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The Trade Guys
An Unproductive G7 Summit, Negotiations with Key Partners, and the Trade Impacts of Iran Conflict
00:18:47
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- [00:01]
A
I'm Scott.
- [00:02]
B
I'm Bill and we're the Trade Guys.
- [00:07]
C
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm H. Andrew Schwartz and I'm here with Scott Miller and Bill Reinsch, the CSIS trade guys. Coming up next on the Trade Guys, we'll talk about the G7, ongoing trade negotiations and oil in Iran, all on the next episode of the Trade Guys. Guys, we're back after a two week absence and as we just said in the locker room before going on air here, not much happened in the last couple weeks in trade, but we're going to try to dissect it for you. Let's talk about the G7 first. To what extent was the G7 summit and Trump's early departure due to the situation with Iran a lost opportunity for trade negotiations?
- [01:04]
B
Well, I think it was. I mean, everybody was there. Japan, eu, the Indians were there, the Australians were there. I mean, it wasn't just the G7 that was there. Canadians obviously. I mean, it was an opportunity for basically one on ones with a lot of people that are engaged in the trade negotiations right now. And I think they were all planning on that. So I mean, I understand, you know, I can see why he left being charitable for the moment, but it's really a missed opportunity because none of those things happened. The only trade event really was that they he signed the UK agreement with Prime Minister Starmer. We already knew about that. So that was not exactly a new development. So I think missed opportunity and there's not going to be another one for quite a while. Although we all know from observation that Trump doesn't like these things anyway. He prefers one on ones.
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C
Well, and it might not be a G7 anymore. He wants to be a G9.
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B
Several scholars at CSIS have recommended that a G9 would be a good approach.
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C
Yeah, but they're not the G9. I think that Trump wants. Trump wants Russia and China to join the G9. We want what Korea and Australia.
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B
A very good point. Trump's nine are not the same as everybody else's nine or as the few.
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C
Scholars at CSIS who want the nine. Not institutional.
- [02:25]
B
Right, well said. Either way, missed opportunity. I mean, it's not fatal because, you know, he can always talk to these people on the phone and he can meet with them. He likes when they come here, it's sort of, you know, bending the knee. And I'm sure we'll see some more of that as we head into the Maybe the end game. We're facing a July 8 deadline. Although Trump impersonally and other people are starting to say, well, that's not really critical. If countries are negotiating in good faith, we can extend. And if they're not not, I'll just announce a tariff.
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A
Well, look, everybody likes home field advantage, so the fact that the president likes leaders to come to Washington should be no surprise. It's the same reason Ohio State likes to host Akron in the Horseshoe.
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C
That's right.
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A
So, you know, all things considered, that's not a surprise.
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C
The Ravens would certainly prefer to host Buffalo at our place.
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A
Precisely.
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C
As opposed to what happened in the playoffs last year up in Buffalo losing by two. Not that I'm still.
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A
Not that you're bitter about it, totally.
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C
Upset about it and obsessed about it.
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B
So you're saying if it had been Baltimore, they would have won?
- [03:24]
C
Better chance. It's tough to play in January in.
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A
Buffalo, that's for sure. In any case, while nothing really of note happened at the G7 meeting, my question is, rather than count the numbers of missed opportunities, can anyone think of a deliverable or an outcome from the last 5 or 8 or 12 G7 meetings? I can't. And you know, we're trade guys. We're supposed to follow this stuff. Maybe it's time to get back to roots for the G7, which was originally as the library group of finance ministers who met in the library of the White House. And so I think the gathering has a lot of people who show up for it and the big agenda and lots of communiques they try to get agreement on but ultimately not much of anything happens. And we have some big problems in the world today. Want to be finance managers, don't talk to each other the way they used to. And maybe there's another way to go back to the roots of the G7 and make it useful.
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C
So are you guys saying that the G7 isn't that important right now and we need to make it more important.
