I'm Scott. I'm Bill. And we're the Trade Guys. We're listening to the Trade Guys, a podcast produced by CSIS, where we talk about trade in terms that everyone can understand. I'm Alex Kisley, and I'm here with Scott Miller and Bill Reich, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode, we unpack the Trump administration's threats to impose tariffs on several European countries as it sought a deal on Greenland, and the lasting implications for U.S.-European economic relations. Then, we dive into the recent Canada-China trade agreement and examine how the Trump administration's deal to lower U.S. drug prices is reverberating across European markets. All that and more on today's Trade Guys. All right, guys, it's been another wild week in the world of trade. We have a lot to cover today, but first, another week has passed without a Supreme Court decision in the tariffs case. Bill, there was a lot of speculation that we would see a ruling this past Tuesday. That didn't happen, and now it looks like we may be waiting at least another month for a decision, potentially on February 20th. Putting aside the suspense, you and I were talking earlier this week about how the delay in the decision itself has some real implications. How so? I thought for a long time that the decision is going to have a much greater impact on relationship between the legislative and executive branches of the government than it is on the economy. I mean, we all think that if the president loses, he'll reimpose the tariffs through some other means, and that will then play out in more litigation. So I don't see a huge economic impact regardless of the decision, but it will have a big impact, particularly if the president loses, on the relative powers of the presidency vis-a-vis those of the Congress. And I think in those situations, the chief justice wants to get as big a majority as he can. You don't want to make major constitutional decisions five to four, if you can avoid it. I mean, it may be unavoidable, but I think he'd be happiest if you get a unanimous decision. But I think if not, that might go for seven, two. And of course, if you're going to do that or try to do that, you have to do a lot of negotiating with your colleagues and you You have to have sent a lot of drafts back and forth because you have to produce something, an opinion that a sufficient number of people will sign on to. And I suspect that's what's going on, that the chief is trying to construct a big majority for whatever they're going to do. And that in order to get there, he needs to spend a lot of time drafting and negotiating, thinking about what I just said means. That also suggests probably a decision that will not entirely be in the president's favor, because you've got the three liberal justices who will almost certainly oppose this use of presidential power. So if you want to do better than six to three, you're going to have to bring them in or at least one of them in. And I suspect that it is easier to produce an opinion that includes the three of them, plus Justice Roberts, Justice Barrett, and probably Justice Gorsuch to get to six and maybe one of the other ones. So we'll see. But I think that's what's going on. And they now have another month to figure it out. So we will be here going for the third strike on February 20th, waiting to see if they produce it again. And if not, then we'll wait for the fourth time. Yeah, this has been quite the parlor game in Washington over the past few weeks. Scott, do you have any thoughts here before we move on or we can get into the other topics? Well, there's certainly been a lot of emphasis on it in the trade community. Everybody's curious. And I continue to be concerned that we're putting all our hope in sort of nine lawyers to resolve all this. My sense is that it's a very complicated matter, even the Court of International Trade and the Pellet Courts found different ways to look at this. And some terrorists seem legit and others not. So even the justices would have that difficulty sorting it out. But there are some options that are available that might not please the crowd, such as rendering a decision and not providing a remedy. And that would go back then to the courts of original jurisdiction or the appellate courts to sort out. It could be messy for a while. Yeah. Well, we'll see if February 20th is the date. If not, we'll just keep waiting. But again, just for a programming note, when the decision does come down, we'll have a special Trade Guys episode that day. So stay tuned, perhaps sometime next month. But we have other big news from the past week, of course, to get into. President Trump's threat to impose a 10% tariff on eight European countries starting February 1st, unless a deal was reached for the U.S. to purchase Greenland. Then on Wednesday at the World Economic Forum in Davos, the president announced he had reached the framework of an agreement around Greenland with NATO and would therefore drop the tariff threat. Scott, there are a couple of areas I want to explore here. First, a