Daniel Lacalle says the US has the advantage and talks should be easy.

(Click on image to enlarge)

Fast Track Talk Background

Last week Trump threatened 50 percent tariffs on the EU starting June.

On Sunday evening, Trump rolled back until July 9, a 50 percent tariff after a request from European Commission President Ursula von der Leyen.

Trump on Truth Social Today

Truth Social Link: I was extremely satisfied with the 50% Tariff allotment on the European Union, especially since they were “slow walking (to put it mildly!), our negotiations with them. Remember, I am empowered to “SET A DEAL” for Trade into the United States if we are unable to make a deal, or are treated unfairly. I have just been informed that the E.U. has called to quickly establish meeting dates. This is a positive event, and I hope that they will, FINALLY, like my same demand to China, open up the European Nations for Trade with the United States of America. They will BOTH be very happy, and successful, if they do!!!

Delusional Comment

Trump says he is “Empowered to set a deal” for the world. What a hoot. Trump has no such power. The constitution gives that power to Congress.

There is an open challenge on tariffs that is headed to the Supreme Court, but the issue is hardly settled. Perhaps the court lets Congress give away its constitutional rights in some limited cases but that is not guaranteed.

The European Union May Be Delaying Trade Negotiations Deliberately

Yesterday, on ZeroHedge, Daniel Lacalle wrote The European Union May Be Delaying Trade Negotiations Deliberately

Despite today’s announcement, I don’t fault that observation. In fact, it’s likely still.

My respectful disagreement is in other areas.

Hyper-Regulation

According to Eurochambres estimates, the cost of hyper-regulation for the EU exceeds one trillion euros per year. Draghi himself warned in an FT article, “Forget the US—Europe has successfully put tariffs on itself,” citing IMF estimates that show that internal barriers, regulation, and taxation increase prices in the services sector by 110 per cent and in manufacturing by 45 per cent.

I concur 100 percent. But Europe shooting itself in the foot is nothing new, and it doesn’t have much to do with tariffs, except as Trump sees them.

Therein lies the problem. Trump does not see value added taxes (VATs) correctly and his definition of reciprocal tariffs is total nonsense.

A Reasonable Agreement in Minutes

Lacalle says “The European Union must comprehend that a reasonable agreement can eliminate tariffs in minutes.”

This is amusing for two reasons. The EU needn’t comprehend anything, and usually doesn’t. The same applies to Trump who is totally clueless on tariffs and who pays them.

Second, I can write an excellent trade agreement in 20 seconds. It would say “All tariffs and subsidies end immediately.”

That’s generally it, but I would make exceptions for items of genuine national security concern, of which I can only think of a couple, microchips and rare earth minerals.

I believe Lacalle would agree. And if he chimes in, I will post an addendum or do a second post.

How Fast in Practice?

The EU negotiators must admit that they would be complying with Draghi’s recommendations and benefitting all businesses, inside and outside Europe, in the process. Therefore, they can swiftly and efficiently reach a deal.

It appears that the negotiators from the European Union are not interested in removing trade barriers, preferring to maintain them at all costs, even if it results in the economy of many member states being weakened. Negotiators seem more concerned about pleasing bureaucrats and finding a scapegoat for the EU’s stagnation in the Trump administration than advancing a deal that benefits US and EU companies.

Nonsensical Tariffs Ideas

Once again, I agree with Lacalle that it’s simple in theory.

But in addition to EU regulations, Trump also has many nonsensical ideas.

For example Trump believes tariffs can simultaneously balance the budget, eliminate the income tax, bring manufacturing back to the US, and lower inflation.

Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget

On March 12, 2025, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget

Reciprocal Tariffs

We have an annual trade deficit of $918 billion.

Team Trump proposes $918 billion in “reciprocal tariffs” to make the trade deficit go away.

But to balance the budget and eliminate personal income taxes, Trump would need to collect $7 trillion in tariffs on a net trade deficit of $918 billion.

I would love to hear a detailed explanation of exactly how that works.

Trumps Claims

1. Tariffs will increase revenue enough to balance the budget
2. Tariffs will bring manufacturing back to the US
3. Tariffs will reduce inflation
4. Tariffs will increase exports

Conflicting Economic Madness

Points 1 and 2 conflict. Tariffs cannot simultaneously bring back manufacturing and raise enough revenue to balance the budget.