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B
Again, I wouldn't say that. I think Scott is right about the official outcome. The, you know, the communiques tend to be anodyne. They're all pre cooked and pre negotiated before they get there. People. Trump has a record of not always agreeing to sign them. But you know, it's not like the seven leaders sit around a table and work out a text. I think the important part of it and the value of it is in the sidebars, you know, the one on ones that they all have with each other in the afternoon before and after dinner. At times like that, where I think a lot of things get done or understandings are reached that never end up being in public.
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C
Scott, final word.
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A
I don't disagree with that. And I do think there is every reason in the world for leaders of big industrial democracies to get together and to talk to each other. So I have no problem with the sidebars and do see there's value in it. Just I don't think either the combination of economies who are part of it or the ones who are on the fringe or the way the world works today are all well aligned with a structure that was created back in the 70s. So.
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C
So do you think Trump wants them all to come here because our McDonald's are better here than in their countries?
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B
Well, how do you know that? Have you sampled every.
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C
Not every one of them, but, you know, I've been in a few countries where, like, you get sick of eating their food, and finally you're like, oh, let's go to McDonald's, and it's not as good as here. So, like, I would agree with the president if that's the case.
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B
Well, we don't know what was on the menu. He was there for at least one dinner, and I didn't see any report of what they ate. I mean, it is Canada. They have meat there.
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A
Yeah.
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B
In fact, they have cattle there. And particularly even in Alberta.
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C
They're real cowboys in Alberta.
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B
There are, yes, but they're in Calgary, and this is a little bit farther north and west, I think, but, you know, close enough. I don't know. Having just been on vacation and eaten twice at McDonald's, which is more than usually happens in an entire year, I can say that fries are great.
- [06:21]
C
Yeah, there you go. Ringing endorsement from Bill Reich. All right, guys, let's move on to continuing trade talks between the eu, Japan, and Korea. With the Trump administration indicating that the 10% tariff is the lowest they'll go and the EU reportedly ready to accept that level. What level of disruption could we expect if that level is held across all countries? And how does it compare to the initial Liberation Day tariffs?
- [06:47]
A
Well, that's a complicated question. I do think the 10% tariff stinks. The reason being? First of all, it was the one part that wasn't vigorously opposed by everyone who had to accept it. Second, it seems to be doing relatively little harm. It did soften the dollar, which exactly what you'd expect it to do to give the United States a little bit of an export edge because of that weaker dollar. I also think that There is a logic in Trump's approach to tariffs that says that 10%, that's the surcharge for all the global benefits the United States produces, we protect your shipping lanes, we keep the world a safer place, and you need to pay for that. And 10% on your imports to us sounds like about the right amount. So I found it interesting that may have been because so many other tariffs were so much higher, some ways punitive, that all the screaming focused on the higher tariffs and the 10% broad based tariffs were simply ignored in most exchanges and most pressureboarding. So I think that part's here to stay. I think Congress will quickly get used to the revenue stream that it creates, which is not insignificant given $3 trillion of imports, give or take, into the United States every year. So it's one of those things, I think that one sticks where we go with each individual party. I think the President has his ideas. For me, the one I'm most interested in is Europe, because Europe, there's a structural problem with Europe. Europe is a single market. They negotiate as a customs union. The competence for trade negotiation is in the Commission, not in the member states. And when pushed to about individual member state issues or even separate tariffs, it seems to flummox the Europeans. Now, they're great negotiators. They'll find their sea legs. For me, Japan and Korea, they'll take care of themselves, much like some of the other bilaterals have, like the uk There'll be a deal somewhere. We'll figure it out. And I don't sense any of the commercial actors are all that worried about Japan and Korea at the moment.
- [08:41]
C
If I were the leaders of Japan and Korea, I would take a page out of history and bring President Trump a golden golf club or two.
