A Trumpian offer you can only refuse

Last week, when US President Donald Trump’s tariff deadline came due, was a completely mad one in trade. The maddest since, ooh, a few weeks ago. It’s likely to be unmatched for madness for at least, say, three weeks — until August 1, the new D-Day when the bogus “reciprocal tariffs” will be imposed or deferred again. Financial markets are currently very sanguine indeed. They’re either on the Trump always chickens out “Taco trade”, or they don’t think the levies will do much damage.

My favourite bit of last week was hosting the FT’s Economics Show podcast with Trade Secrets favourite Dmitry Grozoubinski, who managed to explain with logic and detail just why nobody knows anything. Today I announce the winner of the “readers guess the tariff letter” competition and examine Trump’s self-destructiveness. Charted Waters, where we look at the data behind world trade, is on a slight recovery in the dollar.

How many letters? Your guesses revealed

Last week, I asked readers to predict how many letters threatening tariffs Trump would send to trading partners by midnight on Tuesday. Given the randomness of the decision, there was commendable enthusiasm on your part to have a go at divining the unknowable.

In the event, I reckon the count of Trump letters was 14 on Monday before our Tuesday night deadline. Another big batch came on Wednesday and Thursday, and the week was capped off with one to the EU over the weekend threatening tariffs of 30 per cent. 

There were lots of reader guesses clustered at zero letters, presumably on the grounds that Trump always chickens out. It turns out that he chickens out of tariffs, but is just about courageous enough to send some missives continuing to threaten them.

At the top end of the spectrum, an honourable mention for boldness to Matthias Matthijs of the Johns Hopkins University SAIS graduate school for going much bigger than anyone else with 47. But the clear victor was Miguel Vidal, a senior economist at Deutsche Telekom, who guessed 12, only two away from the actual outcome. Say what you like about German corporates, but their people still have their eye on the global trade ball. Congratulations to Miguel and thanks to all who participated. I’ll come up with another quiz in due course.

Demanding the undeliverable from Lula

The thing about coercion is that if you’re demanding from the other side something they can’t possibly give, you’re not actually coercing at all. You’re just handing out gratuitous punishment.

Trump displayed this early on in his tariff campaign when he requested impossible actions on smuggling fentanyl and securing the border from Mexico and Canada, and then demanded Canada allow itself to be annexed. The latter request in particular was so offensive and bizarre that the ruling Liberal party in Canada got massive surges in poll ratings and unexpectedly won a general election by telling Trump to shove it.

Trump seems insistent on doing this again, this time with President Luiz Inácio Lula da Silva in Brazil. In the first half of last week, Trump had sent his initial letters to trading partners whose threatened tariffs he adjusted up or down by small amounts according to no logic anyone could see. Thereafter, he got to the part of his list of enemies who deserved special treatment (“and now, we move on to liars”), including Canada, Mexico and the EU.

Rather less obviously, it also included an extraordinary blast at Brazil, which he threatened with a 50 per cent tariff. Someone from Jair Bolsonaro’s camp presumably had Trump’s ear, because he focused the complaint on the current criminal proceedings into the former president but without making any particular demand. (Unless, laughably, he expects Lula to intervene in the criminal justice system on Bolsonaro’s behalf.)

This is classic fentanyl/annexation behaviour. Trump makes a ridiculous demand of a foreign leader and most likely boosts their popularity when they cannot but defy him. (Interestingly, Mark Carney, the current Canadian prime minister, has taken a more emollient line with Trump recently, and it doesn’t seem to have done him much good.)

Lula is economically and politically reasonably well placed to deal with this threat. Brazil runs a goods deficit, not a surplus, with the US, and exports far more of its world-beating agricultural exports to China than to North America. He isn’t doing well in the polls, but it’s a pretty safe bet this threat will create widespread national indignation which will put some support behind whatever retaliation measures he decides on. Brazilian conservatives will now have to explain why the country is being threatened on their erstwhile leader’s behalf.

The EU continues to flail around

As it happens, Lula has also positioned himself on the pragmatic side of the trade issue. In particular, he supports ratifying and implementing the trade deal between the EU and the Mercosur trade bloc, surprising those who took the globalisation-sceptic rhetoric of his party literally.

Would that this were also true on the EU side. If I had a soyabean for every time I said this I’d be a major agricultural exporter to China myself, but the political case for the holdouts in the EU (that is, France) to drop their objections to ratifying the Mercosur agreement is now screamingly compelling. The symbolism of linking the European and South American economies, geographically as well as metaphorically bypassing the protectionist US, would be great optics. Imagine the graphics on the press release. But the EU can’t currently get over France’s objections to Mercosur. And nor is there enough consensus among member states to agree what a serious threat Trump is to Europe to push it over the line.

The EU’s response more generally to Trump continues to look weak and vacillating. As I wrote last week — don’t they subscribe to the FT in Brussels? — the EU keeps treating its dealings with Trump as a normal trade negotiation when they are anything but. And still they keep being disappointed. Here’s Bernd Lange, veteran chair of the European parliament’s international trade committee, after Trump’s letter to the EU was released over the weekend.

The EU has now decided to show its lack of stomach for the fight by suspending its countermeasures against Trump’s tariffs which were due to come in tomorrow. An even more unforced error was European Commission President Ursula von der Leyen unilaterally announcing the time was not right for the EU to use the “anti-coercion instrument”, which it designed exactly for situations like this. Speak softly and leave your stick at home.

Someone should needle Trump to link his tariff threats to some insane and insulting demand that the EU couldn’t possibly deliver, such as making JD Vance pope or agreeing that the US can enter and win the Eurovision Song Contest. Then you might see a bit of fighting spirit from the capitals of Europe.

Charted waters

After a truly awful first six months of the year, the dollar has had a modestly good week despite Trump’s renewed threats of tariffs. Perhaps because investors didn’t believe him.

Trade links

On the plus side for the EU, the bloc announced it had agreed in principle to sign a trade deal with Indonesia, though many details remain to be decided.

Awful events are occurring in the southern African nation of Lesotho, which built a garment export industry based on market access from the US’s African Growth and Opportunity Act (Agoa) trade preference scheme Trump’s tariffs are now destroying.

Trump has threatened tariffs of 50 per cent on copper, following the steel and aluminium (aluminum, whatever) example of making a widely used industrial input more expensive for the benefit of an industry with political heft but few jobs.

FT colleagues Katie Martin and Martin Sandbu look respectively at whether the euro is uncomfortably strong for Europe’s economies and what a world without the dollar as a reserve currency would look like.

The FT looks at whether the outline trade agreement (on the usual vague terms, nothing binding) Vietnam got from the US was worth it.

Tobias Gehrke at the European Council on Foreign Relations gives his view of how the EU has mishandled dealing with Trump.

Gary Hufbauer and Ye Zhang of the Peterson Institute think-tank look at how quantitative restrictions on trade (quotas and the like) are making a comeback.

Trade Secrets is edited by Harvey Nriapia