Points 2 and 3 conflict. Since the US is one of the world’s highest cost producer of goods thanks to unions, tariffs will not reduce inflation.

Points 2 and 4 conflict. Since the US is one of the world’s highest cost producer of goods, and other countries will retaliate, tariffs will not increase exports.

Trade Leverage

The European Commission threatened to impose new countermeasures that could affect €95 billion worth of US products if negotiations to resolve the trade dispute fail. However, the European Union lacks significant leverage in this situation. Its trade surplus is so large, and the barriers to U.S. goods so widespread, that it simply cannot fight back.

In this case, I will say Lacalle is flat out wrong in theory and practice.

I explain below.

What Accounts for Most of the US Trade Deficit with the EU?

Consider the lead chart. It’s from my post What Accounts for Most of the US Trade Deficit with the EU?

The deficit is not as big as Trump says. And two huge chunks are easily fixable.

The massive $86 billion trade deficit with Ireland is a result of US tax policy and Ireland tax policy.

If Ireland had a large enough labor force Apple would make iPhones there. Pharmaceuticals are easy.

As a side note, Ireland’s GDP surged 13.3% year-over-year in the first quarter of 2025 as a result of this tax policy and front-running tariffs.

Subtract out that $86 billion and the US trade deficit with the EU is $150 billion. Factor in the US trade surplus in services and the deficit shrinks to $74 billion.

Compare that to a $123 billion trade deficit with Vietnam or $295 billion with China.

How Fast Take II

Lacalle is very well aware that trade agreements with the EU are never easy, literally.

All 27 countries have to agree.

There is no EU version of Trump “empowered to set a deal” for the EU.

Flashback October 24, 2016: Wallonia Sinks EU-Canada CETA Trade Agreement: What Happened?

The EU-Canada trade agreement that had been in the works for seven years, and finalized two years ago.

It is rather amazing that a French-speaking region of Belgium can single-handedly veto a trade agreement that 28 nations including Belgium itself wanted, but such is the state of affairs of EU politics.

CETA was signed in December of 2016 after Belgium finally relented. However, Germany did not formally ratify CETA until January 20, 2023. This folks, is the speed at which the EU moves on trade agreements.

A free trade agreement with the US is much more complex with Canada. And the negotiation process with Canada started 2009!

Trump Complains About the EU’s VAT,

On May 25, I commented Trump Complains About the EU’s VAT, What’s the Real Story?

Do value added taxes (VATs) constitute trade barriers?

The short answer is no. See the above link for a detailed explanation.

That said, I agree with Lacalle that the EU is overtaxed and overregulated. But what are the odds the EU does away with VATs?

The answer is of course zero.

As of January 2025, 175 of the 193 countries with UN membership employ a VAT (over 90 percent), including all OECD members except the United States.

Trump is barking up the wrong tree on VATS even though I agree with Lacalle on EU over taxation.

Leverage Take II

I agree with Lacalle that even after subtracting Ireland and services the US has a trade deficit with the EU.

But what is that leverage worth in comparison to other leverage?

The EU does not have mid-term elections to worry about. Trump does. That is a huge leverage factor for the EU.

Given that all sides lose in trade wars, leverage is only useful if a county is willing to put up with immediate pain. On the budget and on tariffs, Trump has shown no propensity to endure pain.

China has an enormous trade surplus with the US. But Trump quickly backed down when China put a block on rare earth mineral exports.

The EU does not have rare-earth leverage but it does have midterms.

Also, the fact that the EU cannot quickly do anything is a form or leverage. Trump wants a fast deal. The only way to get a fast deal (we are discussing EU fast here, not Trump fast) is for Trump to declare victory over minor gains.

Recall that Trump did brag about victory on USMCA, his NAFTA replacement, despite the fact there were no significant changes.

