January 22, 2020

Wall Street celebrates Trump trade deal with EU.

No, President Trump isn’t provoking a trade war that will plunge the world economy into a new depression, and the disappointment of the Trump-hating media is palpable.

Yesterday, the president and E.U. president Jean-Claude Juncker appeared in the Rose Garden and announced a win-win deal on trade.

The Washington Post:

The United States and the European Union stepped back from the brink of an escalating trade war Wednesday, with the unexpected announcement of a process to ease tensions and avoid further tariffs.

In an appearance in the White House Rose Garden, President Trump and European Commission President Jean-Claude Juncker said they had agreed to hold off on proposed car tariffs, and work to resolve their dispute on steel and aluminum tariffs, while pursuing a bilateral trade deal.

“While we are working on this, we will not go against the spirit of this agreement unless either party terminates the negotiation,” Trump said.  “We also will resolve the steel and aluminum tariff issues, and we will resolve retaliatory tariffs.”

While Washington and Brussels pursue those aims, the E.U. will import more U.S. soybeans and liquefied natural gas, or LNG, although Juncker suggested that that agreement came with conditions.

The soybean import commitment is clearly targeted at reducing worries among Middlewest farmers who have feared losing export markets owing to the retaliatory tariffs announced by China.  These worries were always overblown because if the Chinese buy Brazilian soybeans instead of American soybeans, that means that other buyers (like Europe, Japan, and Taiwan) will not be able to source their soybean needs from Brazil and will have to buy the soybeans from the U.S. (or the few other exporters, whose supply is limited compared to the U.S. and Brazil).

Commodity markets are like that.  Barring significant changes in supply or demand, boycotting one producer means that other producers that supply the commodity have less to offer to other customers.  Sourcing changes, and transport costs may rise, but barring change in supply or demand, the markets equilibrate.  Of course, nobody in the mainstream media cares to mention this, and many may be ignorant of the way commodity markets work in the real world.

The stock market rejoiced at the news, not because Dow Jones stocks are related to soybeans very much, but because the overblown worries of trade war were exposed as not well grounded.

Make no mistake, there are plenty of other issues that remain to be negotiated with Europe (and China and Japan).  But the point here is that the truth of President Trump’s position has been reaffirmed.  Nobody, not China, not Europe, nor any other market economy, wants a trade war.  Nations with a trade surplus with America have more to lose than we do from a trade war.  Juncker was acknowledging that in the Rose Garden.

Never shy, President Trump touted his victory on Twitter:

Source: American Thinker