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October 01, 2020

All at Sea

Trade relations would inevitably worsen further should Donald Trump win a second term. But even if Joe Biden wins, a transatlantic economic re-set cannot be taken for granted.

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The transatlantic relationship is in troubled waters. The European Union and the United States are each other’s most important trade and investment partners. The relationship is built on a strong foundation of common values and interests, as well as a shared history. However, the partnership, which has been one of the central cornerstones of European external politics for decades, has hit rock bottom under the presidency of Donald Trump. Trump has questioned the role of the EU as a long-standing ally; he has challenged the value and unity of the EU; he supported Brexit; and he has repeatedly called the EU a “foe.”

The period when the US and the EU negotiated the Transatlantic Trade and Investment Partnership (TTIP) feels like light years ago. The list of transatlantic conflicts is long: US tariffs on steel and aluminum, the US threat to implement tariffs on car imports, US tariffs on a variety of products to counter European aviation subsidies, US extraterritorial sanctions in particular vis-á-vis Iran and Russia, diverging views how to deal with China and the World Trade Organization (WTO). With the outbreak of the COVID-19 crisis, new fault lines have emerged. The US government threatened to extend the Buy America rules to medical devices. Moreover, Washington announced that it was significantly tightening the requirements for work visas.

After all these hostile moves, hopes are high in the EU for a re-set of the transatlantic relationship after the presidential elections in November. But would Joe Biden really be able to clear the path so that the US and EU can navigate the partnership into smoother waters again? How would the transatlantic relationship look like with four more years of Donald Trump versus a new President Joe Biden?

Four More Years: Rough Seas

Under Trump, the US has reverted from open liberalism to a “realist” view of the world, which is characterized by a zero-sum thinking in international economic relations. This new approach is embodied in the America First strategy. Washington now increasingly uses the country’s market as a leverage to push for US interests on a unilateral basis in a variety of policy areas. Trump has established a culture of threats and fear. He holds little stock in international law and multilateralism; his approach is bilateral and transactional. Not least because of Trump’s leadership style, international trade and finance are characterized by a high level of uncertainty.

During a second Trump term, the geo-economic rivalry with China is likely to escalate and the trade war will flare up again. Long-standing allies such as the EU will also bear the brunt of Trump’s aggressive and unilateral trade policy. Trump will continue trying to divide the EU; the trade conflicts with Brussels are likely to intensify as well. The weapons of choice will be tariffs on the basis of Section 232 of the trade law of 1962 (national security) and Section 301 of the trade law from 1974 (alleged unfair trading practices). Tariffs on steel and aluminum will stay in place; the search for a solution to the Airbus-Boeing dispute will drag along. Trump will continue threatening tariffs on automobile imports. Furthermore, in a second term, his government will use export controls and investment screening to de-couple the US from China which also affects economic relations with the EU. The re-shoring trend will continue. At the same time, sanctions vis-à-vis Russia and Iran will stay in place. In return, the EU is likely to use the strengthened EU Enforcement Regulation against the US. Trust and reliability in the transatlantic relationship are likely to deteriorate even further.

A positive trade agenda including an ambitious bilateral free trade agreement or smaller regulatory agreements will not be possible. Small progress could possibly be achieved with regard to WTO reform. This relates to common transatlantic approaches on the need for stronger WTO rules on industrial subsidies, notifications requirements, as well as new plurilateral agreements on digital trade. However, the breakdown of the WTO dispute settlement system (namely the Appellate Body) will remain unresolved, so that the Interim Appeal Arbitration Agreement (MPIA) will remain the new normal. As such, the crisis of multilateralism will worsen.

Trump is likely to push for further bilateral trade deals with strategic partners which have little in common with traditional free trade agreements but are strongly characterized by managed trade. High on the list is a deal with the United Kingdom. However, the agreement is unlikely to be finished before the end of 2020. And Nancy Pelosi, Speaker of the US House of Representatives, stressed that no US-UK trade agreement will pass Congress if Brexit violates international treaty obligations under the Northern Ireland Protocol, which is supposed to safeguard the 1998 Good Friday agreement. Transactional trade deals such as the US-China accord or the US-Japan deal distort global trade and fuel the fragmentation of the global trading system.

Joe Biden: Rescue Buoy?

Without doubt, a re-set of the transatlantic relationship is much more likely with a President Joe Biden. Barack Obama’s vice president is a staunch transatlanticist. His style is very different from Trump; he values allies as important assets for the strength of the US. Therefore, he will try to re-establish dialogue, trust, and certainty in the transatlantic relationship. Biden believes in international law and organizations. He will want to re-establish the responsible leadership role of the United States on the world stage. As such, he is likely to advocate the return to the Paris climate agreement and the World Health Organization (WHO)—two important fields for cooperation with the EU. He will also bring along many personal contacts with European leaders and experiences under Obama.