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A
Oh, sure. Look, you know, one of the things in Trump's first term was the trade deal with Japan. Can anyone remember the content of that trade deal? Nope. I do remember there was a photo op, there was a big signing ceremony and everyone was smiling. That's all I remember about that trade agreement. So things, some of this is performative, but I do think that they'll reach something that looks like an agreement. For me, the hard one is going to be Europe for the structural reasons I mentioned.
- [09:13]
B
Bill? Well, I've been fascinated by this because I think the dynamic is shifting. You know, these countries are not dummies. And I think they've been watching what's going on. And they looked at the UK agreement and they looked at how the Mexicans are handling this, and I think they figured out to mangle a metaphor, that for Trump, the squeeze is more important than the juice. Being able to visibly win and show off is more important than what he actually wins. And once you realize that it's all about the squeeze, that gives the other side more leverage, because then it becomes an exercise in how do we figure out a way to allow him to declare victory, but allows us to get a lot of what we want. And the UK Agreement had a few clues. One was that the US Actually made some concessions in that agreement, which was unexpected. The original plan, you know, was we concede nothing except not imposing the tariffs, and the other guys concede everything. But, you know, we made a couple concessions on cars, on steel, and the UK kind of turned this into somewhat of a more normal balanced trade negotiation where everybody got something. That's a lesson for the other countries. I think the other Lesson was the UK agreement, and we talked about this before, was 80% aspirational and 20% tangible. Most of it is about we promise to in the future talk about some of these specific issues like pharmaceuticals, you know, like shipbuilding, like digital trade. And there's a few specific concessions thrown in to provide some credibility. I think the other countries have seen that and realized that, you know, tactically they're in a position now to make some demands of their own rather than just make concessions. And that changes the dynamics. I think in addition to that, they've come to realize that Trump painted himself into a little bit of a corner because he's changed the conversation here. The initial conversation in the campaign was this is all cost free. You know, the foreigners pay, the Americans don't pay anything. And he changed the message in March to short term pain, long term gain. Yes, the tariffs are going to cost us, but in the long run, we'll all be better off. Well, if you think that through, what that means is it's now on him to do something to demonstrate that there's going to be a long term gain. What is the long term gain? It's going to be these agreements. So I think the other countries have figured out that he needs to deliver. And as the deadline approaches, the pressure to deliver is going to grow. And I think you can expect them to take advantage of that and expect the US to basically lower its standard on what it's going to insist on. So what you've seen now, you know, the Japanese have come in and they want an exemption from the auto tariffs, they want an exemption from the steel tariffs. They're not getting it, at least so far. But that's what they've demanded. The Koreans want an exemption from those and from the other sectoral tariffs that are coming in. What we're also seeing just beginning to happen is these guys are coming in pointing out, you know, you're asking us to negotiate on the April 2 tariffs. But you've got all these separate investigations under Section 232, not just the cars and steel and aluminum, which are already in effect. You know, you've got lumber, you've got trucks, you've got aircraft, you've got semiconductors, you've got pharmaceuticals. We're not going to make an agreement on the general tariffs if a week later you're going to come in and hit us with these new ones. And these are big ones for some of us. I mean, for Japan and, and Korea and the eu, these are important. The sectoral things are bigger than the 10% that Scott is talking about. So the negotiations have fairly suddenly gotten a lot more complicated, a lot more attenuated, and I think with outcomes that are more in doubt. I think what we'll see is, you know, a scramble as July 8th approaches to get something done. The administration will be scrambling to get something done that they can brag about. There'll be a few of those. There'll be a bunch of postponements. Trump has already telegraphed that, you know, if you're negotiating in good faith, you got more time. He'll probably select a victim or two to pay a higher tariff because of the taco controversy that we discussed the last time. That really irritated him. And I think he has to, you know, prove his manhood on this. So he'll pick out a victim or two. But otherwise, you know, what you're going to see is a lot of postponements, a few agreements that are mostly promises for the negotiation. And as Scott said, everybody gets 10% except China, which gets more, and Canada and Mexico, which may get less.
