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

After a couple of weeks without starting off with Donald Trump, I find myself inevitably drawn back in, much like a rowing boat being pulled into a swirling whirlpool. Trump suddenly announced the termination of talks with Canada last week due to the country’s digital services tax, prompting Ottawa to quickly retract it. A potential deal with the EU is in the works, or maybe not. Nevertheless, the administration appears to be increasingly acknowledging that the supposed July 9 “deadline” to reach ludicrous “deals” to avert its baseless “reciprocal tariffs” — every aspect of Trump’s trade policy requires mocking quotation marks and a sarcastic descriptor — is not actually a deadline at all.

Fortunately, in today’s main articles, I’ve managed to keep Trump (at least explicitly) out of the picture. The focus is on the EU’s proposals regarding global trade governance and the cooling relations between Brussels and Beijing. Charted Waters, where we delve into the data behind global trade, will touch upon stock prices.

Von der Leyen takes a bold step

The assessment of Ursula von der Leyen’s European Commission and the president herself, assuming such an evaluation is necessary, is that she has generally been quite sensible, if not exceptional, on trade matters. However, there are occasions when she makes imprudent and/or impractical promises. One instance was her initial meeting with Trump in 2020, during which she pledged a speedy deal “in a few weeks” on trade, energy, and technology. This declaration raised eyebrows, if not caused coffee to be spat out, at the Charlemagne building housing the trade directorate in Brussels.

Predictably, the promise went unfulfilled. Likewise, her recent assertion that the EU was working on revamping or potentially replacing the World Trade Organization is unlikely to materialize. German Chancellor Friedrich Merz even pondered whether the EU could collaborate with trading partners to establish a mechanism that effectively replaces what the WTO was intended to be.

It’s safe to say that this is wishful thinking that is unlikely to come to fruition. Here’s why.

The proposed avenue for change that von der Leyen and others have mentioned involves cooperation between the EU and the Asia-Pacific CPTPP agreement, which has been a topic of much discussion in recent months. However, insiders at the CPTPP have indicated that the buzz may be ahead of reality. My sources inform me that the current practicality of collaboration between the EU and CPTPP is limited to a reaffirmation of adherence to WTO rules, especially since no one is keen on provoking Trump.

Aside from significant divergences in approach on certain issues (such as food safety and data transfer), both the CPTPP and the EU possess their own extensive rulebooks and dispute resolution mechanisms, honed and refined in the EU’s case and minimally tested in the CPTPP’s case. Even if a substantial alignment were somehow achieved, it would exclude India and most likely China from the governance structure. Global trade governance without the involvement of the US, China, and India is akin to Hamlet without the prince, or perhaps more accurately, Waiting for Godot without three out of Estragon, Vladimir, Pozzo, and Lucky — with a similarly indefinite and unresolved outcome.

Furthermore, any attempt to complement or supplant the WTO will encounter the same obstacle that has plagued the WTO itself. If major trading powers are unwilling to establish and adhere to rules in crucial areas, the structure you create becomes irrelevant. If India outright refuses to address environmental issues in the WTO, it’s unlikely to join a new coalition to do so. While it may not have the ability to obstruct plurilateral agreements as it does within the WTO, creating legally binding plurilaterals outside the organization would be a complex endeavor.

If China decides to unilaterally utilize its leverage over rare earths supply, it won’t consent to a multilateral framework to restrict its actions. China may espouse the WTO, primarily because it allows the country to project a multilateral image without significantly constraining its state-capitalist system with rules.

Proposals for substantial reforms or a new WTO resurrect the familiar issue of “technocratic solutions to political problems.” This discourse has been the subject of countless hours of earnest seminar discussions and millions of words of think pieces and op-eds over the years, with little tangible progress. However, last week saw a minor boost for the WTO system when the UK decided to shed its performative reluctance and participate in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), the interim WTO appellate body established after the US paralyzed the original one. Kudos to Britain for making the move.

The cooling relations between Brussels and Beijing

Turning to the realm of realpolitik, von der Leyen recently expressed displeasure with China. Given her pro-Atlantic and China-skeptical leanings, Beijing’s recent actions have provided her the opportunity to exercise the latter inclination. Nearly three months after China announced restrictions on rare earths exports — constraints that are significantly more stringent than previous measures — it’s becoming increasingly difficult to argue that the EU is merely collateral damage rather than a secondary target alongside the primary focus, the US.

While China prioritized suppliers for Volkswagen with coveted licenses, it subjected European and American companies alike to exceedingly intrusive demands for information. Despite attempting to portray itself as cooperative and multilateral, Beijing’s charm offensive in the EU has fallen flat, as detailed in this recent article from the South China Morning Post.

If Beijing’s objective is to detach the EU from its alliance with the US, it’s not making much headway. Both the US and China seem to be trying to corral countries into their geoeconomic factions primarily through coercion rather than incentives.

As things stand, the EU-China summit in July is likely to be quite tense. The EU has begun utilizing its new arsenal against China — the international procurement instrument and the foreign subsidies regulation — and is always prepared to deploy the anti-coercion instrument (ACI), which would have significant ramifications.

It’s important to note that we are not in a new bipolar cold war. Instead, we are witnessing a shifting and fractured landscape of alliances, with major powers often prioritizing immediate self-interest over the strategic construction of partnerships. The road ahead is bound to be tumultuous.

Charted waters

What exactly is driving financial markets these days? (Are they assuming there won’t be significant new tariffs? Do they believe the economy will fare well regardless?) Nonetheless, the substantial divergence between US equities and European stocks is nearly eradicated.

Trade links

• The world’s major economies have reached an agreement to exempt the largest US companies from increased corporate tax liabilities overseas, casting uncertainty on the status of the most significant global tax agreement in over a century.

• Last week, I highlighted how the US is opting to forfeit the race for technological supremacy in renewables and other green technologies. As if to underscore this point, the US Senate not only slashed incentives for wind and solar power but also imposed new taxes on future projects. Elon Musk, in his new role as a lone voice in the wilderness, opposes this.

• The FT covers Asian companies’ efforts to evade Trump’s tariffs, as well as how these tariffs and reductions in aid are impacting the world’s poorest economies.

• The UK has negotiated partial exemptions from Trump’s tariffs for its automotive industry. However, one of its iconic manufacturers, Lotus, is still relocating to the US, shutting down its plant in eastern England.

• While not directly related to trade, I found this piece by neoconservative Bill Kristol on how the American public is standing up to Trump while elites are not to be quite compelling. It’s worth noting the relatively minimal public resistance from companies and business associations to the US president’s trade policies.

Trade Secrets is edited by Harvey Nriapia