The Emperor Has No (Trade Deal) Clothes

Nobel Prize economist Paul Krugman comments on Trump's "trade deal" with the European Union: 

On Tuesday Donald Trump went on CNBC to explain why the European Union is facing a tariff of “only” 15 percent. But what he said was simply delusional — and the delusion should be even more concerning than the tariffs.

The Europeans, Trump asserted, had agreed to cough up $600 billion, which he described as a “gift,” not a loan. And he emphasized that this is “$600 billion to invest in anything I want. Anything. I can do anything I want with it.”

So Trump apparently believes that the European Union has agreed to provide him with a personal $600 billion slush fund.

In fact, as I pointed out after the “deal” was announced, the EU agreed to no such thing.

 

In fact, it literally couldn’t have made such an agreement. European nations aren’t command economies in which government can tell the private sector where to invest, and in any case the European Commission, which negotiated with Trump, can’t tell the governments of member states what to do.

So think of it as the emperor’s new trade deal: Trump is strutting around, feeling very impressed with himself, but in substantive terms he’s stark naked.

Does it matter? I’ve seen some commentary to the effect that it doesn’t. Hey, it’s just another Trumpian self-aggrandizing fantasy, like his belief that we have zero inflation, he has a 71 percent approval rating and “people love the tariffs.”

But I don’t think we should feel reassured about Trump’s trade delusions because he’s lost touch with reality across the board.

What will happen if and when Trump realizes that Europe hasn’t actually promised what he thinks it has — or, as he’s likely to see it, that the EU has gone back on its promise? He’s already given us an answer: He’s going to put the tariff on Europe back up to 35 percent.

He may not be able to carry out that threat. In fact, there’s a very real possibility that the courts will rule many of the tariffs Trump has already imposed illegal (which they surely are) and order the administration to refund the money it has already collected.

But assume that the Supreme Court does its usual thing and decides that the Constitution allows Trump to do whatever he wants. How afraid should Europe be of the possibility that Trump will put the tariffs back up, higher than before?

Well, I’ve been trying to do the math, and as far as I can tell putting U.S. tariffs up from 15 to 35 percent would do less damage to Europe than many people imagine. Yes, it would hurt, but not all that much. By making a 15 percent tariff the baseline — what countries pay even if they do make “deals” — Trump has used up a lot of his trade war ammunition, greatly reducing the effectiveness of any further threats.

After all, Europe has never been all that dependent on access to U.S. markets. In 2024 the EU’s exports of goods to the United States were slightly less than 3 percent of its GDP — not a trivial sum, but not enough to make European prosperity dependent on U.S. goodwill.

Trump’s tariffs will make the EU even less dependent on the U.S. market. In Sunday’s primer I explained that the crucial number is the “Armington elasticity,” which measures how sensitive trade flows are to tariffs, and that a reasonable estimate of that elasticity is 3. If we go with that number, we would expect the 15 percent tariff currently in place to cut EU exports to America by roughly a third, to around 2 percent of GDP.

That’s a palpable hit, but not a huge one. Writing in the Financial Times, Richard Milnetells us that reports from European companies are showing surprising resilience. Furthermore, the loss of U.S. business will be partially offset by higher government expenditure in Europe, with Germany in particular boosting spending on both infrastructure and defense.

That’s with a 15 percent tariff. But what happens if Trump pushes tariffs up to 35 percent? My back-of-the envelope calculations say that this would reduce Europe’s exports to the United States by another 0.7 percent of GDP. That is, the hit to Europe if Trump makes good on his threats would be smaller than the hit he has already imposed with the tariffs he plans to keep in place regardless.

This makes sense if you think about it. The higher the tariffs Trump imposes on imports, the less other countries sell to America. And the less they sell to us, the less they have to lose if we push the tariffs even higher.

And that argument doesn’t even take into account the strong possibility that another round of Trump tariffs would provoke retaliation from Europe and other trading partners.

The EU has so far chosen not to retaliate against Trump’s tariffs because its officials decided that making a deal, or at least seeming to make a deal, was better than getting into a tit-for-tat trade war. But if it turns out that Trump sees a deal not as the end of the story but simply as the jumping-off point for new demands, I suspect that even the timid bureaucrats in Brussels will eventually decide that enough is enough.

