A century of classical diplomacy

The outcome of the meeting of European Commission President Jean Claude Juncker and US President Donald Trump clearly showed that when it comes to diplomacy and maneuvering, old-world Europe still has the trump card over the new world United States.

Trump had announced in rage only the other day that Europe was America's first foe. After the meet last night, the same Trump has observed that USA and Europe were allies and they would refrain from imposing competitive tariffs on imports from each other. That amounts to a virtual ceasefire and status quo ante the trade war.

However, behind the verbiage and words, Europe has conceded little to the United States and gained a reprieve from higher US tariffs on goods from Europe, particularly, automobiles. Because the agreement language is critical: the two sides have agreed to work towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. It also promised to reduce barriers and increase trade in services, pharmaceuticals, and also import soybeans.

Higher soybeans import is the balm on Trump's sores coming from China's imposition of higher tariffs on soya and products, which had instantaneously shut out largest US farm export and was creating a glut of the item in US markets. China used to import soya worth some $21 billion, which was critical for Trump's voting constituency in mid-west.

On the other hand, the agreement does not touch the relative imbalance in the tariff structure on automobiles between the US and EU. That is, Europe's existing tariffs on imported American cars at 10 per cent will continue for the time being while US tariff of 2.5 per cent on cars from Europe will remain unchanged. For all other goods, the two sides will work towards the elimination of all tariffs in the long run and avoid paying subsidies. This would give a huge sigh of relief to German car makers as the major auto companies are all from that country and the Americans have a declared preference for the BMWs, Mercedes, Audi, and Porsches, to name a few.

Europe on its part agreed to import soybeans and chemicals and pharmaceutical items from the US. The two sides agree to also eliminate subsidies, but there is little mention of the huge subsidy that USA has just announced for soybean farmers of over $20 billion. The pressure on US farmers and producers would, of course, come down once Europe starts importing these items from America.

What does this new bonhomie between erstwhile "foe" Europe and US mean for the worsening trade relations between US and China? It clearly gives Trump more elbow room in dealing with China, against which US has some legitimate issues. China had manipulated the multilateral trading regime to its own interests and its fabled growth of last three decades depended on this continuing misuse of the free market rules.

China has its vulnerabilities towards the US. It is exporting goods worth $500 billion to the US and importing just about $130 billion, leaving a gaping trade deficit. Seeing the unbalanced nature of its trade China has even offered to bring down its surplus. However, doing that means it will have to substantially raise its imports. Given the structure of its trade, it is difficult to bring about the change in the short term. What is, however, worse is not the static trade deficit or surplus. The real point is China's arm-twisting of US technology companies to part with their intellectual property as a condition for access to the Chinese markets. Many of the companies have in fact surrendered to Chinese browbeating for the lure of the huge Chinese market.

China is already in a way capitulating and at least in its parleys with the EU representatives in Beijing last week, China sounded much more conciliatory and acceded ground. China has stopped altogether to boast about its much-vaunted industrial programme for 2015, which aimed to achieve superiority in the high technology sector, now dominated by America. US is appearing to be rearing for the long haul for pummeling China's avowed aims for global domination. Chinese President Xi Jinping is already said to be under tremendous domestic pressure for his handling of foreign policy and trade issues with US.

The way Jean Clude Juncker could mould Trump has demonstrated classic diplomatic finesse of the Europeans, compared with the romping Americans. I could not help but remember the description of the dramatis personae at the Versailles Peace Treaty at the end of the First World W in John Maynard Keynes' book "Essays in Biography". There Keynes describes the behind the scene manipulations of French President Gorges Clemenceau and British Prime Ministers (Arthur James Balfour and David Lloyd George) to quietly sabotage Woodrow Wilson's sense of equity and fair play.

Witness what Keynes wrote a hundred years back and how it fits in today: "The first glance at the President suggested not only that, whatever else he might be, his temperament was not primarily that of the student or the scholar, but that he had not much even of that culture of the world which marks M. Clemenceau and Mr Balfour as exquisitely cultivated gentlemen of their class and generation. But more serious than this, he was not only insensitive to his surroundings in the external sense, he was not sensitive to his environment at all. What chance could such a man have against Mr Lloyd George's unerring, almost medium-like, sensibility to everyone immediately round him? To see the British Prime Minister watching the company, with six or seven senses not available to ordinary men, judging character, motive, and sub-conscious impulse, perceiving what each was thinking and even what each was going to say next, and compounding with telepathic instinct the argument or appeal best suited to the vanity, weakness, or self-interest of his immediate auditor, was to realise that the poor President would be playing blind-man's-buff in that party. Never could a man have stepped into the parlour a more perfect and predestined victim to the finished accomplishment of the Prime Minister. The Old World was tough in wickedness, anyhow; the Old World's heart of stone might blunt the sharpest blade of the bravest knight-errant. But this blind and deaf Don Quixote was entering a cavern where the swift and glittering blade was in the hands of the adversary".

Europe has so swiftly disarmed Donald Trump. Juncker had come with no hopes of a breakthrough. He is returning with a booty.

(The views expressed are strictly personal)