November 18, 2022

G-20 Countries Reach Agreement on Tariffs

The G-20 summit is in the books, with the United States and European Union announcing they would roll back tariffs on steel and aluminum. The world leaders had been meeting for two days to discuss their differences. This announcement is a win for President Trump, who has made it clear he wants to cut down on America’s trade deficit with China specifically. He has called for a $100 billion trade deficit cut. [ On the surface, this is a victory for Trump and America. Please read on to see why it’s not.]

The G-20 (Group of 20) consists of 19 countries, plus the European Union representing its 28 members collectively. The EU participated in today’s negotiations with the US.

EU President Jean-Claude Juncker came to the US with an offer in hand, to cut the EU’s car tariffs down from 10% tax on every auto made in America to zero percent tariff if America would do the same for Europe. Trump accepted this deal that benefits both parties involved because it’s a win-win situation.

This announcement will certainly soothe the markets, which rallied on the news. The S&P 500 Index closed at 2616.57 after opening lower. The DJIA gained 1.84% for the day to close at 25,309.37 and Nasdaq ended up 2.22% closing above the 8,000 mark again at 8,009.52.

But this is only the starting point, it’s not a done deal yet. The EU said they would make an official proposal to the US Congress for ratification by July 18th . We shall see if Trump can pull this off, considering he can’t even get his own party behind him on Capitol Hill with health care reform.

The EU was one of the first to retaliate against Trump’s new tariffs on steel and aluminum imports. They targeted Kentucky Bourbon with a 40% tariff, Harley Davidson motorcycles with a 31% tariff, and Levi Jeans with a 20% tariff. This put pressure on Senate Majority Leader Mitch McConnell in Kentucky, where he’s up for reelection. Harley Davidson has plants in House Speaker Paul Ryan’s district in Wisconsin and Senate Finance Chairman Orrin Hatch represents Utah where the Levi Jeans are made.

US Commerce Secretary Wilbur Ross who is leading these trade negotiations with EU President Jean-Claude Juncker said today that the US is eager to increase trade with Europe and do so on a fair and equal basis. This means no more tariffs as both sides lower barriers to entry for each other’s marketplaces. President Trump said today that he expects the EU to buy a lot of soybeans from America now, since they’re one of our biggest customers. The US Department of Agriculture has already paid farmers $7.7 billion to compensate for the tariffs on their soybean exports since China has slapped us with a 25% tariff on all our soybeans.

The EU is one of our biggest trading partners, but no one really knows how much trade goes on between the US and Europe because it’s considered foreign trade. We have a trade deficit with the EU of $151.4 billion dollars, meaning we buy more from Europe than they buy from us. That is a trend that must be reversed if President Trump hopes to grow the US economy and create jobs for Americans not born in America, which means bringing down the deficit on these foreign trade deals.