US/EU trade talks go down to the wire

It's not a great deal for the US — US consumers will have to pay more for imports that are subject to tariffs. This will fuel inflation in the US.

Trying to frame this as a good deal or a bad deal, as better or worse than expected/feared, needs to be done in the light of the overarching context — all possible outcomes here were bad for the EU, as well as bad for the US (though the EU doesn't care so much about that, obviously).

An outcome in which no tariffs were imposed on either side, or in which agreed tariffs imposed by one side were matched by agreed tariffs imposed by the other side, was not attainable. Given that, I don't think it makes sense to the criticise the EU for not attaining it.

Essentially, the choice facing the EU was:

• Make a deal in which the EU accepts a certain level of tariffs imposed by the US, and focus on bargaining down that level of tariffs as much as possible
• Don't make a deal, suffer a much higher leve of tariffs imposed by the US, retaliate by imposing tariffs on US exports to the EU.

On the face of it, the latter choice is worse for the EU — EU exports to the US suffer more than they would with a deal, plus EU imports from the US cost EU consumers more, so it's a double whammy. The only reason for going down this course is that it would also be very painful for the US, and this might give rise to a hope that the US would eventually be brought to a point where it would be willing to make a more favourable deal than the one they are currently prepared to make. But that's a gamble, obviously — you don't know how well it will work, in terms of improving the terms the US is prepared to agree, and you don't know how long it will take to acheive whatever it is going to acheive. There is a view that the EU should have chosen the trade war route, despite the risks and the uncertainties, but politically speaking it's a route that you can only take if you have strong domestic support for it, which I think wasn't there.

So the EU has chosen to make a deal, as have the UK, China, Japan and a number of other countries. The details vary, but all these countries were facing basically the same dilemma, and all have chosen to make a deal in which they accept signficant asymmetric tariffs imposed on them by the US, and give some (distinctly vague) commitments in relation to investment, etc. South Korea is expected to make a similar deal very shortly.

Only Canada looks like it is going down the other route. Trump has already imposed 25% tariffs, and is threatening 35% tariffs unless there is a trade deal in place by 1 August, which as of right now seems unlikely to happen. I don't think it's a coincidence that, alone among the major trading nations, it's Canada that has chosen the high-stakes gamble. Their situation is not on all fours with that of the EU, Japan, etc. Trump is directly threatening Canada's sovereignty and independence, so there's more at stake for the Canadians than simply minimising economic harm. They have a stronger motivation to draw a line in the sand and refuse to move from it, even if the economic consequences are severe.

Overall this state of affairs still looks to me to be bad for the US. Other countries suffer restrictions on their trade with the US, but very few countries do the majority of their trade with the US. The US, however, suffers restrictions on its trade with most of the world — the vast majority of its trade is affected. If the situation persists, the likely outcome is the development of a "doughnut pattern" in world trade, with the US playing the part of the hole. Other countries will trade more with one another and less with the US, while the US will trade less with pretty well everybody. The big winners in this are the Chinese, who are best positioned to fill the space created by the decline in the US's global economic and financial significance.