Former Trump Trade Official: Not Optimistic About US-EU Deal

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00:00The latest news lines around trade suggest that markets are really waiting to see whether we get

00:05a meeting confirmed between President Trump and President Xi. We've heard from the Chinese

00:09Foreign Ministry, they say they have no information to share on whether this is going to take place

00:13or not. So we'll wait for any confirmation of that. What difference could that make?

00:18Knowing a little about the relationship perhaps between the two or witnessing it in the first

00:23term, what difference can it make when these two actually speak to each other?

00:26Yeah, well, thanks so much for having me back on. And what I would say is the U.S.-China

00:31relationship with President Trump and President Xi at the helm is a very dramatic and mercurial

00:36relationship. But the way that this worked during Trump 1.0 is that sometimes you would see key

00:43negotiators and some of the key figures in the administration bring deals to their respective

00:48leaders and then the leaders would have a call. But oftentimes it worked the opposite way, where it

00:53actually took a leader level call to try to break through some of the ice. And so that's what you're

00:57seeing. The White House tease right now is the fact that we need a call between Trump and Xi to deal

01:02with some of these export control issues. The fact that China is still not making good on its Geneva

01:08agreement. China will have its set of requests and demands as well, including U.S. export control. So

01:14it's really teeing up an interesting conversation. But it is not unusual to have the leader level call go

01:19first before progress. Yes. So we'll see whether we get this call and whether we then see any progress

01:24delivered. What is your base case assumption then, Kellyanne, as to where we land on some kind of

01:30measure of trade tariffs into the United States? We've seen the legal challenges. I know you were

01:35on with the team last week talking about the various options, the various tools that the U.S.

01:39administration can still use to try and get its policies enacted. Are you managing to boil that down

01:44to a number, say, I don't know, low teens, mid teens percentage tariff on U.S. imports? What's

01:50your expectation? Yeah. And what's been interesting is if you watch the Sunday shows, you had multiple

01:55U.S. administration officials out there saying, look, there's this court case, but it actually won't

02:00matter. Either they say we're going to win the case or even if we don't, we have an entire toolkit full

02:05of potential tariffs that we can use. So what I'm telling clients and what I'm advising is don't expect

02:10these tariff rates to change. The fact that we have this 10 percent across the board baseline tariff,

02:15the president has other tools he can use to impose that, and then potentially raising tariffs on trading

02:20partners who don't want to negotiate. He's got other tools to do that, too. So I don't really think that this

02:26changes the chessboard. What it does change is a bit of the timing as this litigation. So does that mean then we still

02:31get to, what is it, 10 percent average tariff, 15? What's the ballpark? Yeah, that's where we are right now.

02:37And the president has said that he can use 122, 301, 232 and other types of legal authorities to

02:44reimpose some of these same 10 percent tariffs. But where we've seen, Kellyanne, this doubling of the

02:47steel and aluminium tariffs, does that make you think that the U.K. was a little premature in agreeing

02:53this trade pact with the president? Well, I think where the U.K. is actually coming out probably better

02:59than any other trading partner right now is those steel and aluminium tariffs were part of that trade deal.

03:05So the U.S., although we didn't have much detail in terms of what was agreed, there was an agreement

03:10on steel and aluminium that certain U.K. products would be exempt, provided that they adopt similar

03:16measures as the U.S. And so the U.K. is actually in a much better position than other governments who

03:21don't have those commitments. Now, what I do think this means is that steel and aluminium are going to

03:26feature as a very prominent part of some of these other trade negotiations, like with the EU, Japan,

03:31Vietnam and others who are currently negotiating. Well, yes. So when it comes to the EU deal,

03:35how quickly do you think that they can get that over the line or that other lower hanging fruit

03:39that you think will come first? Yeah, I'm not optimistic and I never have been about a U.S.-EU

03:45trade deal, in part because some of the blocks that have existed in the past continue to exist,

03:51about two entrenched regulatory systems that really don't see eye to eye on a number of issues.