lot of the commentary has been focused this week on this being another taco moment from Trump. Trump always chickens out is the saying, the acronym. But is that fair if he ultimately got a deal on Greenland? And then more importantly, how should we think about Europe's calculus throughout this episode? We heard all week that the EU was weighing whether to deploy a trade bazooka if tariffs were imposed. Was this actually a watershed moment that dramatically changed the course of how Europe and other allies approach their relationship with the United States? Sure. It's been fascinating. I do think that the coverage of this, at least the TV news coverage, portraying this as basically a bilateral deal that fell apart. In other words, the U.S. wants to buy Greenland. Denmark doesn't want to sell. And that was the pivotal action. I actually don't agree that that's what was going on here, mostly because of Trump's own history. The guy is a real estate negotiator par excellence, and there's some things that in the background that almost never came out of the reporting. So let me start there. First, that Donald J. Trump happens to be the fourth American president to seriously consider purchasing Greenland. The first was Andrew Johnson, whose Secretary of State, Seward, did such a bang-up job buying Alaska from the Russians that President Johnson sent him on a trip to Denmark. And he failed to buy it, but he at least made an attempt. That was the first. I didn't know that. Following President Andrew Johnson, William Howard Taft attempted to buy it. And then after World War II in 1951, Harry Truman tried to buy it. In fact, his famous offer was $100,000 in gold, which would be, I think, $1.4 billion today or some staggering number. But Denmark turned it down. So it's not unusual for an American president to first have a commercial interest and strategic interest in Greenland. Second, there is a very important defense treaty from 1951 that essentially provides operating control to the United States. And this is something that didn't get a lot of coverage, but there is this defense of Greenland agreement. And Article 2, in part, reads that the U.S. is granted free access to all Green Landing territory waters and airspace, authority to control, quote, landings, takeoffs, anchorages of every ship and aircraft in defense zones and power to construct and operate military infrastructure without compensation. Yeah, there's extraordinary latitude here. Oh, yeah. Basically, the United States military has run the place since 1951. And so ownership had been kind of tried before. Operational control was never really in dispute although a couple of times apparently Denmark tried to terminate the deal Once in the 1950s again in the 1990s And in 2018 so relatively recent Trump first term there was a million infrastructure project promised by China that Denmark was considering. And the State Department's records indicate that Defense Secretary Mattis made an intervention with Copenhagen to stop it. So there's some rockiness in the relationship. But the key is, what was going on? Is this about Greenland? I actually don't think so. I think this is Donald Trump at his art of the deal best, wanting to accomplish some things, and making Greenland sort of the anchor in his negotiations. That has not been the media narrative this week. Oh, no. Think of what he did. What did he get out of this? By challenging the counterparty, taking opposite positions, making people think it was about Greenland. But what I think he got is first priority access to rare earth elements. That's a very important idea. And that's a clear message to China that you won't have a monopoly on this forever. Second thing he got was an update to the defense agreement that locks in NATO as part of the operators of the security package in Greenland, which he wanted. He's trying to cement this 5% of GDP or NATO defense budgets in Europe. And I think he made a lot of progress there. That's the European angle. And finally, America first was very prominent. Davos is a key message. And President Trump managed to make the right concessions and look magnanimous as he backed off. But he got a lot out of it, I think. And that's sort of not the narrative. A lot of American presidents go get criticized for not meeting climate change goals or something like that. He basically owned the place, which was a pretty good achievement. He let Secretary Lubbock and Secretary Besant handle the punishments. But it was very clear. And look, Europe is on notice. They've got to keep the 5%. This isn't a passing thing. They want to be a partner. And NATO has signed up for a partnership in the defense of the Arctic. So I actually think all this is positive. Nobody talked about it, least of all President Trump. But in Europe, it basically didn't look like a particularly powerful counterparty in all this to your Europe question. They threatened a lot. They sent a 30-some member delegation to Greenland, but didn't really accomplish much. And the so-called trade bazooka, which requires