Trump Statements on USMCA

• August 21, 2023: The highly anticipated Des Moines Register Poll of Iowa Voters is just out: “DONALD TRUMP HOLDS COMMANDING LEAD In First Test of 2024 Republican Caucus Field.” Remember, I got the Farmers 28 Billion Dollars from China, the USMCA Trade Deal (& many others!), saved Ethanol, Social Security, and MediCare, & got Iowa “First In the Nation” status. Nobody else could have done this. Anyway, I’m at 51%, a 31 Point lead over “farmer hating” DeSanctimonious, with the others gaining on him, but not on me!
• February 15, 2020: RT @WhiteHouse: President @realDonaldTrump’s USMCA will have a tremendous effect on GDP!
• January 30, 2020: BIGGEST TRADE DEAL EVER MADE, the USMCA, was signed yesterday and the Fake News Media barely mentioned it. They never thought it could be done. They have zero credibility!
• January 29, 2020: USMCA is a cutting edge state of the art agreement that protects, defends and serves the great people of our Country. Promises Made, Promises Kept!
• January 29, 2020: USMCA is a massive win for American manufacturers and auto workers!
• January 16, 2020: One of the greatest trade deals ever made! Also good for China and our long term relationship. 250 Billion Dollars will be coming back to our Country, and we are now in a great position for a Phase Two start. There has never been anything like this in U.S. history! 
• December 10, 2019: America’s great USMCA Trade Bill is looking good. It will be the best and most important trade deal ever made by the USA. Good for everybody – Farmers, Manufacturers, Energy, Unions – tremendous support. Importantly, we will finally end our Country’s worst Trade Deal, NAFTA!
• December 19, 2018: Mexico is paying (indirectly) for the Wall through the new USMCA, the replacement for NAFTA! Far more money coming to the U.S. Because of the tremendous dangers at the Border, including large scale criminal and drug inflow, the United States Military will build the Wall!
• December 13, 2018: I often stated, “One way or the other, Mexico is going to pay for the Wall.” This has never changed. Our new deal with Mexico (and Canada), the USMCA, is so much better than the old, very costly &, anti-USA NAFTA deal, that just by the money we save, MEXICO IS PAYING FOR THE WALL!
• November 30, 2018: Just signed one of the most important, and largest, Trade Deals in U.S. and World History. The United States, Mexico and Canada worked so well together in crafting this great document. The terrible NAFTA will soon be gone. The USMCA will be fantastic for all!
• October 3, 2018: Mexico, Canada and the United States are a great partnership and will be a very formidable trading force. We will now, because of the USMCA, work very well together. Great Spirit!
• October 2, 2018: “USMCA Wins Praise as a Victory for American Industries and Workers”
• October 2, 2018: Great reviews on the new USMCA. Thank you! Mexico and

Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement

Please recall Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement

Trump is complaining about Canada’s cheese tariffs. In 2018, he was bragging about cheese.

It was such a great deal that Trump thanked Mexico and Canada. Notably USMCA is “Good for everybody – Farmers, Manufacturers, Energy, Unions – tremendous support. Importantly, we will finally end our Country’s worst Trade Deal, NAFTA!”

It “greatly opened markets to our farmers” and it even paid for the wall! And it will bring three great nations together!

Trump took all of that and trashed it, illegally IMO, but not yet challenged.

Trump took his “best in history” trade deal, signed 99-1 by the US senate and scrapped it.

The Constitution puts trade agreements in the hands of the Senate, not the hands of a self-proclaimed trade king.

A Matter of Trust

Lacalle failed to reflect on negotiation trust.

Trump is willing to walk away from any deal including ones he signs.

Why should the EU, Canada, Mexico, or any nation agree to any deal that Trump makes?

Trump may at any time decide not to honor because “Remember, I am empowered to ‘SET A DEAL’ for Trade into the United States if we are unable to make a deal, or are treated unfairly.“

Synopsis

I agree with Lacalle that a good trade deal could, in theory, be written quickly.

But it won’t.

The EU has a mission, and that is to throw Trump a bone and let him brag about how great he is.

The US and EU have conflicting madness. Lacalle only focused on the EU side, ignoring all of the legitimate issues the EU has with Trump.

The EU will not do away with the VAT. And VATs are not a trade barrier in any real sense anyway. Over 90 percent of nations have them and Trump cannot force them away.

Importantly, no nation can possibly trust Trump on anything.

I have a lot of respect for Lacalle and found many points of agreement. But if he genuinely thought getting major changes through the EU would easy in practice (not just theory), then I will let him plead temporary insanity.

Nonetheless, I do not rule out a “quick” deal. But the quicker it is, the more superficial it will be, just like USMCA vs NAFTA.

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