Post-Brexit Europe is sailing into a perfect storm

By Peter Skurkiss

Europe is sailing into a perfect storm involving China, Brexit, and America.  And this does not include Europe’s immigration problem and the populist uprising in member states. This year will be rough ride for Europe, but 2021 could be a true nightmare when all its problems coalesce. Here’s why: Phase I of the U.S.-China trade deal is a fait accompli. The agreement basically calls for China to purchase $200 billion more in American goods and services over the next two years. A big chunk of this ($32 billion) will in agriculture exports to China. The deal also starts to protect intellectual property and curtails currency manipulation. And unlike other trade agreements with China, this one has enforcement mechanisms with teeth should China renege on this or that aspect of the deal. In return, President Trump agreed to ease off on some tariffs which are in effect and hold off on other tariffs with which he has threaten China. This is a significant step in re-balancing the unfair terms of trade America has endured with China since the Clinton presidency. Assuming that China actually complies with this agreement, there will, however, be collateral damage to others. The math here is straightforward. If China buys more from the U.S. it will out of necessity buy less from others. Places from Brazil to Russia, to the European Union will see hits to their agriculture sector.  More critically still is the area of industrial goods. Europe will also come under heavy pressure as China tries to flood the European Union with manufactured goods to make up for what it lost in the U.S. And to make matters worse for Europe, as China loses market share in the American market, it will have fewer dollars with which to buy European products. It is problematic whether or not Europe has the will to stand up to the Chinese assault. The EU is a gaggle of countries with no unified voice. Its ranks can easily be split by a wily adversary which does not have Europe’s best interest at heart.  There are two other storm clouds of the horizon for Europe. One is Brexit itself.  With Brexit, which began on Jan. 31, the EU will lose its second-largest economy with which to trade with as well as a net contributor to its budget. This will enhance the strain between the prosperous northern countries and the the EU’s economic laggards in the south. France, the leader of the Mediterranean countries is already calling for Germany to open its pocketbook and subsidize others. The prudent Germans do not look kindly on such suggestions. With Britain gone, this situation will exacerbate the tension between the two core countries of the EU, Germany and France.  Also, while Great Britain was in the EU, it had been able to temper the worst bureaucratic instincts of Brussels. Now that moderating influence will be gone.  And the Brits added some muscle to Europe’s anemic military capabilities. That too will be gone., Then there’s America. For some time, President Trump has been railing against Europe for its unfair and outmoded trade arrangement with America. So far he has been tempered in his actions. Trump’s priorities were to first work out deals with South Korea, Japan, and Canada-Mexico, and of course, the big one, China. With those deals done, Europe is now next up at bat. Europe is a juicy target. It is even a bigger U.S. trading partner than China, running large trade surpluses with America. With its sagging economy, Europe needs access to the American market more than ever. This gives Trump leverage. France recently got a mild taste of what things could be like. Trump forced President Emmanuel Macron to bend a knee by postponing his proposed digital tax on U.S. firms. Trump did this by threatening to put 100 percent tariffs on French luxury goods like wine, cheese, and cosmetics. Sacré bleu! The priorities for Trump right now are still not trade with Europe. Trump is occupied with the impeachment circus and then the upcoming election. Once those are behind him, look for Peter Navarro, Director of Trade and Manufacturing Policy, and Wilbur Ross, Secretary of Commerce, to be turned loose on Europe. And once re-elected, there is little pressure Europe can put on Trump with targeted retaliatory tariffs as China tried.  When the Andrea Gail found itself in the middle of a perfect storm in the North Atlantic, the fishing boat went down with all crew members. That’s not being predicted for the European Union, but it will not escape undamaged in the coming next few years.

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