Daniel Lacalle says the US has the advantage and talks should be easy. 
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
- Tariffs will increase revenue enough to balance the budget
- Tariffs will bring manufacturing back to the US
- Tariffs will reduce inflation
- 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.
All this will do is turn EU towards China. That’s where the real innovation is today. When Europe is gone, who is left as a US ally ?
I didn’t have any expectations concerning that title, but the more I was astonished. The author did a great job. I spent a few minutes reading and checking the facts. Everything is very clear and understandable. I like posts that fill in your knowledge gaps. This one is of the sort.
The EU has the sole power to make trade deals, the EU member countries do not need to ratify those. Trade deals are approved by the Council with a special majority and in EU parliament.
CETA is not a trade deal, it is a treaty implementing more then trade. This is why CETA must be ratified in all member states.
The tariff charged by the EU and the US on each others total of traded goods averages out to about 2.4%, which is almost even and relatively low; there just isn’t a lot to be gained here, unless you drill down to small individuals items.
If Trump increases the budget deficit, than it virtually certain that the trade deficit in goods + services will increase as well.
Not adding in the services is just a political ploy to make things look worse than they are.
“Arguing with a fool is like playing chess with a pigeon; no matter how good you are, the bird is going to knock the pieces over, crap on the board, and strut around like it won.” – Scott D. Weitzenhoffer
Likely trade deal…. The EU throws Trump a bone and Trump keeps a 10 percent across-the-board tariff on EU imports. Trump will describe this as a “win” but really it’s a “loss” for the American consumer.
This is the critical point. The man is untrustworthy at all levels and scales. The EU has something Trump doesn’t have, time. 1334 days left and the clown is gone forever! And since Trump has now extended his tariff threat through July that leaves him with 3.5 years left to accomplish anything. Even less if dems take congress at the mid-terms and make him a lame quack.
By the time Trump leaves office there will be 60+ million boomers on social security and medicare and another 20 million, that’ll be the real crisis, not trade.
Funny how time flies….
By the end of Trump’s 4 years, the trade deficit will be larger, the budget deficit will be larger, the debt will have increased dramatically, and he will be yet another Republican president to suffer a recession on his watch.
But he will still provide opportunities for the nimble to profit.
No need for the EU to deploy special delaying tactics, they have their own well rehearsed rhythm, Slow,Slow – Slow, Slow, Slow 🙂
Trump has 4 years to go. By focusing on the top two, China and the EU, he can cut the trade deficit by half, or more, by Dec 2025. He will cut the budget deficit even faster. Once it’s done he will cut debt. A smaller gov, higher payroll tax collection, tariffs…In a thriving economy nobody complain about tariffs.
You’re delusional Michael, he just put forward a budget to increase deficits & the debt. The DOGE plan has cut a tiny 200 million. If you really believe this you should be ignored by anyone with sense.
Lol! What an optimist!
Trump will not make any big changes to the trade deficit because he will not be negotiating any comprehensive trade deals. He will settle for a few small insignificant deals and claim they are big wins just to save face.
The proof will be in what our trade deficit will be at the end of Trump’s 4 years. My bet is not much different.
The same goes for the annual budget deficit. I expect it to keep increasing.
Did the EU resolve their problems with Ireland ?
TRUMP DOES!
Our GDP is 33% greater than the entire EU.
That’s not hard to determine, is it?
Only cuz your inflated costs for healthcare, your 7% annual deficit, GDP means nothing & isn’t even a factual number really. The quality of living is a better indicator. If ya economy is growing 2% & ya deficit is 7% ya actually shrinking by 5%. What happens when a recession hits?? Will you borrow 15% a year? No one really wants the debt now. You can add 900 billion of useless military grift also & many more. The US GDP is all BS to be frank.
Why can’t you respond Ben, just thumbs down. You do not have anything to respond with that’s why. Now you know why ya in the mess ya in, hoping someone with superpowers will come and save ya’ll, worse still you’re betting on The grifter in Chief. Sucker!
Just cuz, Jack. Just cuz. That’s why I’m not responding to your dribble.