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C
All right, guys, let's move on. We want to talk finally about what everybody's talking about this week, and that is the Iran, Israel, US Conflict. It has something to do with oil prices. Course, not a lot to do with trade. But, Scott, I want to go to you and ask you, what do you make of this?
- [13:59]
A
Well, from a commercial standpoint, I can't believe that we're sitting a week after a 12 day sort of all out bombardment of two countries in the Middle east, and oil prices are basically stable. All right, West Texas Intermediate this morning I think was around $67. This is, this is the 26th of June, we're recording. You know, that's what it's been for about a month now, give or take. So the notion that two Middle Eastern powers can have almost two weeks of hostilities with bombing on both sides and oil stays steady is a different kind of world that I thought we were living in. So there's that. The fact that things moved quickly after the US Stealth bombers delivered the strikes on the Iranian nuclear capacity, nuclear weapons programs, it quieted down so quickly that I wasn't sure I was actually watching a movie or reality. Much like with the killing of the enemy combat in Solomon in the first term, the response that was supposed to be so brutal in know missed everything. And no one was particularly plussed about it. They were like warned in advance that the bombs would miss. So I'm, I'm not sure what to make of this. I'm glad to see a ceasefire. I hope it holds. I do think that setting back nuclear ambitions in Iran has been the right thing to do for a long time. It's been the goal of many presidents and there's no question of the hostility that Iran has had toward Americans. They've been killing Americans all over the world since 1979. So seeing it end in a ceasefire, that appears to be moving toward something more positive. I think it's a good thing for the world. It just was a surprising outcome.
- [15:33]
B
I don't think we've seen the end of it by any means. I mean, Iran, I think found itself in an awkward position as far as overt retaliation is concerned. Yes, they're exposed, trying to, if they chose to try to close the Strait of Hormuz, the main victim there is China, which is where their oil is going.
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A
Well, they have no air defenses. They're a little exposed right at the moment.
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C
Of course, China can't get their oil.
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A
And Iran can't sell if they close the strait. Right?
- [16:01]
B
Yeah. So that is not a logical thing for them to do. That said, you know, I would expect cyber attacks, I'd expect the Iranian hacking enterprise to step up. I would expect, you know, further various under the table maneuvers that will make things complicated and difficult. I don't think they're going to give up. The question that seems to have irritated the President the most is the extent to which the bombing actually accomplished anything. And I think the most accurate answer is really, we don't know and probably won't know for some time.
- [16:31]
C
We don't know. But the IAEA, and again, we are talking on June 26, Thursday afternoon about 2:30, the IAEA's head, Rafael Grossi, said that their program has been severely set back. So we, we at least know that. I want to do a shameless Plug Guys, though, because one of my other podcasts, the Truth of the Matter, currently has a really, really good interview up, if I do say so myself. Not because of me, but because the guest is Ambassador Dennis Ross, who served five presidents and, you know, of course, negotiated peace in the Middle east and other things. I asked Ambassador Ross about the conflict between Iran and the United States and Israel, and his analysis is fascinating to say the least. So if you want to check out Truth of the Matter, it's up there right now.
- [17:15]
A
He's well worth listening to.
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B
I've met Ambassador Ross. He probably knows more about the Middle east than any other living person, I would think. At least any other living American.
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C
Well, you know, I actually, it's, it's funny you say that, Bill, because I started the podcast out by actually saying that he knows more about it than anyone I know. Anyway, that's my shameless plug guys. Great seeing you. We'll be back next week. Taking two weeks off is always a bad idea. We got lots to talk about. So we'll come back next week with more of the Train guys.
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A
See you then.
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B
See you then.
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C
To our listeners. If you have a question for the Trade guys, write us@tradeguyssis.org that's tradeguyssis.org we'll read some of your emails and have the trade guys react to it. You've been listening to the Trade Guys, a CSIS podcast.