Those tensions have been inflamed by France’s imposition of a digital services tax on the big technology companies, the imposition of punitive US tariffs on $US7.5 billion ($11 billion) of EU exports in retaliation for EU subsidies to Airbus and the continuing threat of US tariffs on European automobile exports if the European trade surplus with the US isn’t reduced. The US neutering of the World Trade Organisation is another source of EU discontent. Loading Replay Replay video Play video Play video The "victory" in the trade war with China, the desire to distract from the impeachment proceedings and to strengthen his case for re-election later this year might encourage Trump to be more aggressive towards Europe. While there have been apparently productive discussions on trade between administration officials and EU bureaucrats over the past two years, the EU has made it very clear it won’t negotiate on agriculture, a flashpoint for the US.

The Europeans are also concerned about the nature of the deal the US struck with China, in which China agreed to buy $US200 billion more US goods and services over the next two years – goods and services, including agricultural products, that presumably would have been supplied by others, including Europe (and Australia) had the deal not been done. Loading The EU has made it clear that it will retaliate if the US responds to France's digital services tax with tariffs or if (in the claimed interest of national security) tariffs are imposed on European cars. The US stoush with China damaged global growth, undermined global trade and impacted both economies adversely in the process. While China’s economy suffered more, the tariffs on $US370 billion of China’s exports and the (now averted threat) of tariffs on another $US120 billion also damaged the US as its companies and consumers, rather than China’s exporters, absorbed the cost.

Despite Trump hailing the deal, which includes China’s commitment to buying $US32 billion more US agricultural products over the next two years, as "by far the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country", the markets’ reaction to that deal underscores how unproductive trade conflict is. While the US sharemarket has taken off again, probably in relief that, for the next couple of years at least, the conflict won’t escalate, soybean prices have fallen. The last time Donald Trump spoke at Davos he declared the US would no longer turn a blind eye to unfair trade. Within months the US imposed tariffs on China's exports. Credit:AP The deal China agreed to says that China will buy more US goods and services, including agricultural products, at market prices and is dependent on commercial conditions. There are doubts about whether US farmers have sufficient plantings to supply the quantities of agricultural products China has agreed to buy.

The EU does have more scope to retaliate than China had, not that the EU wants a fight. More broadly, to the extent that US soybean exports, for instance, displaced the Brazilian production that soared during the confrontation, those Brazilian volumes would be redirected to other markets. Loading Either the overall demand-supply equation would be unchanged or, if there were over-supply, prices would fall and volume gains for the US would be offset by the lower prices. The scepticism within the farm sector about the supposed benefits for the US from the "phase one" deal with China is reflected in the agricultural futures markets. If the US were to ignite a full-scale trade war with the EU it could prove an even tougher opponent than China. While China did make some concessions to avoid further escalation of its conflict, none of them are particularly consequential.