more: the advantage of us delivering to the US is exactly because they can't beat our cost. With raised import prices, it's very possible that a local vendor has too much of an advantage to compete (ouch). It's also possible that nobody will want the product anymore (equally ouch). As a foreigner, both are important risks to take into consideration.
2) reasoning. Normal deals between countries or unions are made looking for a mutual win for either party. If both parties are reasonable in what they each want to achieve, a deal can be reached. This situation...simply isn't that. The goal for Trump is simply "produce more locally", which by definition the EU can never provide, so a deal is impossible. It's not unthinkable that that is exactly what Trump wants (I'll get to that), but that makes this setting so weird. It's like playing Catan: if you want to get more sheep but you have nothing to offer, there is no deal. If you start whining, blaming, threatening and tantrum-ing, it only achieves that you're no longer invited to the game table. It certainly doesn't help that Trump only days ago attempted to humiliate the South African president with a fake news video. So...does mr. dealmaker REALLY expect Ursula Von Der Leyen to just start negotiating in this environment?
3) sell elsewhere. If that sounds too easy, it's probably because it is. Truth is that the US is a rich and consuming market. They're not the entire world, but then again...if other markets already existed,why don't we sell there already?
Actually, there is a bit of an answer on this one, albeit a flakey one: anti American sentiment. The USA used to have a lot of soft power in the rest of the world, but that's evaporating rather fast. It's anekdotal, but that one Canadian who mentioned their local grocery changing US products with European ones is a solution. A mutual one, as you can imagine most Europeans would rather buy Canadian than from the USA.
As if things weren't weird enough: Trump holds his cards close to his chest. When asked what the reasoning for his tariffs are, Trump replied with "I'm not looking for a deal".
...which is either a dumb negotiating trick (we already KNOW the US economy can't avoid a recession without our goods) or plain dumbness. Given the rest of his answer ("we should just produce locally"), I'm going with the latter.
Producing locally is a long term solution if you create the proper environment for it. But the 1st of July isn't a long term in ANY means(4), and it doesn't take a genius to see why the current USA climate scares away investors rather than attract them.
But at least the explanation is somewhat consistent with the reasoning. Granted, it's only slightly less absurd than China's fentanyl thing, but ey...why do we get 50% tariffs slapped on our goods?
Because the EU regulates. We've got safety standards. We've got environmental standards. We've got cybersecurity and privacy standards(5). And we don't allow the import of goods that don't meet those standards. It may cause Trump to go ballistic and claim that the EU was made to hurt the USA(6), but those regulations go for ALL our imports.
That's also why they won't be negotiable. The US might be a big player, it's not worth pleasing over every other country we do business with. Besides...they're not rules for the sake of rules, but because the lack of those cost more in the long term. The better question would be: why the F*** do you want to dump your unsafe and/or unhealthy stuff on our continent? Get your business to uphold it for the EU and they're mostly there in making it safer and healthier for your local clients as well.
What? No...I don't know why the number 50% was chosen. But it does bring me to that strange conclusion of earlier: this is actually a good thing. Those 3 options I wrote about? If the number was lower, it would be more a dilemma on what to do. I've heard an economist shrug off the 145% on China, saying that it might as well be 200 or a 1000% at that point...in that realm, there is simply no way to make a profit, and as such no reason to ship anything to the US. 50% might not be as atrocious, but the US market for most if not all EU goods is equally gone(7). "Selling anyway" is off the table, and as long as Trump is in the white house, "reasoning" is a pipe dream. Only solution: sell elsewhere. A harsh truth, but a truth nonetheless. On our side of the ocean, economists have warned us that this wouldn't be a repeat of Trump's first time ever since he started using executive powers for everything.
When I say we should work around the US, it's not out of spite or 'just' because we don't like Trump, but because there's simply no alternative.
(1): I've also heard they're planning to move HQ outside the US, but I'm not sure if that's directly related. Meaning: will they just push that through once they're outside of US jurisdiction, or have they decided it's just not worth operating as a business in the USA anymore entirely?
(2): what's with that name, btw? The US has a good variations on it (independence day obviously the most known), but I've never heard of "liberation day" before. And going how even chatgpt dodges the answer, I'm presuming Trump invented it
(3): to those wanting to bring up the UK: don't. Trump and Starmer can gloat all they want, but the best they've got is a framework for an agreement. Unless I've missed something, nothing has been actually made concrete and signed yet.
