Over on Bluesky, the EU-trade-think-tank ecosystem has been making a conspicuously concerted effort to get me to learn and touch upon this piece by Shahin Vallée:
In essence, Shahin argues that the EU has been too timid with the US and would have achieved higher outcomes if it had hit again onerous with tariffs and different restrictions from day one.
Whereas I query a few of the examples given — he says “China has achieved an entire US capitulation, as a result of it stood agency and used its leverage in vital areas” … however final time I checked the US common tariff on China continues to be rather a lot larger than the US tariff on the EU — I believe we most likely are on the level the place escalation within the type of new EU tariffs is inevitable. If solely to offer each the EU one thing to barter away.
However I’ve additionally been eager about **why** some nations take totally different approaches to negotiating with the US than others.
That is nonetheless a piece in progress, however listed below are a variety of questions I believe nations ought to be/are asking themselves, which, taken collectively, inform their method to participating with the Trump administration (in no specific order):
What’s your medium-term tariff assumption? When you assume, for instance, that regardless of Trump’s TACOing US tariffs on merchandise you export to the US are going to stay elevated in lots of situations, then you might be extra inclined to barter. When you assume he’s going to go full TACO, then it makes extra sense to attend and see how issues play out.
What’s your publicity? If a major proportion of your complete commerce is negatively impacted by the Trump tariffs then you definitely usually tend to wish to negotiate than whether it is comparatively small.
What do you assume is/isn’t negotiable? Will Trump budge on the ten% baseline tariff? Is Trump prepared to barter down the upper reciprocal tariff (if relevant)? Will Trump decrease the automobile/pharma/metal/fentanyl/and so on tariff? Relying on what issues most to you, your assumptions re: every of those questions decide how a lot effort you set right into a negotiation.
Are you concentrating on absolute or relative positive aspects? This is without doubt one of the questions the place it’s helpful to match the UK and EU negotiations. The UK did a deal that delivers a relative achieve (decrease automobile, metal, aluminium, aerospace tariffs and presumably higher therapy on prescribed drugs and different sectors in future) versus the US tariff at present utilized to different nations, however nonetheless leaves it worse off than pre-Trump 2.0. It is because it accepted {that a} relative achieve was higher than no achieve. In distinction, at the least till now, the EU has pursued a extra conventional deal — e.g. “zero for zero on industrial items” — which might ship absolute positive aspects, and ship liberalisation in each instructions that goes past what existed pre-Trump. Therefore no deal.
Are you prepared to flex the foundations? As common readers of MFN will know, I’m barely sceptical of claims re: the sanctity of WTO obligations given all of the examples of nations breaching them … however yeah, most nations at the least attempt to abide by their WTO obligations. Nevertheless, if you’re prepared to play quick and unfastened it most likely makes it simpler to do a bizarre cope with Trump than not.
Do you’ve got the willingness and talent to retaliate? That is multifaceted, however yeah, are you prepared to go toe-to-toe with the President, and do you’ve got the means to again it up? As above, the EU at present has the means [probably] however not the willingness; China has each, and the UK has neither.
Are you able to take in ache? That is barely linked to the query above, however assuming you don’t efficiently negotiate and Trump escalates… are you able to take in the financial ache and potential political backlash? And if that’s the case, for the way lengthy?
Do you’ve got the willingness and talent to accommodate? This will get mentioned barely much less, however accommodating Trump additionally comes at a price. Relying on what he’s asking of you, doing so may very well be unpopular. It’s notable, for instance, that Japan appears content material to pull out its negotiations with the US till after the election. The UK, it seems, was capable of accommodate the US’s ask to sign a barely extra inflexible stance on China … can Vietnam do the identical? Unclear.
Commerce diversion
Certainly one of my long-running considerations is that the Trump tariffs will result in quite a lot of commerce diversion and different nations imposing their very own tariffs in response.
This led me to attract this image and others:
Anyhow, the European Fee has been monitoring stated commerce diversion and has revealed its first evaluation.
Right here is its warmth map setting out the place a “probably dangerous enhance of imports has been detected”:
As Simon Evenett notes in a pointed briefing, the methodology underlying this evaluation is barely … unclear. Nevertheless, regardless of that it appears to be like to me as if that is all prep for the EU doing a little extra tariffs.
Which is able to imply one factor and one factor solely: extra drawings by me.
I Tariff You, Pikachu
Thanks to occasional MFN contributor George Riddell for flagging this to me.
Who knew Pokemon have been so harmful …
Snitches get … rewarded
Additionally with because of George, and consistent with earlier pontification, the US is now going to pay you probably hundreds of thousands of $ to grass your tariff-dodging neighbour up:
On Could 12, 2025, head of the Division of Justice Felony Division Matthew Galeotti delivered a speech through which he said that the Division augmented its company whistleblower program to prioritize the next topic issues for whistleblower ideas: “procurement and federal program fraud; commerce, tariff, and customs fraud; violations of federal immigration regulation; and violations involving sanctions, materials help of international terrorist organizations, or people who facilitate cartels and [Transnational Crime Organizations], together with cash laundering, narcotics, and Managed Substances Act violations.”
Right here’s the checklist of issues to be careful for:
There are quite a few methods through which an IOR can fail to adjust to commerce, tariff, and customs laws. Listed below are a few of the extra frequent failures we see:
Misclassification: The IOR incorrectly labels the kind of good shipped, as some classes of products carry larger tariffs than others.
Underreporting: The IOR understates the amount of products or the worth of the products as a method of decreasing tariff obligations.
Transshipment: Items are shipped from one international nation to a different earlier than arriving within the U.S. as a method of concealing the products’ true nation of origin, as totally different origin nations have various tariff charges.
False nation of origin: Like transshipment, however there isn’t any trouble of getting the products shipped to an middleman earlier than their final arrival within the U.S. As an alternative, the IOR merely alleges that the products originated in a rustic aside from their true supply.
False documentation: The IOR submits doctored or completely solid invoices or different documentation of imports.
Get snooping, snitches!
Finest,
Sam