a qualified majority, because Trump's threat was only to seven or eight European countries and not the European Union. Right. They really couldn't get that very far along. And then the whole thing kind of evaporates in the snow of the Alpine resort. So I don't know what else to make of it, but he did write a book about this. Bill, was this a taco moment or do you agree with Scott largely here? You know, if it's going to be a book, it would be a comic book. The one place I agree with Scott is that I think it really is about critical minerals as much as anything. CSIS has had an Arctic study project going on for 15 years, and for the last 10 has monitored maritime traffic in the Greenland area. And at least the last two years has found no Russian or Chinese military naval activity in the region. Now, of course, that doesn't count submarines because it's all satellite tracking, so you can't really track submarines. But, you know, the national security argument, I think, was never a real one. And I think the reason I'd say comic book is because, from my perspective, you know, he's created an enormous amount of drama, an enormous amount of frustration, which I don't think is going to go away. And he ended up with essentially what he already had. And Scott spelled that out very clearly. The Treaty of 1951 gives the United States extraordinary rights in Greenland. and what he has now is extraordinary rights in Greenland. So I'm not sure that he's gained much beyond what he already had, which he had already dismissed as insufficient, but that, you know, never mind that. The consequence, I mean, everybody got very spun up, which I think he loves. It makes him the center of attention. This is why I prefer to him as just such a drama queen. I'm not sure that this is going to go away in Europe or anywhere else for that matter, as easily as he thinks it might, or as Secretary Pecent thinks it might, which is, you know, don't get all excited about this. To me, the message to European countries, well, to the EU, but also to other countries, particularly Asian countries, is that under this administration, agreements with the United States are never final. They're always susceptible to us coming back in for another bite based on his unhappiness of the moment. I mean, this second bite had nothing to do with anything that was negotiated six months ago, but he decided he wanted to make an issue out of Greenland. And so what does he do is he rides roughshod over the EU agreement, which then caused the parliament to say, we're going to postpone consideration of it. And of course, they reversed themselves on that today. So that may or may not be back on track. I would expect when they do take it up, and I think the committee will take it up next week, or at least that was the plan, you're going to find a good bit of opposition to it and a good bit of suspicion about the wisdom of going forward in an environment where nothing is ever final. You know, you agree to this stuff, and then the United States comes back a few months later and says, well, now we want something else, and if you don't give us the new thing that we want, we're going to tear up the thing that we just negotiated. Nobody can operate under those circumstances. And I think the long-term impact on Trump is going to be negative because people are going to be reluctant to enter into agreements with him. And I think for the Europeans, I'm sure they're thinking, well, we dodged that bullet. And they did. But I think they're finally getting to the point of realizing that they're not going to be able to dodge all the bullets. And sooner or later, they're going to have to stand up. Maybe not today, but going forward, yes. I think you're right about that, Bill. But if you think about it, we trade people saw this movie in the first term. It was called USMACA. All right. Think about how that negotiation went. We started out with NAFTA is the worst trade agreement since the earth cooled. All right. And then there was a very fractious, operatic two-year negotiation, which resulted in basically cosmetic changes to the original NAFTA, suddenly declared as the best agreement in commercial history. and then, you know, take the win and move on. And that's what we're dealing with. I've got to resign myself to believe that it's all true, both what the president's worst critics say and what his greatest admirers say. It's probably all true. And we get some mix of all that in every decision, but this is the same playbook. So I think we'll see it again. And that's a really important point. It is the same playbook and it's the same playbook every time. And a number of people have noted this time around the market reaction, both the stock market. Well, that was my next question, right? Yeah. And the bond market reaction was more muted than it was last April because people have figured out the game and it's the taco game, you know, and it's always make extreme demands and then settle for a fraction of what you demanded. And people are now building that into their