With help from Barbara Moens, Sarah Anne Aarup and Steven Overly

— Rosy rhetoric on trade from both sides of the Atlantic will be tested in the coming months as Washington and Brussels struggle to deliver results on a series of trade disputes by the fall.

— Two Republican China hawks on the Hill are taking aim at some fine print in a new Commerce Department rule that lawmakers fear will allow President Joe Biden to let TikTok off the hook.

— And U.S.-China decoupling may be starting to show up in trade data, according to a new United Nations report out today.

It’s Monday, June 26. Welcome to Morning Trade. The inspiration for today’s headline is the 1949 Rodgers and Hammerstein musical “South Pacific.” But I recommend the 1961 take from jazz singer Nancy Wilson and saxophonist Julian “Cannonball” Adderley. Send us your trade news or any good tunes: [email protected], [email protected] and [email protected]. You can also follow us on Twitter: @gavinbade, @tradereporter and @stevenoverly.

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WHAT IS BEHIND THE ROSY TRANS-ATLANTIC RHETORIC: Top U.S. and European officials insist their trade relationship is stronger than ever, but the coming months will put their bond to the test. Our trans-Atlantic trade team looked at the state of play of the trans-Atlantic trade relations — and things ain’t looking that great.

Behind the smiles and handshakes, both sides have struggled to agree on a number of trade irritants and geopolitical takes. An EU diplomat told Morning Trade that “people are getting nervous and starting to ask questions” about the ongoing negotiations: “There is a positive agenda between the EU and the U.S., but we need results.”

Remind me? Negotiators are hustling to hammer out high-stakes agreements on critical raw materials and green steel and aluminum, aiming to resolve nagging disputes that threaten to undermine the longtime allies’ efforts to present a united front in the face of China’s market dominance and Russia’s war in Ukraine.

Steel especially, though: The U.S. and the EU have set themselves an October deadline to reach an deal, which aims to push back against the Chinese steel and aluminum industries by introducing stringent new green criteria. But they remain far apart on fundamental aspects of the new global arrangement. Absent a timely deal, tariffs could return at the end of the year.

Key months ahead: “The fall is going to be the time when we really get a feeling for whether the U.S. and EU are figuring out the ground rules for this new, post-WTO industrial policy age,” said Frances Burwell, a distinguished fellow at the Atlantic Council. You can read the story here.

CHINA HAWKS TARGET ICTS RULE: Two Republican China hawks on the Hill are taking aim at some fine print in a new Commerce Department rule that lawmakers fear will allow Biden to let TikTok off the hook.

Sen. Marco Rubio of Florida, the top Republican on the Intelligence Committee, and Rep. Mike Gallagher (R-Wis.), chair of the China Select Committee, are taking issue with a line in Commerce’s new Information and Communications Technology Supply Chain — or “ICTS” — rule, published June 16.

The rule directs Commerce to review ICTS transactions to determine whether they proposed national security risks and how those risks can “be mitigated using measures that can be verified by independent third parties.”

It’s the word “mitigated” that has lawmakers upset.

They worry that the word — along with some other seemingly innocuous changes — could open the door for Commerce to approve compromises with foreign firms like TikTok’s Project Texas, where the company has proposed to store U.S. data on domestic servers. TikTok has spent over a year developing that program with the Committee on Foreign Investments in the U.S., which often directs foreign firms to enact so-called mitigation plans to reduce security risks.

The Biden administration has soured on the Project Texas plan in recent months and thrown its support behind a Senate bill that would give it more tools to deal with TikTok. But lawmakers fear that Commerce’s ruling could open the door to Project Texas or other compromises with tech firms in the future. The proposed rule, they point out, did not include the word “mitigated,” opting for “addressed” instead.

Mitigation “is a term of art from [CFIUS] law that refers to transaction restrictions short of an outright prohibition,” they wrote to Commerce on Friday. “‘Project Texas’ is the most famous example of an attempted ‘mitigation’ agreement.

The lawmakers requested communications between Commerce officials and TikTok throughout the rulemaking process and urged Commerce to “abandon any course of action that stops short” of a full TikTok ban.

U.S.-CHINA TRADE DECOUPLING IS REAL — UNCTAD REPORT: The American and Chinese economies are pulling apart, according to a recent study by the United Nations Conference on Trade and Development, aka UNCTAD.

American companies in particular have cut back on their trade ties with China, with the interdependence indicator dipping 5 percent between early 2022 and mid-2023.

Friendshoring is real: “There has been a notable increase in the political proximity of trade since the latter part of 2022. This indicates a reorientation of bilateral trade flows to prioritize countries that share similar political values (friend-shoring),” UNCTAD writes, with charts and data to back those claims up.

Over the past year, Ukraine’s trade dependence on the EU shot up by 20.5 percent, while Russia’s reliance on China grew by 3.7 percent.

Wider context not looking good: “The current projection for Q2 2023 indicates a slowdown in global trade growth,” UNCTAD writes. “Overall, the outlook for global trade in the second half of 2023 is pessimistic, as negative factors dominate the positive.”

PEEK AT TRUMP’S SECOND-TERM TRADE PLATFORM: “No Trade Is Free,” the new book from former U.S. Trade Representative Robert Lighthizer, drops Tuesday. Part victory lap and part policy prescription, the book is the clearest look yet at what a second term of “America-first” trade would look like if the 45th president retakes the White House — and it’s not all that different from what Biden’s doing today.

“The Biden administration — with a few important exceptions — has continued along the path President Trump and I laid out,” Lighthizer writes, while advocating for a more hawkish approach to China, including imposing tariffs until the trade deficit with Beijing is eliminated. We’ll have your full rundown tomorrow in articles and Morning Trade, so keep it locked.

A Chinese firm sent large shipments of gunpowder to Russia, The New York Times reports.

U.S. firms are siloing off their Chinese business divisions as tensions rise between Washington and Beijing, The Wall Street Journal reports.

A host of lawmakers and aides on Capitol Hill dispute Sen. Joe Manchin’s account of Inflation Reduction Act negotiations over electric vehicle tax credits, POLITICO reports.

The Justice Department has charged its first case alleging Chinese nationals shipped fentanyl precursors to the U.S., The Financial Times reports.

The Australian prime minister will visit China at “the appropriate time,” Reuters reports.

THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected], [email protected] and [email protected]. Follow us @POLITICOPro and @Morning_Trade.