(4): given the dreamy/exhausted way Trump talks nowadays, it wouldn't surprise me if he saw someone play an RTS and presumed real life was similar. Meaning: that CEO's could just plop out a factory on a map somewhere and have it up and running producing vehicles in a matter of minutes.
(5): this one stands out a bit as the EU doesn't exactly export much big tech into the US. But the limitations the EU imposes on US data firms is seen as a hindrance
(6): for the record: the EU was formed to strengthen economic ties and reduce the chance of war among members.The USA wasn't even a footnote in its creation, and I'd be insulted if a sane man made that accusation
(7): I'm not an economist, but if you manage to survive a 50% tariff, it means you had it priced wrong or had an incredible lack of competition in your field.
PREFACE:
On April 2nd, Donald Trump announced tariffs on each country the US bought more from than it sold to. Because this immediately crashed the markets to the stone age, he imposed a "pause" on most countries almost immediately afterward.
...though I have to note that this is a very loose definition of pause, as most countries were instead hit with a less severe version of that number. For the EU:
* the then-active 10% rose to 20% on general goods
* steel and automobiles rose to 25%
The gambit with China then stole the spotlight: China immediately hit back with equal taxes, the USA rose theirs, and so on, until (as for now) China settled on a 10% import tax, the US on 30%.
The EU countermeasures were less profound or immediate. For one, we don't do broad import taxes but rather target the industries in MAGA countries (meaning: motorcycles, bourbon...Republican based stuff). It's also not in effect for the duration of the negotiations.
Meanwhile, the reality of the situation is starting to seep in with even the densest of US citizens: an import tax is usually payed by the end user. It's not even complicated: if you and me agree I'll sell you my xbox to you for 100 bucks, and someone busts in and demands 20 bucks on the transaction, I'm just giving you the choice: either you pay this guy and get me my 100 bucks or I'll sell the thing elsewhere. Saying I should just be happy I'd still get 80 bucks isn't going to change my mind on that.
Nonetheless, the windmills Trump is fighting here are becoming more and more apparent. Tenmu already lists the import tax when US citizens buy from them. Amazon chickened out when they wanted to do the same(1), but it's kind of hard to ignore. Heck...smaller businesses already post their recipes ("here's my total cost when I import to our store in the US...here's my total when I import the same stuff to Canada. Notice the difference?"). Others like board game producer stonemaier games directly sue the government for having expenditures in Chinese factories that they can't recuperate because they can't get their board games into the US to even potentially make a profit.
And of course it's hard to ignore Trump's tweets to walmart saying they should just "eat the cost".
...they're not eating the cost, Donald. Perhaps you should read into this thing called "capitalism"? Attempting to set store prices is straight up communism, no matter what kind of name you want to give it.
Anyhow...with this soap opera providing enough daily political clickbait, it's easy to overlook what happened on "liberation day"(2). Besides...with the China situation ending without concessions on their end, not a single deal within sight on any country(3), a growing impopularity for the measures and Trump's own dementia, I don't think anyone thought any of the rest of the tariffs were going anywhere.
Until Trump decided to drop a 50% tariff on anything from the EU( whaaat??). Effective from June 1st (WWHHAAAATTTT???).
ANALYSIS:
As I've mentioned in another thread (link=https://gbatemp.net/threads/american-economy-in-a-tailspin.668241/), I don't consider it bad news. And since I know that sounds strange (I'm from Belgium, which is about as central EU as it gets), I should elaborate more...
Most important: the EU markets go in red over the announcement. I can nuance it, but not deny it: that's not a good thing. There's no pretending otherwise. The goods we ship to the USA brings us wealth, and as my small scale example showcased earlier: we have to choose not to sell our proverbial xbox'es to the US anymore...but not selling isn't good for our economy. So...what do we do with those things?
There's broadly 3 options:
1) sell anyway. Despite Trump's truth social rants, companies will increase the price so it's the average US Joe that'll pay more. But of course it doesn't take a genius that consumers will just buy the exaxt same stuff at 50% extra. It's not like they're THAT happy to support their government. What's more: the advantage of us delivering to the US is exactly because they can't beat our cost. With raised import prices, it's very possible that a local vendor has too much of an advantage to compete (ouch). It's also possible that nobody will want the product anymore (equally ouch). As a foreigner, both are important risks to take into consideration.