” … I can write an excellent trade agreement in 20 seconds. It would say ‘All tariffs and subsidies end immediately.’ …” Yes, but then, in one moment, this reality show and all the noisy bells and whistles would be exposed. Which is more or less where we will end up anyway (in a non-worst-case scenario; there are worse ones such as real wars), after much value destruction, in any case. But thanks for the patient exposition of the unreality and curtain of self-conflicting noise. That is a discipline Trump feels no necessity to follow. This explains why he can keep these plates spinning.
I wish we could do that with China. It would be nice to buy cars for half the price we pay here.
It wouldn’t go well for those millions of US auto related workers. But maybe Trump will really cock up trade, resulting in massive inflation, which will put the dems back into office, giving them the cover to let China import cars tariff free.
Or an alternate outcome, it Trump nails the tariff war with China who agrees to have BYD make cars here in the US like the rest of the Asian car makers then you get a cheaper EV, al beit not 50%.
As I wrote in a recent comment here… Trump is complaining about EU regulation as being a barrier to trade between the USA and EU but he was the idiot who, with great fanfare, nixed the TTIP agreement in his first administration. That deal would have instituted harmonized regulations between the US and EU, for the specific purpose of freeing up trade across the Atlantic. Of course, he is too f&#*ing dumb and incompetent to realize he was the one who caused the regulations he’s complaining about as trade barriers today to remain in place. What a clown!
The only barrier to US products is cost & quality, high cost & low quality. What Trump is saying is buy are high cost & low quality stuff or we’ll errrmmmm tax are citizens & call it a tariff. This is collapse, when an opponent can no longer compete fairly so is trying to cheat. No one but the customer decides what to buy.
Our.
Not “are”.
If Trump can’t get a deal with the EU he will hit Ireland, which is good enough, according to Mish. Time is on Trump side with the EU which is #2 in the trade deficit after China. Focusing on the top two: China and the EU significantly will reduce the trade deficit. Canada and Mexico are next in line.
That’s such a silly comment, the exact opposite is true. Why don’t Trump just arrest US citizens when they buy products from abroad & be done with it. Why don’t he invest in manufacturing himself instead of meme coins? Wake up will ya. Trump will cut nothing, save nothing & make nothing, he’s just a degenerate load mouth that would be licking the pavement in the street. Even his own tribe are starting to see who he really is, The Grifter in Chief.
stop ranting !
Another silly comment, it’s called debating!
Ranter in Chief.
Silly? Really now, Jack?
While Michael is talking about how different trade deals may strategic, you’re talking about arresting Americans, meme coins, & name calling.
I’m with Michael on this one which strikes an overall similar ton about the article’s topic.
So ignore the facts then, blind loyalty to, I’m using arresting Americans as absurd strategy the same as taxing ya citizens because of greedy corporations. At the same time these corporations get tax cuts while cutting Medicaid & food stamps. I called no one names, it’s descriptive for Trump, So Ben, take it or leave it, it’s ya country & you’ll go down with it
You say all this while wearing Chinese underwear, typing on a Taiwanese laptop, wearing clothes from Bangladesh etc. It’s comical really.
Ireland was the EU back door. The EU hate the Irish more than Trump.
Replying to ya own comment now hey?? Another silly comment, no one hates Ireland more than Trump, Only you. Why can’t you just wake up & see Trump is a loudmouth conman & The grifter in Chief??
The Irish never had slaves nor invaded any other country, so animus by the Brits, French, Belgiums, Dutch and Germans is understandable.
When Michael gets upset he goes & down vote every comment I make, I’ve now got a deficit. I’m gonna hit you with a tariff.
I didn’t know u exist !
You didn’t know I exist, is that all you got to say, how old are you 5. My God, no wonder Trump is your Iron Man. I’m sorry I wasted my time.
Nice post. Personally, I think CA will be the first to strike a deal. The EU will fall next, then MX & finally China. Timing is really hard to guess.
Timing is hard to guess. Comprehensive trade deals between countries typically take 2-5 years, and sometimes MUCH longer. Trump doesn’t have that kind of time. Instead he will make a few small insignificant “deals” and call them big wins.
The USMCA deal took almost 2 years to complete, which was pretty fast, but then 95% of it was already in place through NAFTA and just needed some “tweaks” and adjustments.
