Saturday Scribblings

The Art of the Imaginary Deal

After last week’s posting, I had intended to shut up shop until September, and after this week I definitely will, but I felt I had to write something about the alleged EU/US trade deal that was concluded last Sunday on a Scottish golf course between President Trump and EU Commission President, Ursula von der Leyen.

I say “alleged” trade deal because, as far as I am aware, and I have read numerous newspaper reports on the matter, there is no written text between the parties setting out what has been agreed. Instead, there are contradictory stories coming out of the EU and the US about what was agreed at Trump’s private golf course.

Whether what was supposedly agreed is good or bad from a US or European point of view, we will only know when and if a final written agreement is signed by both sides and we can study the fine print. But I suspect that it could be some time before we see such an agreement, if indeed we ever do.

From last Sunday’s talks, it would seem that most goods exported from the EU to the US will be subject to a 15% tariff. But who pays this 15%? The answer is US consumers who will be faced with higher prices as imported goods from the EU will be more costly. The same goes for goods from the rest of the world, as Trump announced various tariff levels last Friday. Poor old Switzerland got hit with 39%. What did Switzerland ever do to annoy Trump? Not send someone to yodel at his inauguration?

How hard will the EU be hit? Commentators suggest that the 15% tariffs could reduce the EU economy’s GDP by 0.5%, significant, but minor in comparison to the 2009 financial crash, which saw a 4.3% fall, and Covid, which came in with a 5.6% dive.

While the EU sent €532 billion in exports to the US in 2024, this amounts to less than 3% of the EU’s annual GDP, a manageable number.

So, the hit may not be that great.

I have long been of the view that President Trump believes that with his tariffs he is imposing a tax on foreign governments and companies, and money from these governments and companies will simply roll into the US treasury, delivering funds to pay for the tax cuts in his Big Beautiful Bill Act.

But foreign governments and companies won’t be paying. It will be American consumers. And the world is a big place, and EU companies will look to other markets to replace any lost US trade. It will take time. But it will happen. The same goes for companies elsewhere in the world. Why go to the trouble of exporting to the US if you can export elsewhere? Erecting trade barriers reduces trade. We already know this from Brexit Britain.

Of course, the EU could impose retaliatory tariffs on US imports, but that would just make things more expensive for Europeans. Not necessarily a good idea. If the other guy shoots himself in the foot, you do not need to follow suit.

Anyway, the purpose of this short piece is not to discuss economics but to talk about negotiations.

Can the talks last Sunday between Trump and von der Leyen be described as a negotiation? Did Trump bring the 'Art of the Deal' to the Scottish links in his talks with the Commission President? I don't think so. The US executive branch is hailing its chief's 'massive deal', but it is at best the framework for a deal that is yet to be done. The talks were a step in what will end up being a far more protracted and comprehensive negotiation.

So what was agreed? As already stated, the US will impose a tariff of 15% on practically all goods imported from the EU. There are some exceptions, such as aircraft parts. Despite cries of surrender from a number of commentators, the EU cannot stop the US from doing this if this is what it wants to do: impose a tax on its own consumers.

Also, it seems the EU undertook to direct up to $600 billion in investment into the United States and to purchase $750 billion in American energy over the next five years.

But this is a nonsense. The EU cannot oblige private economic actors to invest in the US if they do not wish to invest, nor can it oblige such actors to buy energy from the US. Sure, EU companies will invest in the US as they have always done, and energy companies will buy from the US as they have always done. But the idea that the EU has agreed to invest over $1trillion in the US lacks credibility.

Read this press release from the EU Commission, where it is explicitly stated that “While the Commission facilitates contacts between relevant EU buyers and sellers, commercial decisions naturally belong to companies”. here.

What European politician seeking re-election is going to go to voters and say that the EU is “giving” $600 billion to Trump to invest in America when so much needs to be done in Europe? That is just not going to happen.

This is also the case with Japan, which is denying that it would make $550 billion of investments in the US on projects decided by President Trump. But this is what Trump’s people are saying is the case. here.

On the US side, there is talk that the final EU deal will have to include wording that would see the EU roll back laws that US businesses do not like.

“There’s plenty of horse trading still to do,” US Commerce Secretary Howard Lutnick told CNBC on Tuesday. The EU’s digital services taxes, Brussels’ “attack” on US tech firms, and US tariffs on steel and aluminium are still “on the table”, he added. here.

Darren Woods, CEO of Exxon, has recently complained about EU environmental and human rights laws such as the Corporate Sustainability Due Diligence Directive:

“It is going to tangle them up in more bureaucratic red tape in Europe ... and subject [companies] to bone-crushing penalties, so that’s a big issue that is yet to be addressed, and hopefully will as part of these [trade] negotiations.” here.

Whatever about reluctantly accepting the 15% tariffs which Trump can unilaterally impose, I do not see that EU member state governments will allow the US to dictate what laws the EU can enact within its own territory.

I have read some commentary which that suggests the EU was “weak” and capitulated to Trump. I am not persuaded by this argument. As I said earlier, tariffs are a tax on your own consumers because they push up prices, maybe not immediately, but certainly in the longer run and dampen economic activity. The job numbers out of the US this week would suggest that tariff uncertainty may already be having a negative impact. As the Financial Times reports:

The world’s biggest economy added just 73,000 jobs in July, while hiring figures for May and June were lowered by a combined 258,000, in an unusually large revision by the Bureau of Labor Statistics.

And, of course, Trump immediately fires the bringer of bad news. here.

So, for the EU, when faced with Trump’s tariffs, should it have imposed counter tariffs of its own, in effect taxing its own consumers in response to Trump taxing US consumers?

In negotiations we have an acronym BATNA, the best alternative to a negotiated agreement. What was the EU’s BATNA when faced with Trump’s determination to impose tariffs on the whole world? Often, a negotiator’s best BATNA is to stick with the status quo if a new agreement cannot be found. But Trump has torn up the status quo because he has the political, economic, and military leverage to do so. What options did the EU have? Start a trade war? And also shoot itself in the foot?

Trump is engaged in what can best be described as a “presidential coup” in the US, consolidating all political and legislative power in the office of the president, unchecked by either the Republican controlled Congress or the conservative Supreme Court. Trump rules on his whims.

The EU is a complex political entity of 27 sovereign member states, along with the European Commission and the European Parliament. Decision-making is dispersed, and sovereignty is jealously guarded. It more or less is what the people of Europe want, and while think tanks and commentators might call for it to be something else, it is not going to be something else anytime soon. That’s the reality of European politics.

The EU, despite the size of its internal economy, does not have the negotiating leverage that a US president who has concentrated all power in himself has, and no amount of outrage on the part of European leaders is going to change that.

These “negotiations” are a long way from over, and there are many twists and turns still to come, especially if the US insists on pushing for regulatory change in Europe. There may never be a deal, and then who knows what is going to happen.

For those of us in the labour relations business, there are some takeaways from all of this:

1. Always know precisely what it is to want to achieve before discussions start. Have clear objectives.

2. Know what your BATNA is, and if you do not have one, work to develop one.

3. At the end of the discussions, agree on what you have agreed and write it down and then agree again on what has been written down.

4. Know exactly how what you have agreed is going to work in practice.

Do these things, and the deal might stick. Don’t do them, and it definitely will not.