2) reasoning. Normal deals between countries or unions are made looking for a mutual win for either party. If both parties are reasonable in what they each want to achieve, a deal can be reached. This situation...simply isn't that. The goal for Trump is simply "produce more locally", which by definition the EU can never provide, so a deal is impossible. It's not unthinkable that that is exactly what Trump wants (I'll get to that), but that makes this setting so weird. It's like playing Catan: if you want to get more sheep but you have nothing to offer, there is no deal. If you start whining, blaming, threatening and tantrum-ing, it only achieves that you're no longer invited to the game table. It certainly doesn't help that Trump only days ago attempted to humiliate the South African president with a fake news video. So...does mr. dealmaker REALLY expect Ursula Von Der Leyen to just start negotiating in this environment?
3) sell elsewhere. If that sounds too easy, it's probably because it is. Truth is that the US is a rich and consuming market. They're not the entire world, but then again...if other markets already existed,why don't we sell there already?
Actually, there is a bit of an answer on this one, albeit a flakey one: anti American sentiment. The USA used to have a lot of soft power in the rest of the world, but that's evaporating rather fast. It's anekdotal, but that one Canadian who mentioned their local grocery changing US products with European ones is a solution. A mutual one, as you can imagine most Europeans would rather buy Canadian than from the USA.
As if things weren't weird enough: Trump holds his cards close to his chest. When asked what the reasoning for his tariffs are, Trump replied with "I'm not looking for a deal".
...which is either a dumb negotiating trick (we already KNOW the US economy can't avoid a recession without our goods) or plain dumbness. Given the rest of his answer ("we should just produce locally"), I'm going with the latter.
Producing locally is a long term solution if you create the proper environment for it. But the 1st of July isn't a long term in ANY means(4), and it doesn't take a genius to see why the current USA climate scares away investors rather than attract them.
But at least the explanation is somewhat consistent with the reasoning. Granted, it's only slightly less absurd than China's fentanyl thing, but ey...why do we get 50% tariffs slapped on our goods?
Because the EU regulates. We've got safety standards. We've got environmental standards. We've got cybersecurity and privacy standards(5). And we don't allow the import of goods that don't meet those standards. It may cause Trump to go ballistic and claim that the EU was made to hurt the USA(6), but those regulations go for ALL our imports.
That's also why they won't be negotiable. The US might be a big player, it's not worth pleasing over every other country we do business with. Besides...they're not rules for the sake of rules, but because the lack of those cost more in the long term. The better question would be: why the F*** do you want to dump your unsafe and/or unhealthy stuff on our continent? Get your business to uphold it for the EU and they're mostly there in making it safer and healthier for your local clients as well.
What? No...I don't know why the number 50% was chosen. But it does bring me to that strange conclusion of earlier: this is actually a good thing. Those 3 options I wrote about? If the number was lower, it would be more a dilemma on what to do. I've heard an economist shrug off the 145% on China, saying that it might as well be 200 or a 1000% at that point...in that realm, there is simply no way to make a profit, and as such no reason to ship anything to the US. 50% might not be as atrocious, but the US market for most if not all EU goods is equally gone(7). "Selling anyway" is off the table, and as long as Trump is in the white house, "reasoning" is a pipe dream. Only solution: sell elsewhere. A harsh truth, but a truth nonetheless. On our side of the ocean, economists have warned us that this wouldn't be a repeat of Trump's first time ever since he started using executive powers for everything.
When I say we should work around the US, it's not out of spite or 'just' because we don't like Trump, but because there's simply no alternative.
(1): I've also heard they're planning to move HQ outside the US, but I'm not sure if that's directly related. Meaning: will they just push that through once they're outside of US jurisdiction, or have they decided it's just not worth operating as a business in the USA anymore entirely?
(2): what's with that name, btw? The US has a good variations on it (independence day obviously the most known), but I've never heard of "liberation day" before. And going how even chatgpt dodges the answer, I'm presuming Trump invented it
(3): to those wanting to bring up the UK: don't. Trump and Starmer can gloat all they want, but the best they've got is a framework for an agreement. Unless I've missed something, nothing has been actually made concrete and signed yet.
(4): given the dreamy/exhausted way Trump talks nowadays, it wouldn't surprise me if he saw someone play an RTS and presumed real life was similar. Meaning: that CEO's could just plop out a factory on a map somewhere and have it up and running producing vehicles in a matter of minutes.
(5): this one stands out a bit as the EU doesn't exactly export much big tech into the US. But the limitations the EU imposes on US data firms is seen as a hindrance
(6): for the record: the EU was formed to strengthen economic ties and reduce the chance of war among members.The USA wasn't even a footnote in its creation, and I'd be insulted if a sane man made that accusation
(7): I'm not an economist, but if you manage to survive a 50% tariff, it means you had it priced wrong or had an incredible lack of competition in your field.
