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One of the most extraordinary and ludicrous bits of policymaking of modern times. President Donald Trump decides to slam huge restrictions on travel from Europe into the US to control coronavirus. It takes a special kind of detachment from reality to try to isolate the US from a pandemic that’s already there. We’re writing this just as Europe is waking up and wondering what on earth has been going on, so it’s a bit early to say what the response will be.
One thing is clear, though, as we say in the main piece: all serious trade policy globally is now on hold until some clarity emerges. There was so much nonsense in Trump’s address that it’s hard to select one aspect for Tall Tales, so we picked the most obvious one. Our chart of the day looks at US clothing imports from Cambodia.
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A ban that makes no sense on any level
And there we were thinking that the biggest problem the EU had to deal with from Donald Trump was coming up with a mini trade deal to forestall car tariffs. It probably won’t be until later today, once the US has woken up and the administration has answered some of the barrage of questions being fired at it, before the full impact of the president’s decision becomes clear.
Trump himself didn’t even seem to know what he was announcing, appearing to suggest that the travel ban would apply to goods before White House officials clarified that it would only refer to people. The ban makes no sense on any level. It refers only to foreign nationals who have been in countries in Europe’s passport-free “Schengen area” in the 14 days before travel. That exempts the UK, even though the UK has a relatively high number of diagnosed cases.
Can non-US citizens in Europe travel to America via the non-Schengen UK? In theory no, though it’s not clear how the system will work. In fact, a whole lot of things aren’t clear. From a trade point of view, clearly there is going to be huge disruption to tourism and any professional services that require travel. Passenger planes also carry a lot of cargo, especially high-value perishable and otherwise time-contingent goods. Will the ban on personal travel extend to non-US aircrews flying from Europe? Not clear. If not, why not, since even if they don’t enter the US they can still infect passengers? Not clear.
In any case, on top of the direct effect on trade there is the shock to confidence from the fact that the President of the United States has decided to use a global pandemic to take a huge swipe at Europe with apparently no thought given to the economic impact.
This underlines a point that we have made repeatedly on Trade Secrets, against those who claim there is method in Trump’s madness. There is no consistent pattern with regard to the fights he picks over trade, and in this case travel. It is not that his approach is wrong-headed but predictable — unlike, say, that of Robert Lighthizer, his trade representative, who is an old-school mercantilist but does at least have clearly defined goals and preferred means of getting there.
The damage to trade with Europe in this context is clearly just collateral, resulting from a decision run out of the Department of Homeland Security rather than an end in itself. Not that it is internally consistent within the national security field either. Trump is reportedly furious with the UK for allowing Huawei into its 5G network, and yet the UK is not included in the ban.
This decision, plus the restrictions on travel emanating from the coronavirus itself, surely mean that, globally, the normal course of trade policy is hereby suspended. Clearly, the EU can’t meaningfully continue to try to negotiate with the US over inspection protocols for oysters and almonds while this degree of economic vandalism is going on.
The World Trade Organization’s biennial ministerial meeting in Kazakhstan in June has been cancelled © Stefan Wermuth/Bloomberg
The travel disruption will also be a reason, or an excuse, for missing deadlines in other talks. The EU’s negotiations over an investment agreement with China were supposed to be completed this year, with the intended launch pad a big EU-China summit in Leipzig in September. But in December, Sabine Weyand, the EU’s director-general for trade, admitted that negotiations were moving at a “snail’s pace”.
The EU probably won’t be too devastated that an interim EU-China summit at the end of March obviously now can’t take place. The Leipzig meeting, if it happens at all, can be a metaphorical group hug of solidarity in the face of a common foe — or perhaps two, the virus and Trump — rather than recrimination about failure to reach an investment agreement.
On an even bigger scale, the World Trade Organization’s biennial ministerial meeting in Kazakhstan in June was also shaping up to be a disappointment, with mooted breakthroughs on fisheries subsidies and ecommerce looking increasingly unlikely. Earlier today it was, unsurprisingly, cancelled.
And, finally, there’s the one where postponement is itself intensely political: Brexit. UK prime minister Boris Johnson has insisted that a deal with the EU will be agreed and in place by the end of the transition period in December. But it’s very probable the next round of face-to-face EU-UK talks, due to take place in London next week, will be cancelled. It’s also implausible, with hundreds of people involved in multiple interlocking negotiations, that future rounds can easily be replaced by videoconferencing. Thus an extremely tight process becomes even tighter. Rather than accept a no-deal Brexit, or something close to it, Johnson can cite force majeure and extend with minimal loss of face.
This was the week where something turned, and this decision of Trump’s was the catalyst. Normal service is suspended. Trade policymaking has shifted into emergency damage limitation mode. It will stay there until either the pandemic subsides or Trump undertakes a sharp change of direction about how to combat it. Or, of course, he loses the election.
Charted waters
Cambodia’s prime minister Hun Sen said that China was shipping emergency supplies of raw materials to the country after it warned of shortages last month due to the coronavirus fallout. Cambodia’s garment industry is important to the US, where importers of clothing and textiles such as Levi Strauss and Adidas have stepped up their imports of late.
Tall tales of trade
President Donald Trump announcing the ban on travel from Europe to the US on Wednesday © Doug Mills/EPA
What’s the tall tale?
Insofar as he gave a rationale for the US travel ban, Donald Trump said: “The European Union failed to take the same precautions [as the US] and restrict travel from China and other hotspots. As a result, a large number of new clusters in the United States were seeded by travellers from Europe.”
Why is it wrong?
As it happens, Italy, which has seen the highest incidence of cases in Europe, banned all direct flights from China, Hong Kong and Macau at the end of January, around the same time the US brought in its own restrictions. But, you know, facts.
Don’t miss
- Trump was forced to clarify that the sweeping restrictions on travel from Europe to the US he announced on Wednesday evening did not include cargo, after causing anxiety among business lobbyists and foreign officials in Washington, who feared that transatlantic commerce would come to a halt.
Read more - In laying out a prospectus for a comprehensive trade agreement with the UK, the EU side has not yet caught on that Boris Johnson is pursuing a policy of self-isolation, argues Philip Stephens in the Financial Times.
Read more - Britain confirmed in its Budget on Wednesday that it is pressing ahead with plans for a new digital services tax focused on large US technology companies that will take effect in April, despite complaints by UK-based groups that they risk being caught by the measure and fears of US retaliation.
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Tokyo talk
The best trade stories from the Nikkei Asian Review
- The effects of the coronavirus have spread to the world’s coffee growers, with the price of beans weakened by falling demand as consumers shun coffee shops and stay at home.
Read more - Japan will not allow foreign investors purchasing a stake of 1 per cent or greater in strategic industries to submit required documents online or in English, sparking concerns from foreign investors about the additional administrative burden of translation.
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Source: Economy - ft.com