But again, at this point the math of the trade war matters less than the madness that lies behind it.

There has always been a whiff of megalomania about Trump’s tariff policy — a belief that he can use the threat of tariffs to compel other countries to do his bidding on multiple fronts, from promising not to move away from the dollar as a reserve currency to abandoning the prosecution of wannabe dictators who tried to overthrow democracy.

However, by making 15 percent tariffs the new normal — by keeping tariffs high even when countries make, or pretend to make, concessions to the United States — Trump has used up much of whatever trade ammunition he had.

However, Trump will be the last person to recognize that there are limits to his ability to bully the world, on trade or anything else. And that lack of awareness should worry us all.

Is There A Corrupt Trump/Maxwell Deal In The Making?

The following is part of an excellent post by Jennifer Rubin:

A potential, disgusting deal between the Trump regime and Ghislaine Maxwell, a convicted colleague of Jeffrey Epstein, is gaining new attention. Maxwell was sentenced to 20 years for conspiracy to entice minors to travel to engage in illegal sex acts, conspiracy to transport minors to participate in illegal sex acts, transporting a minor to participate in illegal sex acts, sex trafficking conspiracy, and sex trafficking of a minor.

In the midst of a firestorm that Donald Trump can no longer contain regarding his refusal to release all materials concerning Epstein and his clients, Deputy Attorney General Todd Blanche (Trump’s former personal attorney) announced a meeting with Maxwell (whom Trump previously wished well). Maxwell is currently appealing her conviction. What could possibly be the basis for the number two person in the Justice Department to meet with the woman at the center of the criminal enterprise that now threatens to envelop Trump in a scandal like none other in his sordid career? (Interestingly, Attorney General Pam Bondi, already the object of scorn for her insistence that there is no “list” to release, has now taken a back seat.)

The prospect for such a meeting has set off alarm bells, even within the MAGA camp. Rep. Marjorie Taylor Greene (R-Ga.) actually got something right when she proposed that Maxwell could be “bartering for something.” Put more bluntly, Maxwell could be making a deal to pardon or shorten her sentence in exchange for exonerating Trump. This would be the height of corruption, raising the potential for impeachment and/or criminal investigation.

It seems preposterous that anyone would believe Maxwell’s possible exoneration of Trump after getting a deal from the ethically compromised Justice Department. However, Trump may be so desperate to persuade a segment of his most deluded cult members to let up that he is willing to risk elevating the scandal.

How Can Anyone Deal With A Compulsive Deal Breaker Like Trump?

With Trump's record on deals and contracts, would you trust him?

The following post is by Jennifer Rubin at The Contrarian:

There is no agreement, pledge, or promise Donald Trump won’t break. His unwillingness to constrain his whims, impulses, and narcissism produces moral outrages and an ongoing threat to our democracy. However, it also creates an insoluble problem in our foreign policy: Who would ever make a deal with him?

Trump has been a world-class deal breaker for his entire adult life:

· He broke deals with contractors and lawyers, cheating them out of payment.

· He cheated students who foolishly gave him money to attend Trump U, resulting in a multi-million-dollar settlement.

· He violated his fiduciary duty (ponder the insanity of “Trump” and “fiduciary” in the same sentence), forcing New York to shut down his foundation and exact other penalties.

· He violated his marriage vows, as Stormy Daniels testified under oath.

· He violated his presidential oath of office in allegedly attempting to extort Ukrainefor personal gain and again for leading an insurrection.

· He has comically made serial promises (apparently with no intention of fulfilling them) to produce all sorts of decisions and plans in “two weeks.”

· He tore up the Iran deal.

· He flips and flops on whether he will abide by Art. V, the core provision of our most important treaty, NATO.

· He likely invented a pretext (Iran is on the verge of weaponization) to break the War Powers Resolution (requiring congressional consultation at a bare minimum) and then lied about the results (Iran program “obliterated”!).

Constant reversals, betrayals, lies, and bullying risk isolating us from valuable allies and incentivizing our enemies to resort to hard power. In Iran, Trump’s 2018 decision to tear up the Iran nuclear deal, followed by resorting to brute force, gives Iran an incentive to regard negotiations as useless and to instead race to make a bomb to ensure survival.

