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TWN
Info Service on WTO and Trade Issues (Jul25/32) Geneva, 29 Jul (D. Ravi Kanth) — The United States and China on 28 July started their third round of bilateral negotiations in Stockholm, Sweden, on a seemingly equal footing to resolve continued trade frictions concerning tariffs and issues related to the supply of advanced semiconductors and various other items that are currently under export restrictions in both countries, according to media reports. In contrast, the world’s largest trading bloc, the European Union, on 27 July appears to have surrendered its tariff sovereignty to US President Donald Trump’s threats and unprecedented criticism of the bloc in the presence of the President of the European Commission, Ms Ursula von der Leyen. The EU simply agreed to the unilateral US tariff of 15% on its goods entering the American market while also agreeing to zero tariffs on a variety of American goods entering the EU market, a development that has never been witnessed before in the bilateral and multilateral negotiating history between the two equal trading powers over the past 80 years, said people familiar with the development. To recall, talks between the two trans-Atlantic giants broke down many times on several issues, both in the multilateral Uruguay Round of trade negotiations (1986-93) and even in the bilateral negotiations. The Blair House accord between the US and the EU during the Uruguay Round of trade negotiations in 1992 on reduction commitments in export subsidies finally paved the way for the conclusion of the Uruguay Round talks at the official level in Geneva, in December 1993. A day after the European Commission agreed to President Trump’s demands and conditionalities, which include a large component of defence and energy purchases, the EU members seem to be waking up to a new reality of “submission”, as the French Prime Minister called it on 28 July, while the euro dropped precipitously, apparently in response to the bilateral trade agreement, several media reports have suggested. With the 1 August deadline fast approaching for countries to settle for agreements with Washington, the EU appears to have rushed to avoid the US threat of 30% tariffs on European goods shipped to the US, but at a phenomenal cost to the 27 EU member states, said people familiar with the development. Though the deal removes an element of uncertainty on the face of it, it also creates more uncertainty not only for the EU but other countries as well, said a former deputy director-general (DDG) of the World Trade Organization who had worked closely with the late Director-General Peter Sutherland. According to media reports, the EU’s exports of both patented and generic drugs from Ireland are likely to be hit hard as President Trump has made it clear that he is soon going to announce Section 232 tariffs on pharmaceuticals as well as computer chips. “Pharmaceuticals are the single largest EU-produced product shipped to the US, totaling $127 billion in 2024,” said a report in the Wall Street Journal (WSJ). The WSJ report suggested that “while Mexico ranks as the largest single-country US trading partner, the EU as a 27-nation bloc, is larger, and EU trade policy is handled centrally. In 2024, the US imported about $606 billion in goods from the EU and exported around $370 billion. This kind of imbalance is a major sticking point for Trump as he tries to use tariffs to revamp US manufacturing.” According to a report in the Financial Times, ahead of the Stockholm talks between China and the US, the Trump administration seemingly lifted the ban on the supply of advanced AI chips manufactured by Nvidia to China, triggering sharp concerns among the US security establishment. China and Canada are the only two countries that have retaliated against President Trump’s reciprocal measures, said people familiar with the development. The EU, which was toying with the idea of creating a “parallel” WTO among EU and major Asian countries, has seemingly lost its negotiating credibility in one go, said people who asked not to be quoted. Moreover, there is another significant aspect in that “each partner country must know how much tariff is being imposed on competitor countries,” the former DDG told the SUNS on 28 July. “For instance, both Japan and the EU would be concerned about the tariff imposed on Korea, which competes with them on automobiles,” the former DDG argued. “If somehow the US agrees with Korea on 12% [tariffs], both Japan and the EU would feel aggrieved and would want to renegotiate,” the former DDG said, arguing that “in other words, there can be no finality in individual agreements between the US and others until all are negotiated and shared with all other negotiating partners.” In a similar vein, the former DDG said that “India must know the tariffs imposed on Bangladesh, which is a serious competitor on garments.” Indonesia, for example, agreed to zero-tariff treatment for American goods while agreeing to a US tariff of 19% on Indonesian goods entering the US market. Vietnam agreed to a tariff of 20% on its goods exported to the US market, while agreeing to zero tariffs for American goods entering the Vietnamese market. Effectively, the Trump administration appears to have created a tariff war among the affected countries, who may soon realize how much tariff sovereignty they have given up in the coming days, months, or even years, said several people familiar with the development. Moreover, the tension arising from “differentiation” in tariffs on countries could set off new trade frictions. With the WTO being seemingly “brought down to the ground”, the world could witness a prolonged phase of “anarchy”, the former DDG suggested. TRUMP’S GOALS “On the face of things,” wrote Simon Lester, a trade policy analyst, in a post on the International Economic Law and Policy (IELP) Blog, “the trade negotiations triggered by President Trump’s unilateral actions are focused on various trade-related objectives.” Lester argued that “Trump thinks higher US tariffs are a good way to do some mix of the following: reshore domestic manufacturing, reduce the US trade deficit, and increase revenue so that he can lower income taxes.” According to Lester, at the same time, President Trump “is willing to limit those tariff increases if US trading partners will agree to open their markets a bit more. For him, any outcome here – higher US tariffs or lower foreign barriers – is a win and he does not seem too concerned about where exactly the negotiations end up in terms of the specific balance.” Lester argued that countries “facing these unilateral actions have to make a decision about how to react. Do they offer concessions as part of a deal that favors the US (in a sense, an “unequal trade agreement”)? Do they just accept the US tariffs and do nothing? Or do they fight back with some kind of retaliation (tariffs of their own, restrictions on US services suppliers, IP violations, etc.)?” “But in some instances,” said Lester, “it seems like there is more going on, with security and trade intertwined a bit.” Lester cited a recent article in the Washington Post on the Ukraine war, which suggested that “the US plan envisions European countries sending weaponry, including the Patriots, to Ukraine out of their current stocks so the weapons could be used immediately, Trump said.” Subsequently, “those countries would then purchase replacements from the US defense industry.” Lester suggested that President Trump “is engineering the sale of US weapons to Europe, thereby increasing US exports and helping US manufacturers.” He said “the Europeans have found a way to keep the US on board with the defense of Ukraine against Russia, something that has looked very uncertain at times. This is not a traditional trade issue.” In his post on the IELP Blog, Lester raised several questions, including: * “Where would US-EU trade negotiations be without security issues such as Europe trying to ensure US support for Ukraine? * And where would various other trade negotiations be? Japan and South Korea, for example, also depend heavily on the US for security. * How does the decision-making process play out in these governments when economic and security officials have to jointly deal with a US president who appears to want to (1) restrict their imports and adjust the overall trade balance, and (2) reduce or change the security role traditionally played by the US? * Can we evaluate the deals that emerge from these negotiations based only on the trade component, or do we need to look at the security side as well? * And to what extent is it possible to evaluate the security side, given the limits on transparency in a politically sensitive area such as this?” In short, the new “leviathan” in global trade could wreak havoc in trading relations between countries unless they rally around a plan to stop the progress of this “new normal”, said people familiar with the development. +
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