The EU’s plans to change the world will fall short

After two weeks in which this newsletter didn’t kick off with Donald Trump, I get sucked in like a rowing boat being inexorably pulled into a frothing whirlpool. Trump abruptly announced he was stopping talks with Canada late last week over the country’s digital services tax, which caused Ottawa rapidly to rescind it. A deal with the EU may, or may not, be imminent. At any rate, the administration increasingly seems to accept that the alleged July 9 “deadline” to agree farcical “deals” to forestall its bogus “reciprocal tariffs” — note every noun of Trump’s trade policy requires derisive quote marks and a sardonic adjective — is not a deadline at all.

At least I’m managing to keep Trump (at least explicitly) out of today’s main pieces, which are about the EU coming out with some odd stuff on what it wants to do about global trade governance and the froideur between Brussels and Beijing. Charted Waters, where we look at the data behind world trade, is on stock prices.

Von der Leyen goes out on a limb

The considered Trade Secrets view of Ursula von der Leyen’s European Commission and of the president herself, assuming I’m required to have one, is that she’s been generally quite sensible, if not spectacular, on trade. Occasionally, though, she gets a rush of blood to the head, and promises something inadvisable and/or impractical. One example was her first meeting with Trump back in 2020, in which she promised a quick-fire deal “in a few weeks” on trade, energy and technology. That occasioned some raised eyebrows, if not spitting of coffee, in the Charlemagne building occupied by the trade directorate in Brussels.

Predictably it came to nothing. Nor, almost certainly, will her quixotic claim last week that the EU was working on reforming or even replacing the World Trade Organization. German chancellor (and fellow Christian Democrat) Friedrich Merz went further, explicitly wondering if the EU could work with trading partners to create something that, and I quote, “institutionally replaces what we actually already envisioned with the WTO, namely a dispute settlement mechanism through an institution like the one the WTO was supposed to be”.

I’m going to go out on a limb (in my view, a relatively short and sturdy one) here and say this is unhelpful freelancing that isn’t going to happen. Here’s why.

The vehicle of change von der Leyen and others have mentioned is co-operation between the EU and the Asia-Pacific CPTPP pact, about which there has been a whole lot of chatter in recent months. This chatter has got ahead of reality, as people inside the CPTPP have noted to me. I’m told that all that’s practical between the EU and CPTPP at the moment is a restatement of the principle of adherence to WTO rules, especially since no one really wants to break cover and enrage Trump.

Apart from obvious big differences in approach on certain issues (food safety, data transfer), the CPTPP and the EU are legal behemoths with their own rule books and dispute settlement systems, practised and honed in the EU’s case and barely tested in the CPTPP’s. Even if you somehow got them substantially docked with each other, you’d have a governance structure excluding certainly India and very probably China. (That is, unless China acceded to the CPTPP in the meantime, which various CPTPP members are chary of and which would certainly liven up negotiations with the EU.) Global trade governance without the US, China and India isn’t quite Hamlet without the prince, but it’s certainly Waiting for Godot without three out of Estragon, Vladimir, Pozzo and Lucky — and with a similar, indefinitely postponed resolution.

More fundamentally, an attempt to complement or supersede the WTO will founder on the same problem the WTO itself has. If big trading powers don’t want to make rules in vital areas and adhere to them, it doesn’t matter what structure you create. If India refuses point-blank to discuss environmental issues in the WTO, it’s not going to join a new gang to do so. (Admittedly, it wouldn’t be able to block plurilateral deals being adopted as it does inside the WTO. But it would be a tricky thing to create legally binding plurilaterals outside it.)

If China wants to use its leverage over rare earths supply unilaterally, it won’t accede to a multilateral framework to constrain it. China loves the WTO, but largely because it enables it to strike multilateralist poses without actually having its state-capitalist system constrained very much by the rules.

Proposing some fundamental reforms, or indeed a new WTO, means we’re back with our familiar old pal, “technocratic solutions to political problems”. It’s a discourse which has occupied thousands of hours of earnest seminar discussions and millions of words of think pieces and op-eds over the decades, but not really got anywhere. Anyway, in one minor way the WTO system got a boost last week when the UK decided to drop its slightly tedious performative reluctance and join the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), the workaround WTO appellate body set up after the US paralysed the real one. Well done Britain. Nice to see you made it.

The froideur between Brussels and Beijing

Meanwhile, back in the world of realpolitik, another of von der Leyen’s interventions earlier this month was to be pretty cross with China. She’s an instinctive Atlanticist and China-sceptic, and so Beijing’s recent behaviour has given her a chance to give at least the second of those tendencies free rein. Nearly three months after China announced it was restricting rare earths exports — and these constraints are a lot more binding than previous ones — it’s increasingly hard to argue that the EU has been accidentally caught up in the blast, rather than being a secondary target along with the primary mark, the US.

Yes, China prioritised suppliers to Volkswagen for those precious licences, but it has also subjected European and US companies alike to extraordinarily invasive demands for information. The country is trying to portray itself as constructive and multilateralist, but that’s convincing no one in Brussels. This recent piece from the South China Morning Post details how China’s charm offensive in the EU failed to work.

If Beijing is trying to peel the EU off from alliance with the US, it’s not doing a good job of it. If it’s true the US and China are trying to corral countries into their geoeconomic herd, they’re both doing so mainly with sticks rather than carrots. 

At this rate, the EU-China summit in July is likely to be quite a tense affair. The EU has started to deploy its new range of weaponry against China — the international procurement instrument and the foreign subsidies regulation — and it’s always on the alert for a good opportunity to use the anti-coercion instrument (ACI), which really would be a big deal.

Again: we are not in a new bipolar cold war. Instead it’s a pattern of shifting and divided allegiances, with the big powers frequently prioritising immediate self-interest rather than the careful construction of alliances. It’s going to be an interminably bumpy ride.

Charted waters

Who knows what’s driving financial markets these days? (Do they think there won’t be big new tariffs? Do they think the economy will do OK regardless?) Anyway, the big funk in US equities relative to European stocks is now all but over.

Trade links

The world’s leading economies have agreed a deal to spare the US’s largest companies from paying more corporate tax overseas, throwing into doubt the status of the biggest global tax deal in over a century.

Last week, I wrote about how the US was choosing to lose the race for technological advantage in renewables and other green goods. As if to underline the point, the US Senate is not just slashing credits for wind and solar power, but actually imposing new taxes on future projects. Elon Musk, in his new role howling in the wilderness, is against.

The FT reports on the Asian companies trying to avoid Trump’s tariffs, and on how the tariffs and cuts in aid are hurting the world’s poorest economies. 

The UK has negotiated partial exemptions from Trump’s tariffs for its car industry. But Lotus, one of its iconic manufacturers, is still packing up and going, shutting its eastern England plant apparently to relocate to the US.

This is not explicitly to do with trade, but I liked this piece by neoconservative Bill Kristol on how the American public is standing up to Trump but elites are not. It is notable how little public pushback there has been from companies and business associations to the US president’s trade policy.

Trade Secrets is edited by Harvey Nriapia