Our allies are watching as well. They see a reckless president ready to shred agreements, lie to the public, and resort to force that are more garish displays of strength than effective instruments of U.S. policy. Our European allies have learned the hard way not to trust Trump, so they are now rushing to beef up their own defenses, making them that much less likely to cooperate with the U.S. or, as they did in Afghanistan, to rush to the defense of the U.S.

As Kori Shake wrote, “When it comes to burning bridges... nothing matches the speed and destructiveness of Trump’s policies in the past few months. According to a recent survey conducted by the opinion-research firm Cluster 17 and the journal Le Grand Continent, 51 percent of Europeans ‘consider Trump to be an enemy of Europe.’”

When the U.S. president is so fundamentally untrustworthy, other parties find it challenging (if not impossible) to reach agreements, which rely on good faith. With allies, any deal comes with an asterisk—legitimate doubt as to whether Trump will live up to his end of the bargain. That makes them less likely to compromise on their interests and more wary of ceding their freedom of action. Ukraine, for example, cannot possibly rely on any promise from Trump to enforce the terms of a ceasefire; the only rational choice is to keep fighting.

Trump’s untrustworthiness also sends potential allies into the arms of our enemies. When countries in Africa, for example, see Trump renege on foreign aid, they are that much more likely to ally themselves with China, which has been seeking a toe hold in Africa for decades.

Americans understand what is going on. Even before the Iran war, a Reuters/Ipsos poll showed that 59% of Americans believed that Trump had lost the U.S. credibility on the international stage. They are smart enough to realize, as one academic put it, that “[t]he US under Trump is fast becoming untrustworthy. American reliability must now be broadly questioned, from collective security to the rule of law.” The result of “this widespread loss of trust...will be the neutering of US soft power.”

When it comes to adversaries such as China and Russia, we wind up with a comic metaphysical puzzle: How does an untrustworthy actor who does not intend to honor the deal strike a deal with another untrustworthy partner—when both sides know the other is not going to keep the agreement? Diplomacy becomes a farce. Parties have strong reasons to resort to military power.

Trump’s dishonesty also manifests itself in claiming credit for things in which he played little or no part. “Even India, a country with which Trump has often claimed warm relations, has publicly contradicted his assertion several times that US trade policy played a role in diffusing tensions with Pakistan,” the Economic Times reported. “India’s rebuttal underscores a broader shift: traditional US allies are no longer willing to play along with Trump's tactics. This loss of diplomatic credibility suggests a weakening of America’s global standing under Trump’s renewed leadership.”

Trump’s utter lack of credibility, highlighted in his serial lies about Iran, will have long-term implications for America, far beyond this episode and even beyond the Middle East. “Trump and his team are destroying everything that makes the United States an attractive partner,” Schake points out. “If it stays on the path Trump has started down, the United States risks becoming too brutal to love but too irrelevant to fear”—and too untrustworthy to bargain with.

Trump's First Tariff "Deal" Was Just A Public Relations Stunt

 

Trump announced on Thursday that he had negotiated a huge deal with the United Kingdom. It was supposedly the first deal of many to come. 

But he lied. It wasn't a deal at all. No final agreement had been reached. And no signatures were on a completed deal. It was just a general understanding that the two nations would work on the details of a broad agreement in the coming months. In other words, it was just a PR stunt.

Opposition has been growing to Trump's tariffs, and doubts were growing that Trump knew what he was doing with his trade war. This was just an effort to try and fool the American public into thinking his crazy tariff scheme was on the road to success. It isn't!

And if it had actually been a deal, it wasn't a very good one. Britain got almost nothing - just a removal of tariffs on expensive British cars and steel, while the 10% tariffs will continue on everything else. It's not a good deal for Americans either, since it will just feed inflation on goods imported from Britain.

One troubling aspect is the 10% tariff remaining. Trump has called it a minimal baseline tariff - implicating that the 10% tariffs he placed on nearly all countries will remain in place - even if "deals" can be reached with all those countries.

This was a failure for the "great negotiator". Only the most fervent MAGA faithful could believe otherwise.