President Donald Trump threatened to escalate the trade war with the EU last week – in a social media missive, he suggested a 50% tariff on the EU starting June 1st. Days later, he walked that back and temporarily paused the tariffs until July 9. Andrew Wilson, Deputy Secretary-General and Global Policy Director at the International Chamber of Commerce, joined Brittany Lewis on "Forbes Newsroom" to discuss.
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00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me now is
00:07Andrew Wilson, Deputy Secretary General and Global Policy Director at the ICC. Andrew,
00:13thanks so much for joining me. Great to be with you, Brittany.
00:16There has been a lot of back and forth in trade talks between the U.S. and the EU in recent days,
00:22so I would love to get your input and break it down for us. So let's start with last week.
00:27President Trump threatened to escalate the trade war with the European Union.
00:31In a social media missive, he suggested a 50 percent tariff on the European nations starting
00:36June 1st. Just a few days later, the president did walk that back. He temporarily paused the
00:42tariffs until July 9th. So what are your thoughts on where negotiations stand right now?
00:49It's a good question. And it was, I think for many of us, it was a shocking 48-hour, 72-hour period.
00:57Somewhat unexpected, but I guess, I guess we're all now getting used to the art of the deal as
01:03applied to global trade policy, right? So this was clearly designed, I think, in retrospect to,
01:10as Scott Besant said, I think over the weekend, light a fire under the Europeans. And it certainly
01:16has done that. And I think there is an argument that the European Commission, although it has some
01:21challenges, so we shouldn't be unfair, was a little bit slow, at least in relative terms,
01:26in coming to the table to negotiate with the US. I think in that respect, we're now looking at a
01:33situation where very clearly given the depth and the breadth of the economic relationship, I think
01:38it's worth around 1.6 trillion US dollars annually. Both sides have a clear rationale for seeking a
01:47negotiated agreement. And hopefully that can be achieved by July the 9th. I think the broader
01:52context here, though, is somewhat more symbolic or at least systemic in that this trading relationship
01:59is about more than automotives or pharmaceuticals or cheese or champagne for that matter. It's ultimately
02:07the two nations that were the architects of the post-war liberal order, the architects of the global
02:13trading system that we have benefited from hugely over the past 70 years. So fracturing in transatlantic
02:21trade negotiations, I think, would be symbolically dangerous and potentially systematically destructive.
02:28So I think the stakes are high going into the negotiations. Hopefully, they can intensify. Hopefully,
02:34both sides can do so with the aim of securing a trade enhancing deal. And one which sends a strong
02:42signal to global business and financial markets. And a 50% tariff, that's a huge blow. I mean,
02:51that is a huge escalation to a trade war. So I want to talk about this art of the deal a little bit
02:56and how Europeans are reacting to it. Because when you and I last talked, there was a framework in
03:01place for a deal with the UK and the temporary agreement between the United States and China was
03:05just put into effect. And you said that the terms of those deals really turn the economic
03:10clock back to the early 1900s. Do you think that's where we are right now when you're looking at these
03:15negotiations and where they stand with the US and the EU?
03:18So look, I think we have to see what comes out of the negotiations, but it's very difficult,
03:27I think, in the current time to make any firm predictions. I think the point about turning the
03:32clock of economic history back to the early 20th century 1930s or even 1909, depending on the tariff
03:40rate is coming out of those deals, we're still left with effective US tariffs that are much higher
03:47than we've had in any recent time in history. And that will have an economic effect. I think the
03:54European Union has made, I think, a legitimate point that they'd like to see the baseline tariff removed
04:01and also the threat of sectoral tariffs removed. I think this will be a very good test of how far
04:06the US is willing to go on that and ultimately what they will seek in return. But I think the point
04:13remains that we're still operating in an environment, regardless of the buoyancy of financial markets,
04:20where businesses are going to be facing much, much higher tariff levels than they were at the
04:26start of the year. And I think the other point, and this is really truly having, I think, a corrosive
04:32effect on investment on business decision making is the volatility of policy making or the uncertainty
04:40that the tariff on, tariff off, escalate, deescalate is having on business is really starting to chill
04:48investment decisions and basic forward planning by business. And I think that will ultimately be
04:54detrimental to the economy. It's a risky strategy to apply to a complex global network that is the
05:02international trading system. And at this point, it almost seems predictable, this uncertainty,
05:07this turning off, turning on, we're going to tariff you 50%. Never mind, that's on a pause until July 9th
05:14instead of June 1st. I mean, in the long run, what does that volatility do to the US economy? Do you
05:21think that that is going to have a negative effect on us?
