Trump at Davos sends warning shot to Europe on trade

President Trump is leaning on the strong U.S. economy to project strength among the global elite as he gears up for a bruising reelection battle and a new round of tense trade negotiations with the European Union.

Trump delivered a stark warning to the World Economic Forum in Davos, Switzerland, that he will remain undeterred behind his “America First” agenda as the U.S. seeks more favorable trading terms with Europe. 

The president stressed in his speech that the new year was a “time for optimism” and urged attendees to “reject the perennial prophets of doom and their predictions of the apocalypse.”

Trump began the day taking a victory lap, touting recent trade victories, a strong stock market and a growing economy. But shortly after, he also floated grave economic consequences for Europe if trade talks between the U.S. and European Union collapse. 

Speaking to reporters after his remarks, Trump renewed his threat to impose tariffs on European automobiles if the U.S. and EU were unable to strike a trade deal. Doing so could devastate the continent’s economy, according to experts, with Europe already teetering on the edge of recession.

“If we’re unable to make a deal we will have to do something because we’ve been treated very badly as a country for many, many years on trade,” Trump said. 

The remarks were seen as a sign Trump will not relent in his battle with the EU with a strong economy at his back and with a gauntlet of challenges between him and the 2020 election.

After signing a preliminary trade deal with China and securing the U.S-Mexico-Canada Agreement (USMCA), the president is eager to claim another trade victory to tout on the campaign trail. Near-record-low joblessness and strong U.S. growth have also emboldened Trump to take a harder stand against staunch allies.

“[Trump] thinks he is an absolute position of strength, so why would he treat the EU as an equal challenger or partner if he thinks that ultimately the U.S. is in the strongest position?” said Marie Kasperek, senior fellow at the Atlantic Council, a Washington, D.C., think tank.

Trump is also seeking to bolster his image as the Senate began his impeachment trial earlier Tuesday, which could be politically damaging even if, as is expected, he is acquitted.

“That whole thing is a hoax,” Trump said of his impeachment in remarks before a meeting with European Commission President Ursula von der Leyen.

“It goes nowhere because nothing happened. The only thing we’ve done is a great job. We have the strongest country in the world by far. It was going in the wrong direction. We have the greatest economy we’ve ever had in the history of our country.”

Trump is channeling that mix of outrage and confidence into tense negotiations with the EU, where the president is walking a challenging path with a number of different fights ahead.

The president showed some signs of conciliation and diplomacy Tuesday as he and French President Emmanuel Macron reached a deal over France’s digital services tax to delay the president’s proposed 100 percent tariffs on French wine. 

Trump also praised the “highly respected” von der Leyen ahead of their Tuesday meeting, joking that her reputation as a “very tough negotiator … is bad news for us because we’re going to talk about a big trade deal.”

But despite Trump’s friendly banter, his Tuesday remarks made clear a willingness to use his ample economic leverage to secure crucial concessions from the EU. The president is seeking a commitment from Europe to purchase vastly greater quantities of U.S. crops to boost the ailing American agriculture sector.

“They know they have to do something, and if they’re fair, we’re not going to have a problem,” Trump said Tuesday.

Agriculture is one of the stickiest issues in the U.S.-EU trade relationship with deep domestic political ramifications for both sides, explained Jérémie Cohen-Setton, a research fellow at the Peterson Institute for International Economics.

“Agriculture is generally a big issue in US and EU talks. That’s because the US has a comparative advantage in agriculture and because European farmers have historically enjoyed a strong degree of protection,” Cohen-Setton wrote in an email.

“Back in July 2018, it was agreed that talks would be limited to industrial goods. But the US position has since flip-flopped with the administration requiring that agriculture be part of the negotiations.”

And a fight over U.S. tech giants is still looming. Despite the truce with France over a tax on digital services, Treasury Secretary Steven Mnuchin was forced to threaten two other countries, the United Kingdom and Italy, with tariffs if they also leveled a tech tax.

So far, von der Leyen and fellow European Commission officials have sought to deescalate the tone of U.S.-EU trade talks by stressing the close cultural, economic and strategic history of the transatlantic relationship. 

In a tweet following her meeting with Trump, von der Leyen said she was “looking forward to working with him on the opportunities & challenges ahead of us.”

Even so, Kasperek said the commission has taken steps to show it won’t easily yield to Trump’s demands. These include installing Phil Hogan, a former EU agriculture chief, to be its new trade commissioner and developing a new process for penalizing countries for trade violations.

The long-term reaction to Trump’s tough talk at Davos remains to be seen. How the president handles his trade fights with the EU this election year will have high stakes for both his political fortunes and the two economies.

Kasperek said the White House’s reliance on tariff threats could be counterproductive in talks with the EU, which has expressed disgust at being targeted by the Trump administration in the same way as as China and other perceived U.S. adversaries.

“They really like to have that threat of tariffs. They think it has really worked well with the USMCA, China,” she said of the Trump administration.

“But where they’re mistaken is that it will work with the EU. I think the non-differentiated treatment in trade negotiations is not going to serve them well.”