calculation. Well he did it over the weekend preferably for that reason And while the market did drop on Monday it rebounded pretty much Came right back Evenly on Tuesday So it one of these things that now everybody happy All right And the president was magnanimous. I'm not happy. I'm grumpy. And he had a chance for a lot of face-to-face with the European leaders in Davos. Okay. They had some conversations. They had a chance to smooth it over if they wanted to, but also plan for the future in Greenland, which is a NATO future, not just a US future. So look, this is what you get with a guy. We should give some credit to Mark Rutte, the Director General of NATO. Because the playbook is always the same, you can see the pathway, but you still need somebody to construct the off-lamp. And that was very deft on his part. Yes, exactly. I'm impressed. Well, let's try to find something that's going to make Bill happy, although I'm not sure the next topic is. I want to turn to some other movements across the global trade landscape with some themes very much related to what we've just been talking about. But I want to start with what's happening with Canada and China, where earlier this month, Canadian Prime Minister Mark Carney met with President Xi in Beijing, where the two sides reached an agreement to lower tariffs on Chinese electric vehicles and Canadian canola. Carney has framed the move and Canada's broader push to diversify trade away from the U.S. as a necessary response to a more unsettled global trading order. Washington, unsurprisingly, was not thrilled either in the deal itself or the public narrative around it. So, Bill, is Carney taking the right strategic approach here? And do you expect other leaders to start following his lead? Or what other agreements are kind of following this pattern that you're tracking? Well, this does make me happy because it suggests I've been right. It doesn't happen very often. And when I'm right, I need to exploit that and remind everybody. I've been saying for a long time that what we're going to see here is other countries making new arrangements, finding new partners. And that's exactly what Carney has done. And the U.S. reaction has been interesting. The original initial reaction from some of the cabinet people was negative. And then Trump says somebody to the effect of, well, that's exactly what I would expect him to do. You know, why not? We'll make another deal. I have a feeling in the Canadian case that this will send two short-term signals, but it may not be in Canada's long-run interest, which Trump has picked up on. I mean, Carney has multiple problems. I think he has a political problem of needing to show his own citizens and his voters that he can stand up to the United States, that he ran on that, really. And he needs to do that on occasion, simply to remind everybody that Canada is a sovereign country and it's charting its own path. He also has, as do we, a farm problem. And thanks to previous difficulties in the China-China relationship, Canadian detention of the Huawei official and the Chinese response by detaining two Canadians in China, that episode is over, but there's lingering ill will there. And one of the consequences was higher tariffs in both directions. The Carney had put 100% tariffs on EVs from China. The Chinese, as part of their previous economic coercion measures, put a significant tariff on canola seeds and canola oil. Incidentally, I was trying to figure out what that was. Well, it's a portmanteau word composed of Canada and oil. Canola. I'll be damned. It's an oil seed that is more or less healthy, flavor neutral. The plant's known as rapeseed. Yes, it's a kind of rapeseed. And it has a lot of good qualities and not so many bad qualities compared to some other oils. Yeah, it's cultivated in many, many places. Canada has done essentially some branding with canola. Yes, and they took a big hit when the Chinese put in an 85% tariff. So what did Carney do? It was classic. You know, he negotiated a market opening deal in which he reduced the car tariff and they reduced the canola tariff. I mean, there were other elements, too, but this is what trade agreements do. And in a way, it was a return to tradition. Now, the problem that Carney's going to face is that, you know, he made the farmers happy. And I think like here, I'm not sure how many of them voted for him. But he made the Canadian automobile industry unhappy. I mean, if you look at the details, I think they're letting in 49,000 Chinese EVs with a lower tariff. So it's capped. But the auto industry, being like auto industries everywhere, would have preferred the number closer to zero rather than 49,000. So they're unhappy. I think other manufacturers are worried that this may be a sign of things to come. And it doesn't really do a lot to alter the fundamental relationship of Canadians' dependence, really, on the U.S. economy for their exports. And, you know, he's doing the right thing in terms of trying to diversify the Canadian global economy. But it's obvious that that takes