05:27So I think there's an interesting disconnect here between the financial markets and businesses in
05:33the real economy. So the financial markets just seem to rebound almost instantly once the tariffs are
05:39paused or taken off the table. I think what we're seeing in the real economy is something very
05:45different. So just a few weeks ago, we surveyed 500 businesses in our network, including businesses
05:53in the United States. The findings of that, I thought, were very telling. 70% of those companies said they
06:00were being far more cautious in their decision making and investments. 50% said they were having
06:07problems doing even basic forward planning. So I think what we're seeing ultimately is an erosion of
06:13business confidence in the real economy and a chilling of operational and strategic investment
06:21decisions. The US will certainly not be immune from that. As I say, our survey was global. It was not
06:28specific to the US. But certainly there will be impacts in terms of lower business activity, lower
06:36confidence, which also has the risk of spreading out to consumers. And I thought just a couple of weeks
06:42ago, there was some interesting new data from the Philadelphia Fed, which showed that companies,
06:48manufacturers in the Philadelphia region are already reporting higher input prices, and they're already
06:55starting to increase the prices of the goods that they produce. So in terms of business confidence,
07:02business output, investment, job creation, there are huge downside risks. And I think we're already
07:08seeing that very clearly. And likewise, there are already signs that this is actually feeding in
07:14to higher pricing companies, almost prospectively putting up their prices for fear of being caught by
07:22tariffs. So I think the whole mix is truly negative for the global economy, and certainly acutely negative
07:29for the US. And I want to turn back to the trading relationship between the EU and the US. Because
07:36in a post over the weekend, the President of the European Commission wrote this, that she had a good
07:40call with President Trump and quote, the EU and US share the world's most consequential and close trade
07:46relationship. President Trump has pointed out the imbalance of that relationship. And that has drawn a
07:52lot of ire from him because the US has a goods trade deficit with the EU. But the services trade surplus
07:58partially offsets up. But there still is that deficit, which he doesn't like. That is a pain
08:02point for President Trump. Do you think that's enough, though, for President Trump to then threaten
08:07this 50% tariff? I mean, is it clear what President Trump really wants from the EU?
08:15Look, I think the administration has called out a number of things, a number of grievances with EU policy. And
08:24clearly, the trade deficit has become a totemic issue of sorts. I think what we need to see now from
08:33both sides is reasonable, well intentioned forward looking negotiations to look at where frictions,
08:41where tension points can be addressed. I think some of the things the US administration has pointed to
08:49in recent weeks and months are entirely reasonable. Tariffs on automobiles being much higher than the
08:56tariffs the US was previously charging, for example. There could be should be a rebalancing of that,
09:03ideally working towards zero tariff transatlantic trade. Some of the other things that the
09:09administration has pointed to as being trade irritants or trade barriers, such as value added taxes
09:17in European economies, or the European Union's approach towards regulation of artificial intelligence,
09:24I think are going to be far more difficult to resolve in a trade negotiation. So it's unclear,
09:30one, whether those are legitimate trade concerns, whether they do really act as trade barriers or
09:37impediments to US exports. I think more broadly, I think the US administration has to recognise that
09:44the Commission will be operating with limited policy space, there will be only so much it can give.
09:50And ultimately, as we've seen with the UK, likewise with China to an extent, compromises will have to be
09:56reached in the interests of preserving a trade relationship that is mutually beneficial, incredibly
10:03economically deep, and as I said earlier, is systemically important in a way that almost no other trade
10:11relationship today is. And I know you said that both sides here have pain points, a compromise does
10:18need to be reached. I mean, that is really where any deal needs to come from, there needs to be a compromise
10:22on both sides. So to that point, do you think then July 9, that deadline is enough time to really hammer out
10:29a meaningful deal? I think I think what we've seen from with the UK, likewise with China, with other
10:38countries seemingly making relatively expeditious process, I think if there's political will, it can
10:45be done, even if it's just as we as we saw with the UK, a piecemeal deal where many different parts of
10:53the equation still need to be figured out or or filled in. So I think it's possible. It will require
10:59a change in pace, particularly from the European Commission. That won't necessarily be easy. I think
11:06it's very clear in this context, the European Union has an acute collective action problem, different
11:12member states have different interests in terms of exports to the US. The US has pointed to many
11:19aggravating factors or frictions that are actually at member state level, they're not European Union
11:25level policies. So the European Commission, I think has a tough task ahead of it. But I think we all
11:32should wish it the best of luck in being able to forge a position and hopefully there will be enough
11:36goodwill on both sides to secure some kind of deal, even if it's just a sticking plaster, to preserve
11:43what is a vital trading relationship. To that point, if there's enough political will
11:49as you said, it will get done. But the 50% tariffs was meant to it seems put a fire under the EU to
11:56come to the table faster to hammer out this deal faster. What type of volatility though,
12:01do you think that's doing this type of deal making that type of tariff on tariff off is doing between
12:07the relationship with the EU and the US? I mean, is this going to cause in the long term irreparable harm?
