US: escalation on the domestic political front but foreign trade deals might be possible?

Only the courts can stop Trump now and prevent the misappropriation of budgetary resources. With the first primaries of the presidential election starting already in one year, the polarisation and division in domestic politics will increase. The latest escalation level does not bode well either for the next deadline for raising the debt ceiling, which is on the agenda shortly. The negotiations for budget year 2019/2020 that starts on 1 October are unlikely to go any better than this time round.

As far as foreign policy is concerned, Trump will on the other hand probably retain his dealmaker status. He is clearly very keen to be re-elected next autumn. Talks on the trade disputes with China are currently in full swing and it is quite possible that further punitive tariffs will not be imposed. The cooling-off period agreed on by the heads of both countries ends already at the end of February. Even if no agreement is reached by then that meets the expectations of the US president, we anticipate an extension of the deadline. This was at least the procedure involved in renegotiating the NAFTA last year.

The deficit in goods traded with China reached a new negative record last year that is likely to have been in the region of around USD 400bn. This marked imbalance could be reduced by opening up the Chinese market for US digital enterprises, among other things. It is hardly conceivable that the Chinese government will agree to this. On the other hand, disadvantages in the services sector in particular are difficult to prove. Ultimately, the deal with China will rest on comparatively “soft” agreements, especially with regard to the services sector. We expect the Chinese to offer concessions mainly in the area of agricultural and energy products.

It is hardly possible right now to foresee how the trade disputes with the European Union will develop further. A three-month period started a few days ago, during which the US president will decide on whether imported cars and car parts from Europe can be seen as posing a national security risk. If Trump ranks these imports as being relevant to security, the US will view it as the basis for introducing punitive tariffs. This latest escalation of the tone is likely to speed up the talks with the European delegates, which have been very tenacious to date.

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