However, the transatlantic partnership will not simply go back to the supposedly “good” old times. Biden’s primary focus will not be on trade policy, but on domestic recovery after the coronavirus crisis. His first topics will be health, economic recovery, and inequality. In this regard, measures that foster re-shoring will continue. In his nomination speech at the Democratic convention, Biden stressed: “We’ll make the medical supplies and protective equipment our country needs. And we’ll make them here in America. So, we will never again be at the mercy of China and other foreign countries in order to protect our own people.” This and other recent statements suggest that Biden is likely to continue with Trump’s “Buy American” approach. Export controls will stay just as strict as investment screening. Any hopes that Washington will lift the Russia sanctions will quickly be disappointed.

Even if Biden ends the tit-for-tat tariff conflict with the EU, there is no ambitious new trade agreement like TTIP with the EU in sight. The majority of the electoral clientele of the Democratic Party, not least the trade unions, is skeptical of trade agreements. Trump’s accusation that the US has been treated unfairly on world markets also finds support among Biden voters. Biden will not be able to ignore the 42 percent of the population which were still satisfied with President Trump (according to RealClearPolitics) in September 2020.  He might be open to re-vitalizing the negotiations for a tariff-only agreement and for advancing regulatory cooperation. But improving access to the European agriculture market will remain high on the agenda. Although Biden has underlined his support for climate protection, Washington will remain highly critical of the European idea of Carbon Border Adjustment.

Backed by Congress, a Biden administration would continue its tough stance toward China, too—an issue that has bipartisan support. Biden himself is known for his critical attitude toward Beijing’s policies. He is likely to ask the EU for more support in the trade and tech war against China. More so than during the last four years, the EU will thus have to take sides and cannot hide behind its opposition to the policy approach of the Trump administration. Human rights, the defense of democracy, global health and security—the list is long where Biden will expect more European commitment and burden sharing.

The most promising field for cooperation would be a renewed transatlantic cooperation in multilateral fora like the WTO. This relates to new rules (e.g. industrial subsidies), new plurilateral initiatives (digital trade and possibly environmental goods), as well as stronger enforcement regulations. However, the criticism regarding the Appellate Body is widely shared by both parties in the US Congress. Therefore, reform is inevitable. But—unlike with the present administration—a Biden presidency would probably be open to a reform dialogue with the EU and other stakeholders.

For the UK, a Biden presidency could be less straightforward. Biden is opposed to Brexit. And even if he would not abandon the FTA negotiations, he could possibly prioritize a trade deal with the EU.

It Takes Two to Tango

However, the future of the transatlantic relationship does not only depend on the US. The EU will only be an attractive and viable partner, if it gets its own house in order. Thus, it has a fundamental problem regarding the unity of its trade policy, which has been underlined most recently again by the debate about the EU-Mercosur trade agreement. As long as France is blocking the inclusion of agriculture in a transatlantic trade deal, negotiations with Washington will lead nowhere. The EU is also still struggling to find a unified approach toward China. What’s more, the COVID-19 pandemic has advanced protectionist sentiments and re-location tendencies in the EU. While the EU rightly is sharpening its trade policy instruments, some ideas shoot far beyond the goal, such as proposals of the European Parliament regarding the EU Enforcement Regulation.

Even if Biden wins the presidential election in November, a transatlantic re-set cannot be taken for granted. Both partners have to invest heavily in re-establishing dialogue, trust, and predictability. In the EU, the member states—in particular Germany and France—have to advocate for transatlantic cooperation within their own societies. Furthermore, transatlantic networks, such as the Transatlantic Economic Council, the Transatlantic Business Dialogue, the Transatlantic Legislators Dialogue, have to be awakened out of their hibernation. Cooperation in the Trilateral Initiative—the US, the EU, and Japan—also has to be intensified. A top-bottom leadership approach has to be complemented with a bottom-up approach to agree on a new positive transatlantic agenda.

And it would be worth it. The transatlantic economic partnership is indispensable for economic growth and employment on both sides of the Atlantic. A deeper economic integration by removing tariffs and cooperating on technical standards would not only boost prosperity, but also strengthen the EU’s role on the global level in a multitude of policy fields. The same holds true for advancing WTO reform, dealing with difficult players such as China, and last but not least, tackling the COVID-19 crisis. While the outcome of the US elections is uncertain, one thing is not: the EU and the US are stronger together than apart.

Stormy-Annika Mildner is head of the External Economic Policy Department at the BDI, the Federation of German Industries, and External Lecturer at the Hertie School

Claudia Schmucker leads the globalization program at the German Council on Foreign Relations (DGAP).

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