Running from Trump: why the EU signs trade deals with everyone
Over the past few weeks, attempts by world powers to reshape the world of global trade have sharply intensified. The massive imposition of duties by the Donald Trump administration — from a universal 10% to a barrier of almost 50% on average against China — provoked not only inflationary expectations, but also unprecedented diplomatic activity, reviving trade agreements that had been gathering dust on the table for years. In fear of losing the American market, the EU, Canada, India and other countries began to look for alternatives in cooperation with each other. However, it's too early to talk about revolution: many agreements have many pitfalls, while others may get stuck at the stage of approvals and ratifications. Details can be found in the Izvestia article.
Defrosting old stocks
The main victims of the tariff shock were countries with high export dependence on the United States — Canada and the European Union. For Ottawa, which sends 75% of its exports to its southern neighbor, Trump's tariffs have become an existential threat. The reaction was immediate: Canada finalized negotiations with Indonesia (ICA-CEPA) within a short time and accelerated the preparation of an agreement with the entire ASEAN bloc, as well as with India. Two years ago, these negotiations were perceived as a sluggish background, but now they are becoming a key task for Canada.
US President Donald Trump
We see a similar pattern in Europe. Brussels, caught between the industrial downturn and the loss of the American market, is frantically trying to close deals that have been stalling since the mid-noughties. Agreements were signed as soon as possible with India, as well as the MERCOSUR bloc, which includes most of South America.
However, haste in such matters rarely benefits quality. Although there are significant benefits in expanding trade cooperation and reducing duties, many of the agreements currently being promoted look like "early stages" designed to reassure the electorate and demonstrate the existence of a plan B. The main problem here is the depth of study.
In the case of the EU–India agreement, there is an attempt to circumvent the sharpest corners (such as tariffs on the automotive industry and visa quotas) through the creation of "interim" or "framework" agreements. In fact, this means that the parties sign the paper for the very fact of signing, leaving the solution of fundamental problems for later.
This approach creates its own risks. Premature transactions can lead to an influx of cheap goods into sensitive sectors (for example, the agricultural sector in Europe), while not providing adequate access for European exports to the Indian market. In the long run, this will only increase internal discontent and give trump cards to eurosceptics, who already call these pacts "capitulation to emerging markets."
Let's put it off for tomorrow.
The EU–MERCOSUR pact remains a typical example of how trade diplomacy runs into a wall of internal contradictions. Here we are witnessing a classic conflict of interests within the European Union itself: Germany, in dire need of sales markets for its machines and machines, is trying to push a deal through the institutions of Brussels, while France is on the defensive, protecting its farmers.
The European Commission's technological tricks to "split" the agreement in order to circumvent the veto of national parliaments may turn into a legal block. After signing the agreement, the European Parliament did not ratify it, but sent it to the European Court of Justice. The document may hang there for another couple of years. In addition, there is no enthusiasm at the level of individual states: France and Austria are ready to challenge the legality of such circumvention of national sovereignty for years. This creates a stalemate: the agreement seems to have been signed, but the business cannot use it due to legal uncertainty. While Brussels and Paris are arguing over beef quotas (99,000 tons per year), China continues to systematically buy up assets in Latin America, without burdening its partners with demands to protect the Amazon forests, which irritate Brazil so much. Germany (the main potential winner in the event of a successful signing), in turn, is trying to insist on the conditional implementation of the norms of the agreement before ratification.
The story of the EU–India agreement is similar, although there will probably be no courts. The implementation of the agreements has obvious advantages. For example, India has a fast-growing middle class (about 400 million people) that needs European cars, wines, machine tools, and luxury goods. At the same time, it can become for Europeans an alternative to China as a global factory, at least in terms of low-value-added goods (which Europeans do not produce, but actively purchase). Finally, European banks, insurance companies and logistics giants are looking for access to the trillion-dollar Indian market, which is still quite closed.
But the problems here are no less. For example, the Indian agricultural sector consists of hundreds of millions of small farmers. To a large extent, this is Modi's electoral base. Admission to the market of cheap and high—quality European cheeses and wines is a disaster for them. The EU, in turn, protects its farmers from Indian rice and fruits, citing sanitary standards. In addition, the EU wants equal access to tenders in India. India resists, preferring its suppliers. There is also a fierce conflict over drug patents.: India wants to produce cheap generic drugs, the EU protects the interests of its "big pharma". Well, the problem of the carbon tax will inevitably come up in the future, since India does not meet European standards in steelmaking.
A new balance of power
Perhaps the most important change is that the balance of power in the negotiations has finally shifted. Previously, the EU or Canada could dictate their terms by imposing environmental standards or rules for the protection of intellectual property, but today they act as "petitioners".
India, Indonesia, Brazil and Vietnam are well aware of their new value. For them, Western countries are just one of many buyers in a world where there is China and growing domestic demand. Therefore, Delhi, Jakarta and others are no longer making unilateral concessions.
India rigidly links access to its market with visa facilitation for its specialists. Indonesia is demanding recognition of its environmental certificates for palm oil. Brazil explicitly states that if the EU does not stop lecturing about the Amazon, MERCOSUR will finally move into the orbit of Beijing's influence. Major developing countries are now in the best position in the last half century: they can afford to wait and choose the most favorable conditions, while time is inexorably running out for the collective West.
Although global trade is not dying, it is rapidly fragmenting. Instead of a global market, we get a system of regional blocs and bilateral deals concluded in a kind of geopolitical affect. Often for the sake of earning political points.
For Canada and the EU, these new alliances are an attempt to survive in a world where the United States is no longer a guarantor of stability. But the problem is that the "patches" in the form of hasty agreements with Asia and Latin America cannot fully compensate for the loss of the American market. Moreover, they are creating new knots of tension within the Western countries themselves. Therefore, we will see attempts to normalize trade relations with other countries, including China and even Russia, since they look preferable in many ways as alternatives to the United States (at least for Europe).
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