- U.S. trade talks with the EU and Japan move to the front-burner along with the threat of auto tariffs
- U.S. consumer confidence expected to remain solid
U.S. trade talks with the EU and Japan move to the front-burner along with the threat of auto tariffs — The markets seem confident that the U.S. and China will wrap up their trade agreement within the next 3-5 weeks as President Trump recently predicted. The two sides are still working hard to try to finalize the agreement, according to recent comments by White House economic advisor Kudlow. In some good news, Treasury Secretary Mnuchin yesterday said that the U.S. and China are “pretty much” agreed on an enforcement mechanism, which has been one of the major sticking points.
Meanwhile, the Trump administration’s threat to impose tariffs on imported autos will gain more attention in the markets in coming weeks as the U.S. finally begins the long-promised trade talks with Japan and the EU. President Trump’s main pressure point on Japan and the EU is his threat of auto tariffs.
The Commerce Department in February delivered a report to the White House with a recommendation about whether or not tariffs should be imposed on imported autos based on national security grounds. That report so far remains secret. There is little doubt, however, that the report does in fact recommend tariffs on imported autos in line with President Trump’s view. The White House has until May to make a decision on those tariffs, although that decision can be delayed.
Senate Finance Committee chairman Chuck Grassley (R-Iowa) made some news on Wednesday when he said that he suspects that the report hasn’t been released because it may not have been done in a “professional and intellectually honest way” since it hinged on national security grounds. The Trump administration used the same national security grounds last year when it slapped tariffs on imported steel and aluminum. Mr. Grassley called for the White House to release the report immediately.
With the threat of auto tariffs hanging in the air, Japanese trade officials will be in Washington next week for trade talks with USTR Lighthizer and his team. The U.S. and Japan are currently operating under a truce whereby Japan agreed to engage in trade talks in return for a promise by President Trump not to impose new tariffs. Those trade talks are finally about to begin.
Japanese officials say they are looking to the Trump administration for guidance about exactly what the U.S. wants from the talks, aside from just the generalities of reducing the US/Japan trade deficit and opening up Japan to more U.S. ag exports. Japan is still smarting from the tariffs that President Trump imposed on Japanese steel and aluminum last year. Japan finally agreed to trade talks after initially saying that if the U.S. wanted freer trade, it should rejoin the Trans-Pacific Partnership trade agreement, which has moved ahead without the U.S. In the upcoming talks, Japan will be highly reluctant to give the Trump administration any concessions beyond what it has already given in the TPP agreement.
On the European trade front, the EU is reportedly close to beginning trade talks with the U.S. trade officials. Bloomberg on Thursday reported that EU ambassadors finally approved the trade mandate that EU Trade Commissioner Malmstrom needs to begin trade talks with the U.S. EU ministers will reportedly approve that mandate at their meeting on Monday (April 15).
France objected to the mandate since French President Macron believes that the EU should refuse to negotiate on trade with any country that is not in the Paris climate agreement. However, France did not have a veto and was overruled, allowing the trade mandate to move forward.
The EU has agreed to negotiate with the U.S. only on autos and industrial products. The EU has said that it would be in favor of pushing tariffs to zero on industrial products and autos, but the U.S. wants to go farther and also address non-trade barriers. The EU has so far refused the demands by the Trump administration to open up negotiations on the agriculture sector.
The EU mandate reportedly has a clause that provides that any US/EU trade talks will be suspended if the Trump administration imposes any new tariffs on EU products. Thus, if President Trump suddenly announces tariffs on European autos, then the US/EU trade talks will end and the EU will quickly slap retaliatory tariffs on U.S. products.
US/EU trade relations already took a turn for the worse earlier this week when President Trump announced that the U.S. will slap tariffs on $11 billion of EU products as punishment for the WTO’s conclusion that the EU provided unfair subsidies to Airbus. The good news is that USTR Lighthizer suggested that the U.S. wouldn’t go beyond whatever retaliation that the WTO decides is allowable. Also, the U.S. won’t impose those new tariffs until the WTO makes its ruling this summer. The EU responded to this week’s U.S. announcement of Airbus-related tariffs by saying that it is drawing up a list of retaliatory tariffs based on subsidies that are provided to Boeing by Washington state.
U.S. consumer confidence expected to remain solid — The consensus is for today’s preliminary-Apr University of Michigan U.S. consumer sentiment index to show a small -0.2 point decline to 98.2 after March’s +4.6 point surge to 98.4. U.S. consumer confidence in Feb-March showed a back-to-back increase totaling +7.2 points to March’s 5-month high. Positive factors for U.S. consumer sentiment include the sharp Q1 rally in stocks, the end of the Fed’s rate-hike regime, lower mortgage rates, and continued strength in the U.S. labor market.