a long time and doesn't happen overnight. To pivot for a moment, it's not just about that. This was also Mercosur week where the EU signed the Mercosur deal in Paraguay. It's only been 20 plus years they've been negotiating this. And here I think Donald Trump deserves a credit for pushing that one across the finish line. I think they did it because they wanted to demonstrate to Trump that they too have options and that they're credible options. This is a big deal. I mean, it's Brazil, Argentina, Paraguay, and I think now Bolivia is included. Brazil alone is, you know, they're a big player. And this is going to free up 90% of tariffs, which means that the really sensitive ones remain, but 90% is still, you know, a nice number. And the fact that it's significant is evidenced by the fact that the usual French and German farmers are all against it, because they're concerned that they're going to have to compete with Argentine and Brazilian grain and other products. And so maybe it won't get through the parliament. We'll see. But there's a growing list of these things. EU is negotiating with India. The UAE is negotiating with a number of other countries. The ASEAN nations are talking about doing an upgrade of their deal with China. RCEP nations are talking about an upgrade. India and New Zealand completed a free trade agreement. Oman, India completed a comprehensive economic partnership agreement. Canada is trying again with India. They've had about the same degree of success that we have. I mean, what's going on is entirely predictable. You know, all these guys are saying, you know, we can't count on the United States. We've got to go somewhere else. We've got to find other partners. And they're picking the big guys, you know, India, Brazil, you know, big countries like that. Scott, these aren't one-offs, are they? This is just a new landscape? Well, I believe it's always in countries' interest to go ahead and try to resolve disputes and try to advance their own interests in trade agreements. So I'm happy to see it. And there have always been a lot of bilateral and regional trade agreements that the United States wasn't a party to, and that's not really new. There are a few ironies in the China deal. One of them is the early beneficiary of the lowered EV tariffs is none other than Tesla. Because Tesla manufactures the Model Y in Shanghai. So it is Chinese, it's a good point, content. And they, of course, have an existing dealer network. Whereas the other Chinese producers have not yet built the dealer network that is really needed to sell cars Tariffs are the least of your problems if you want to enter a market like Canada Sure. If there's service after sales and all the things that the networks of auto dealers provide. So in the early days, Elon Musk is the big winner from a deal between Canada and China. I didn't have that on my big deal card either, but we'll see. Now, the key is USMCA is being renegotiated this year. Yeah, right. And I don't know, this is not going to be lost on parties involved. And so we'll see what happens. All right. Well, let's turn to our final topic today. And I want to take a look at drug prices. There's been a flurry of recent activity around U.S. pharmaceutical manufacturers pushing to raise prices in Europe. The goal is to offset lower prices in the United States after recent agreements with the Trump administration that tied U.S. drug prices to those in other developed countries. In some cases, drug makers have even warned that new medicines could be delayed or withheld if European governments refuse to pay more. Europe is unsurprisingly pushing back. So, Tina, for both of you, this seemed like an inevitable outcome, right? Well, yes. And particularly, it tends to happen mostly in the human pharmaceutical markets for a couple of unique reasons. One of them is that patents have unique benefit to the patent holder when it comes to what they call new molecular entities. In many other industries, they're, of course, very active in research and development. There's a tremendous network of patents. But often in most of those industries, patents are cross-licensed and the players involved tend to rely much more on novel understanding and know-how, so-called trade secrets. of how to operate, how to do things. But the cross-licensing is probably best seen in the hybrid drive system. Toyota was the pioneer there with the Prius, and almost everybody in the auto business licenses Toyota's hybrid drive system because it's proven it's the best. There's a nest of patents there, but it doesn't rely on its value for the patent alone. And so drugs are somewhat unique in that respect, unusually sensitive to patent expiry and the pricing available before and after patents. The second is the strange way we pay for healthcare, particularly in the United States. They've got lots of different people involved and lots of different entities, often separate from the consumer. So there's not much transparency in it. So it's a difficult regime to operate. And except for Medicare and Medicaid, we