Conflict and Leadership
Transatlantic Relations After Trump: Prospects for a Reset

The election of Joe Biden, a longstanding proponent of free trade and Atlanticism and one of the architects of the Transpacific Partnership, was celebrated throughout much of Europe and especially in Brussels, Paris, and Berlin, from which a torrent of position papers and proposals advancing the theme of transatlantic reset emerged, writes Valdai Club expert Alan Cafruny

Donald Trump’s presidency was marked by relentless hostility towards the European Union and, especially, its leading powers, France and Germany. While his actions towards NATO were largely rhetorical and symbolic, the imposition of tariffs and other protectionist measures inflicted substantial costs on European economies and firms, eliciting deep resentment and frustration. 

Placing special emphasis on Germany’s large bilateral trade surplus, starting in 2018 Trump enacted duties on a wide range of European goods. The EU retaliated with tariffs on US farm exports as French Finance Minister Bruno Le Maire proclaimed that “The war has already started.” While a truce was later declared under which both sides refrained from the imposition of further tariffs, in the summer of 2020 Trump threatened to place 25% tariffs on auto exports in retaliation for a digital services tax. Having already encountered popular resistance on both sides of the Atlantic, negotiations over the Transatlantic Trade and Investment Partnership (TTIP), once heralded as an “economic NATO,” were quietly abandoned. In January 2020 as Trump left office the United States and the EU concluded a long and acrimonious battle over subsidies to Boeing and Airbus, resulting in steep tariffs on both sides. 

The Trump administration also saw a dramatic increase in extraterritorial sanctions on European firms resulting from the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA). Simultaneously geopolitical and commercial, the draconian sanctions not only devastated Iran’s economy but also fomented Europe’s resentment and charges of “judicial extortion.” In 2017 the EU’s trade with Iran exceeded 20 billion euros per year compared to only $200 million for the United States. Sanctions have cost Airbus 17 billion euros. They have compelled Daimler to exit production sharing agreements, and Total to abandon development of the South Pars gas field. In 2018 sanctions reduced Iran’s oil exports to Europe by almost 9 million tons as US exports to Europe increased by almost 14 million tons. Sanctions on companies building NordStream 2 pipeline were similarly designed, at least in part, to support US LNG exports. 

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The Trump administration’s scorched-earth campaign against China’s tech giant Huawei has also imposed significant costs on Europe. Throughout 2020 Washington tightened export controls on Huawei and enacted secondary sanctions on all companies selling computer chips to Huawei if the product had been manufactured or designed using US technologies. Recognizing that roll-out of 5G platforms would be more costly without Huawei, the European Commission and most member states initially resisted US pressures to impose a blanket ban. However, as the US worldwide campaign escalated most European countries, including the UK, France, and—more ambiguously and partially – Germany, have capitulated by imposing legal or de facto exclusions.  European firms complain that Washington has extended waivers that allow US corporations to supply Huawei and thus seize market shares from them.  

Seeking to counteract Europe’s weakness, President Macron has appealed for “strategic autonomy” and European business has pressed for “legal rearmament.” Commission President Ursula von der Leyen has called for a “geopolitical commission.” However, the US Treasury through its Office of Foreign Assets Control exercises massive extraterritorial and coercive economic power based on the continuing primacy of the dollar, the size and centrality of US banks and multinational corporations, and the importance of the US market. The EU has been thus far been unable to make headway against this vast structural power. 

Thus, the election of Joe Biden, a longstanding proponent of free trade and Atlanticism and one of the architects of the Transpacific Partnership, was celebrated throughout much of Europe and especially in Brussels, Paris, and Berlin, from which a torrent of position papers and proposals advancing the theme of transatlantic reset emerged. In December the European Commission greeted the President-elect with “A New EU-US Agenda for Global Change” which set out a comprehensive proposal for revitalizing the transatlantic partnership, including collaboration on anti-trust enforcement, data protection, trade and technology, and a common position vis a vis China’s “growing international assertiveness.”