03:56Now, that said, they're making a run at it. And the president is turning up the heat to try to get

04:01the EU to come to the table. But I think countries like India, Japan and South Korea will be first

04:07before we see anything with the EU. Yeah. So it might take some time to get there. I mean,

04:10what expectation is there really, do you think, in Washington that Europe or any other jurisdiction

04:15changes its VAT regime as a result of a request from the Trump administration? Yeah. Well,

04:21so far we've seen very little interest from our trading partners in adjusting some of their

04:25taxation policies. But what's been interesting is that part of the big tax discussion happening in

04:31Washington is this concept of a revenge tax, the Section 899. And that is designed to get at the

04:38digital services taxes that a number of our trading partners continue to impose on U.S. tech companies.

04:45So that is looking like a potential pathway for the U.S. to go after some of these tax issues. But it

04:50doesn't look like the VAT is really going to be part of these negotiations. It could be that the

04:54administration has other tools that it plans to execute. But Kellyanne, Valerie was just showing

04:58us how you've got long-end yields rising in the U.S. Are you not worried that if you have Section 899,

05:05it's going to drive away that foreign investment even more? Yeah, that's certainly a concern,

05:10right? Because it has to do with whether or not companies and individuals are going to be investing

05:14in the U.S. There's also a question about treasuries, whether they're included. I think there are a lot

05:19of questions about this legislation. And what's not clear is whether the Senate takes it up as part

05:24of its big, beautiful tax bill as well. So we don't actually know if this is going to become law.

05:30But it is certainly a messaging tool that the administration is using to try to say, look, we haven't

05:34forgotten about digital services taxes and we have some tools there. Yes. I mean, and the digital

05:39services tax suggestion from the United States is that these taxes are extraterritorial. But then a lot of what we're

05:46hearing in terms of policy coming out of the White House would seem extraterritorial. I mean, from

05:50sanctions regimes around Russia to some of what we're talking about here with 899 at the big,

05:55beautiful bill. Does this just hold me a whole new reset across the Atlantic? It seems that there

06:00are just so many areas of disagreement and a lack of consensus. There are certainly no shortage of

06:08challenges in terms of this economic relationship. What I would say is the view from the United States

06:14on a relatively bipartisan basis for the last 20 years has been that our trading relationships

06:19are asymmetric, that the deal that was cut back in the 90s just doesn't work and it's not fair in

06:25terms of today's economy. That's going to take updates and changes. Now, where the line is in terms

06:30of is the U.S. being too aggressive in terms of responding to some of these asymmetries? I think

06:36that's for the two trading partners to work out. But clearly there's going to be some changes if the

06:41president's going to land something that is more equivalent. Yeah, I mean, there would have been a

06:44choice to another U.S. administration could perhaps have teamed up with allies and said,

06:49let's try and reinvent the global trading system so it suits all of us a little better because it's

06:55maybe skewed too much in China's favor. But that's not an approach that the Trump administration felt

06:59it wanted to take. Well, what I would say is I spent 10 years as a U.S. negotiator working for

07:04different administrations and other administrations have tried to use more traditional forms of diplomacy

07:09and negotiation. And it just hasn't worked. And even in Trump 1.0, you had this trilateral deal

07:16between the EU, Japan and the U.S. to try to get at some of China's unfair trade practices.

07:21It took two years to negotiate and they couldn't even agree on a common definition of subsidies.

07:26It's not a particularly effective way to reorder the global trading system. Now, as Trump's,

07:31we'll have to see. But certainly traditional methods just don't work. And given that,

07:36you know, Trump's mind so well, you can settle something for us. Does Trump always chicken out?

07:41Well, I think he would take a great issue with that characterization.

07:45He did. He did like it.

07:46I mean, here's the thing, too, right? Like if this idea of chickening out means that we have 30 percent

07:52tariffs across the board on all Chinese imports and 10 percent on everything else,

07:58I'm not sure I would describe that as chickening out. That is a deacceleration from a trade embargo,

08:04which was just unsustainable.

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