don't really have a single payer operation like most European and other developed countries have, single payers, tend to have sharper negotiations on crisis with manufacturers. Right. So it's always been a muddle. At some point, crisis on anything is sort of like a balloon. You squeeze on one end and it expands on the other. So this was entirely foreseeable. I feel bad for him, but it's the way life is. Right. Bill? I was just reinforced the last point. It is like pushing on a balloon. It's just a reminder that everything is connected. I mean, the quid pro quo, well, that's not quite the right word. When Trump pushed domestic pharma companies to lower U.S. prices, you know, the inevitable consequence of that was to force them in their minds, unless they wanted to have a big reduction in profit, to raise their prices everywhere else. And that's fine with Trump. His litany from the beginning has been that, you know, our guys are being cheated relative to everybody else. Of course. Right. And so it's about time that people pay more and we get the benefit. That's a powerful political message. Well, yes. And if you're here, great for the American voters. It's certainly not good for the other countries that have been paying less. But that also means it's not good for public health because it means that there is probably going to be new drug introductions into these countries and people are not going to be able to afford as easily the drugs that they're getting now. I think the data that we've got suggested that in Europe, they probably pay around one third less than the U.S. does, in part because they have national health systems that are negotiating prices for the whole country. I think it's not good for public health, but I don't think Trump cares about that. And it was, as Scott pointed out, I think it's an entirely predictable outcome. You squeeze here, it's going to pop out over there. And to the extent that he applies that same principle in other cases, in other sectors, you're going to see that happening again and again. So are we going to see the drug manufacturers ultimately win here, or does zero have a chance to keep things as they are? Well, winning has a strange calculation here. Look, I don't think they're going to be out of business. I think drug makers have a more challenging environment in which to operate. and so that may or may not affect their return to shareholders. I do agree with Bill that this may slow the introduction of the most advanced medications in some markets. It's kind of a logical consequence, but it's one of those things that it just, it's not easy running a business. It's certainly not easy running a regulated business like pharmaceuticals. This makes it more complicated. So I think there'll be various attempts at trying to square that circle, but it's not easy. All right, guys. We'll leave it there for today. Before we go, Bill, my condolences on the Bears. I'm sorry. They are now on the golf course with my Bengals. It was a good run, but aren't we going to say something nice about Indiana? Look, as an Ohio State guy, I don't know if Scott's going to say anything nice about Indiana. Oh, yes. Force yourself. Force yourself. I'm thrilled. I'm thrilled by it. It's the feel-good stormy of the year. I think it's one of the best things that's happened to college football in many years. And I would just point out that 50 years ago, there was another undefeated season at Indiana. This was Bob Knight's undefeated 1976 team that won the national championship. And it's a measure of how difficult it is to achieve perfection. And Indiana was a very impressive team, impressive coach. They played as a team. They beat all comers. But an undefeated national champion doesn't come along very often. And in the case of the state of Indiana, they're 50 years apart. And I can't think of something in between. So it's a great achievement. And hats off to the Hoosiers. But I think it makes the whole game much more exciting when you think about what it took to get there. It was incredible. I mean, the most incredible stat I saw that I think went viral after the game was this season, Indiana had more wins over top 10 teams, which was six, than they had in their entire history of their program before this year. So it was a fun game and it's exciting to watch. Even as an Ohio State fan, I was rooting them on. At least it wasn't Michigan. Well, just one more shameless plug before we wrap up here. Just going back to the Greenland topic, I would encourage our listeners to check out the CSIS YouTube page. Our colleague Max Bergman, who is the director of our Europe, Russia and Eurasia program, did a really terrific video explainer putting Greenland in context from a national security standpoint. So I would encourage everyone to visit that and check it out. it really helps all of us understand what's at play here and what's at stake. So guys, thanks for the great conversation. We'll see all of you next week. Thank you. Indeed. Thank you. 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