But the honeymoon did not last long. At the end of December the EU and China signed a Comprehensive Agreement on Investment (CAI), ignoring public requests from the incoming Biden team for prior consultation. The CAI, which has yet to be ratified by the European Parliament, allows Chinese firms greater access to many European sectors. In turn, it provides for broader—although not unlimited—access to China’s market, including financial services. The CAI also reflected Beijing’s desire to pre-empt a transatlantic united front. Notably, China’s Foreign Minister Wang Yi praised the agreement as an exercise in Europe’s “strategic autonomy.” Nevertheless, it is too early to say whether the CAI represents a substantial transformation of Sino-European relations; much will depend on implementation, not least with respect to China’s promises to comply with I.L.O. standards. 

Five days after his inauguration Biden signed a “Buy America” executive order mandating that the US government “whenever possible” purchases items “that will help American businesses compete in strategic industries and help America’s workers thrive.” This highly protectionist mechanism makes it more difficult for non-American firms to gain access to $600 billion worth of contracts annually, and it has elicited strong objections from Europe.  

In December, 2020 new sanctions on NordStream 2 were enacted as part of the National Defense Authorization Act that would target not only companies providing pipelaying vessels but also insurance and technical work. In January the State Department issued a report on companies that would be liable to sanctions, provoking strong reactions from Chancellor Angela Merkel and German business, which asserted that “The burden on the transatlantic partnership would be immense right at the beginning of Joe Biden’s term.”

Thus, although the Biden administration has rejoined the WHO and Paris Agreement and taken steps to resuscitate the WTO, transatlantic conflicts will inevitably persist under the Biden.

The Covid-19 pandemic has further devastated the European and American economies that were already in disarray before it arrived. This alone precludes the comprehensive adoption of a liberal trade agreement along the lines of the TTIP.  According to OECD figures China fully recovered in the third and fourth quarters of 2020 and is set to resume 6% GDP growth in 2021. By contrast, US GDP contracted by 3.5% in 2020 amid staggering increases in poverty and unemployment, exacerbated by Trump’s trade policies. While the bilateral deficit with China was brought down, the combined US goods and services trade deficit increased dramatically, from $481 billion in 2016 to $679 billion in 2020, as US companies turned to other suppliers. The bilateral trade deficits with France and Germany increased as tariffs imposed additional costs on consumers and corporations. China’s exports to the United States soared in the third and fourth quarters of 2020. Biden’s ambitious $1.9 trillion Covid-19 recovery/stimulus program is thus predicated on at least a partial restoration of jobs and manufacturing—reflected inter alia in the “Buy America” program—in comparison with Trump’s faux economic populism.

Europe’s economic predicament is even worse. In 2020 euro-area GDP fell by 7.6%, a far more serious decline than experienced during the global financial crisis of 2008-9 and subsequent Eurozone crisis. Italy’s GDP has declined by 10% since 2008. Germany can expect only to see an increase in GDP of 1.5% over 2019. The EU’s willingness to sign an agreement with China without “permission” from Washington reflected above all German interests and the leadership of Angela Merkel, who refused to allow the agreement to be derailed by France’s human rights concerns or Poland’s insistence on prior consultation with the United States. 

In the coming years Germany’s role in the transatlantic relationship will be paramount by virtue of its growing economic primacy in Europe. Given its massive dependence on exporting to and investing in both of the rival superpowers Germany cannot at this point afford conflict with either one. Therefore, Germany will continue to defend fundamental interests such as NordStream 2 and relations with China, while resisting French demands for greater military autonomy from the United States and NATO.

Although during his campaign Biden promised to re-enter the JCPOA, many obstacles remain. It is possible that his administration could withdraw US opposition to NordStream 2, although this might require difficult negotiations not only between Berlin and Washington but also with Russia and France.  Both of these steps would follow from the orientation of Biden and the Democratic Party to Green energy rather than to the fossil fuels sector. It is also possible that the new administration might revisit its sanctions against Huawei as part of its broader reassessment of the Trump administration’s largely self-defeating containment policy. All of these initiatives would contribute to a partial reset of the transatlantic relationship even as important conflicts remain.  

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