About those EU Trade Concessions…

As Simon Lester noted, President Trump and European Commission President Jean-Claude Juncker caught the world by surprise Wednesday when they announced a step back from the rapidly escalating trade war between the United States and European Union.

In his statement, Trump added this bit of news:

And the European Union is going to start, almost immediately, to buy a lot of soybeans—they’re a tremendous market—buy a lot of soybeans from our farmers in the Midwest, primarily. So I thank you for that, Jean-Claude.

… Secondly, we agreed today to a strengthen and [sic] strengthening of our strategic cooperation with respect to energy. The European Union wants to import more liquefied natural gas—LNG—from the United States, and they’re going to be a very, very big buyer. We’re going to make it much easier for them, but they’re going to be a massive buyer of LNG, so they’ll be able to diversify their energy supply, which they want very much to do. And we have plenty of it.

Simon qualified that news in his post: “This was probably going to happen anyway because of market shifts and other factors.”

To say the least.

Concerning soybeans, a month ago Bloomberg explained that EU imports of the crop are set to rise dramatically as a result of another U.S. trade war, in this case with China. China has slapped retaliatory tariffs on U.S. soybeans, and Brazil is set to supplant the United States in that market. American farmers now have a surplus of soybeans—which the EU is happy to buy so long as the price is right.

This is reminiscent of the Arab oil embargo of the 1970s. In that case, the Arab states simply sold their oil to someone else and the United States bought its oil from someone else. (Well, we would have, if we hadn’t messed things up by putting a price cap on oil.)

Commodities like oil and soybeans move in world markets, and so if one particular buyer and one particular seller aren’t getting along, there are plenty of other buyers and sellers to step in, so long as someone’s willing to pay for the extra handling costs. (Don’t be surprised if Chinese consumers and U.S. farmers are the ones stuck with those costs for the soybeans.)

So the soybean “concession” is really just the EU doing what it was going to do anyway.

The same goes for LNG. Ever since the innovation of hydraulic fracturing dramatically increased U.S. natural gas supplies, producers have looked to sell the hydrocarbons on the world market using giant (and technologically amazing) LNG carrier ships.

Europe is a blossoming market for LNG. Its traditional natural gas source around the North Sea is beginning to tire, public opposition to fracking in Europe is strong (despite the continent’s enormous potential supplies), and though Russia is ramping up its pipeline exports to the continent, Europeans are understandably uneasy about becoming dependent on Russia. Also, the continent is trying to move away from coal and, in Germany, nuclear power as sources of energy, in favor of renewable sources. As Peter Van Doren explained earlier this week, renewables require a backup energy supply that can be dispatched quickly: natural gas is an ideal backup.

As a result, Europe has begun importing LNG from the United States. Lithuania and Poland—two nations that know well the games Russia can play—received their first shipments of American LNG last year. Expect more European nations to follow suit…

…if, of course, the economics work, which Juncker later noted:

“We are ready to invest in infrastructure, new terminals, which could welcome imports of LNG from the United States and elsewhere, but mainly from the United States, if the conditions were right and price is competitive,” he said in a speech at the Center for Strategic and International Studies later Wednesday.

So the LNG “concession” is also just the EU doing what it was going to do anyway.

Did Juncker pull one over on Trump? That’s doubtful. Even if the president is not aware of the world market trends in soybeans and LNG, his advisers certainly are.

Instead, Juncker probably helped Trump out, and in turn helped out both Americans and Europeans. Trump has been taking enormous heat for his ill-conceived trade wars. Much of that criticism is coming from the Midwest and farm country, which delivered him the presidency in 2016. He needed to find a way to back down from the trade war without looking like he was backing down. Some EU “concessions” that benefit the very regions Trump needs to soothe are exactly what he needed—and those concessions were costless for Juncker to deliver.

The question now is, will there soon be similar “concessions” from China?