12:14I think that's a great question, Brittany. And I think there is a fundamental question that I keep
12:21asking myself, you know, the art of the deal. Maybe it works in real estate, maybe it works super well
12:28in private equity. But if you apply the sort of approach that the administration and ultimately the
12:36president has in recent months, to global trade relations, to diplomatic and geopolitical relations,
12:44what is the long term effect on that? So I think there are risks of a
12:49confidence in the in the United States as a trusted and stable partner. I know a lot of people
12:56have commented on that in recent weeks and months. What I can tell you from a business perspective is I
13:02think the uncertainty is truly corrosive. More and more companies are looking outside the US for key
13:10export markets. There's almost a scramble that we're seeing in Europe and also in many emerging markets
13:17to diversify markets away from the US wherever possible. So I don't think it's necessarily the
13:24optimal way of conducting international trade relations, neither diplomatically and certainly
13:32not from a business or economic perspective. And most people, I mean, just from a standpoint of psychology,
13:40don't like coming to a negotiating table under duress, don't like basically coming to the negotiating table
13:46with a gun pointed at their head. I mean, is there a risk for retaliation similarly to what we saw with
13:53the trade war between the US and China where there was that tit for tat, tit for tat until they got to
13:58that temporary agreement? I mean, look, I think if you threaten or impose tariffs on a trading partner,
14:07there is always an inherent risk of retaliation that that can't be discounted. I think one of the
14:13the good things we've seen from many governments over the last few months has been the carefulness with
14:20which they've responded. And we've been very, very clear since February that retaliation only makes
14:28the situation worse. It risks further escalation from the US administration. And they've been very
14:33clear on that. But also all of the economic modelling shows when countries retaliate, basically,
14:39you shoot at your trading partner, but you also shoot yourself in the foot, you make the economic impact
14:44of the tariffs you're facing far, far worse, two times, three times, even four times according to some
14:50of the models we've seen on Canada, Mexico and China. So I think it's good that governments have been
14:58very, very careful in how they've approached this. Obviously, if the talks in the US context don't work out,
15:07then there is a very clear risk that there could be further escalation retaliation. And the Europeans
15:13haven't taken that option off the table. Politically, that's very understandable. Economically,
15:19it would simply worsen the economic effects of any US tariffs that are imposed.
15:26And every single guest I've had on have said that there's no winners in a trade war here. But when
15:33you're specifically looking at the EU-US trade negotiations between now and July 9, what are you
15:39looking at for next? And is there a type of scenario where both sides can emerge as winners? What's a
15:46win for both the EU and the US? Look, I think, ultimately, a deal that significantly or entirely
15:55removes tariffs on transatlantic trade, coupled with strategic interventions to remove non tariff barriers,
16:04where those are legitimate and have an impact on the ability of US companies to export would be a
16:12fantastic outcome. And I think the closer we can get to that, the better. I think a second best option
16:18would be ultimately a temporary fix or a standstill, similar to what we saw with China, with some
16:24symbolic measures in return, ultimately for a lowering of tariffs. But I do think it is absolutely
16:33vital that the focus of both sides is getting the tariffs off the table. If the 20% or the 50%
16:42stays in place on top of sectoral tariffs that could do huge damage to both the US and the European
16:49economy, then I think we are in a very, very bad place. So that really, I think, has to be the focus.
16:55How far can the tariffs come down? What can both sides give to achieve that? Well, there are certainly a
17:02lot of things to look out for as we see how these negotiations progress between now and July 9. And I
17:08hope you come back on and break them down with me. Andrew Wilson, thank you so much for your time.
17:12Thank you, Brittany.
17:19Thank you, Brittany.