Canada and the EU negotiated for 7 years on an agreement which was signed in 2016. It was then undone by one region in one EU country. It took another 7 years before all 27 EU countries signed on. Getting anything done with the EU is a marathon.
Trump will settle for any meaningless agreement he can get from the EU.
“Trump will settle for any meaningless agreement he can get from the EU.”
Using Mexico as the example, it’s not going to take 2-5 years if Trump keeps the 25% & 5-50% tariffs in place. Now, I’m sure you’re thinking that’s he’s going to pull back massively on these. And if he does absent any really meaningful movement towards a new trade deal with Mexico, then I’d say you’re possibly right.
However, time will tell. I’m in the camp that says Trump is trying to make a long-term structural change to how the US trades with the world.
The grifter in chief wimps out after a few % drops in a hyperbubble market, he speaks of tariffs Thursday so he & his friends can go short & then cancels them Sunday & collect the winnings, then he & his friends go long. This way he helps the banks clean up the gamblers funds. Hasn’t anyone noticed the huge swings & constant deliberate 180 degree turns. What they haven’t factored in is the huge losses the casino gamblers are racking up & then they will all default on the debt because they are gambling using option, a massive collapse & financial crises is coming. The grifter in chief is destroying what little sanity is left in the markets & soon enough no one with sanity will go anywhere near the casino. Investing?? The markets are all now casinos. Lets face facts, The Grifter in Chief cares more about the casino than the US or it’s citizens, he wont get any deals cuz everyone can see that, he’s a conman & a wimp.
The EU has the upper hand because Trump wants a deal. If you want a deal badly then you get a bad deal.
No one has the upper hand, that’s the truth, they are all collapsing, fighting over crumbs. They’re are fighting over the same money cuz they can’t make any. It’s like two criminals who used to rob with each other now try to rob each other cuz they run out of victims to rob.
I would like to add another feature that may of may not be a factor in the EU Commission’s stance on trade and tariffs. The EU Commission is partially financed by tariffs the EU sets on incoming products. Last year 12.5% of the EU Commission’s budget can from tariffs. This year it certainly will be higher. The Commission could see this as a good opportunity to increase their budget without having to go hat-in-hand to the individual governments. In a way it would fit into their plans to become the government of the EU by giving them true independent taxing power which is something they don’t have now. Just some food for thought.
Well according to the powers that be around here, tariffs are bad, so someone needs to get the EU on the phone & change their minds.
Oh, yeah, that’s what Trump’s trying to do.
The EU Commission annual budget for 2025 is $200 billion euros. So at 12.5%, tariffs represent $25 billion.
Trump wants to collect $5 trillion annually in tariffs just to eliminate income taxes.
Just some food for thought.
I am sure the Commission would just love to have a couple of hundred billion Euros or more to play with. They are bureaucrats after all. Macron wants badly to be the next Commissioner after Ursula leaves so he will push for it.
That’s still small ball. They should think big like Trump. Aim for $5 trillion.
Why not twenty trillion as long as you want to put out ridiculous numbers?
EU allies drop all restrictions on types of weapons available to Ukraine
https://www.intellinews.com/breaking-eu-allies-drop-all-restrictions-on-types-of-weapons-available-to-ukraine-382916/?source=poland
All trump cares about is that he can make the outcome “appear” that he was the winner and the other side is the loser.
Who has the cards?
The Sting | Paul Newman Cons a Con Man in a High-Stakes Poker Game in 4K HDR
In this case, the country or bloc willing to endure the most short-term pain.
Both sides will look to avoid pain by a superficial deal, but on EU-time not Trump-time.
Arguably no one.
Don’t all these deals have to be ratified by congress.?
In theory – yes.
Trump claims no – and a case is pending in the Supreme Court
If it is not a treaty then no.
Unless it is approved by the Senate, I agree.
But it’s essentially meaningless because Trump won’t honor it anyway.
One thing the EU may insist on is approval by the US senate with language mandating no changes by Trump.
How long will that all take?
How long? I don’t know but the nefarious effects will cause enough pain so that by August we should see resolution one way or the other or in the middle somewhere.
August huh? Noted.
Please note