The deal is done–well, sort of. While the basics are reasonably clear, many questions, as with the Japanese deal, remain. Here are my questions and comments:
- The Europeans are going to buy lots of American weapons. Since there are a limited number of American defense contractors, and the buyers are governments, the impacts of this part of the deal are relatively easy to understand and enforce.
- “Europe” is going to buy $750 billion worth of “American energy.” Since neither “Europe” nor “America” is an economic entity, what does that mean? Who in Europe will be responsible for these purchases? What “American” companies are going to be the sellers? Are large multi-national energy companies really “American?” What happens if the European consumers don’t need the “American energy?”
- I haven’t seen anything which suggests that the Europeans gave ground on the digital services tax or the VAT. On the other hand, the German car companies didn’t get a special break; it remains to be seen how the French agricultural products will be treated.
- My questions about “Europe’s” new investments in “America” are the same as for the Japanese. Who in Europe will be required to make the investments? What practical limits are put on Trump’s discretion? What happens if the companies don’t make the investments? And so on.
- On balance, I would say that American defense companies and energy producers are the big winners here, and American consumers and European producers are the losers. In addition, the 15 percent tariff won’t be enough to spark an industrial renaissance in this country, if such a thing were even possible. The ultimate outcome from our perspective is that the revenue from the tariffs will be derived mostly from American consumers in the form of higher prices and will be used to finance the tax cuts in the BBB.