Europe retaliates and the transatlantic split widens

US President Donald J. Trump meeting EU leaders
Source image via EPA

The European Union (EU) retaliatory tariffs on a series of American goods, including peanut butter, motorcycles, bourbon, orange juice, sweetcorn and others, kicked in on June 22. The imposed duties on American products are worth $3.3bn in a tit-for-tat response by Brussels to the Trump administration’s unilateral imposition of tariffs on aluminum (10%) and steel (25%) back on March 23.

The EU Trade Commissioner, Cecilia Malmstrom, said that “the rules of international trade, which we have developed over the years hand in hand with our American partners, cannot be violated without a reaction from our side.” She argued that the EU was “left with no other choice” to impose tariffs on US products. Jean-Claude Juncker, president of the European Commission, said that the decision by the US to impose tariffs “goes against all logic and history.” In addition to the immediate tariffs, the EU seized the World Trade Organization (WTO) to challenge the US measures.

The US under President Trump is not at its first spike of tariffs on targeted foreign goods based on national security ground. Aside from the steel and aluminum tariffs, the US imposed a 20-30% tariff on washing machines and solar panels last year. It is as well discussed to impose a 25% tariff on over 800 Chinese goods. Trump seems to believe that the world is taking advantage of the US and that free trade is not being fair to the US. His sole argument is based on the reading of the US trade balance. If there is a trade deficit, the US is losing; if there is a surplus, the US is winning. Trade policies are more complex than what it is being portrayed in a tweet. The world, in particular US allies, has already responded to US ensuing the tariffs on steel and aluminum as listed in the table below.

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Source: Amy Cheng, Humza Jilani, Keith Johnson, Amy Mackinnon. 2018. “State of the Trade Wars Tracking U.S. President Donald Trump’s tariffs — and the retaliatory measures other countries are taking.” Foreign Policy. June 21. (here)

Tariffs on auto imports?

In a very trumpian fashion, the American president went on on Friday by threatening to impose a 20% tariff on all U.S. imports of European Union-assembled cars. His message, via twitter, read “If these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” The threat of imposing tariffs on cars is not new as a month ago he instructed the Department of Commerce, led by Wilbur Ross, to launch a probe into whether auto imports pose a national security threat.

Trump and his associates have used overtime the Section 232 of the Trade Expansion Act of 1962 in order to increase tariffs on ground of national security. The same rationale will potentially be used for tariffs on auto imports. The justification and connection between national security and tariffs was made by Wilbur Ross during a recent interview, wherein he said “National security is broadly defined to include the economy, to include the impact on employment, to include a very big variety of things.” He continued claiming that “Economic security is military security. And without economic security, you can’t have military security.” However, most of the tariffs are affecting traditional US allies, which happen to be NATO members and closely working on defense and security cooperation. Mr. Ross’s justification does hold any serious ground and is simply trying to hide basic protectionist policies being national security.

Congress could regain the control of decision-making on tariffs if the Republican establishment, holding the majority in the House and Senate, were committed to free trade and sound economic and trade policies. Earlier in June, republican and democrat lawmakers mentioned a plan to introduce a legislation that would force President Donald Trump to obtain Congress’ approval before imposing tariffs on national security grounds. Until the midterm elections, it is difficult to imagine the approval of such legislation by the Congress.

The current rates of tariffs for imports between the US and the EU are divided into two categories: for cars, 2.5% US import tax compared to 10% EU import tax; and for light trucks and SUVs: 25% US import tax compared to 10% EU import tax. The American president always focuses on the tariffs for cars and never on light trucks. He has been picking on Germany and its successful automobile industry. But he has failed to recognize the investments made by the three leading german companies in building assembly plants in South Carolina (BMW and Daimler), Alabama (Daimler), and Tennessee (Volkswagen). In 2017, 38% of 854,000 cars build in the US were sold in the US and over 500,000 were exported. With regards to employment, 116,500 jobs in US were connected to german auto-makers: 36,500 working at auto-maker plants and 80,000 as suppliers.

What would the impacts be for the US if the US president were to impose such tariffs? The Peterson Institute recently released a report on the potential impacts of a 25% proposed tariffs in auto imports. The report argues that the production in the industry could drop by 1.5% and that it could cause 195,000 US workers to lose their jobs over a 1-to-3 year period. In case of retaliation in-kind with tariffs by foreign countries on the same products, production would fall 4%, 624,000 US jobs would be lost, and 5% of the workforce in the auto and parts industries would be displaced. The ripple effects of such tariffs could have disastrous consequences for states hosting assembly plants in the long-term. The latest risk assessment by Airbus addressed to the UK government regarding the uncertain future around Brexit should be carefully read by US lawmakers and Trump associates when deciding on imposing tariffs or not. Multinational corporations hold quite a strong leverage in the decision-making process of trade policies.

Rocky transatlantic relations

Again, as argued in previous analyses, the future of transatlantic relations appears unstable and rocky. Several points shall be addressed reflecting on US treatment of historical allies and the future of the liberal order. First, The Trump administration has demonstrated over and over its decision to split with and humiliate America’s traditional allies. The message addressed by the American president and members of his cabinet, in particular Peter Navarro, towards the Canadian prime minister post-G7 meeting as well as the continuous undermining of the German chancellor illustrate Trump’s modus operandi. Per Wess Mitchell, US Assistant Secretary of State for European and Eurasian affairs, the Trump administration is implementing a “strategic renovation” with traditional allies. President Trump has made a point to undermine his German counterpart, Angela Merkel. She was one of the closest partners of President Obama, is leading the most stable and largest European economy, and has not shied away to defend the liberal order. The appointment of Mr. Grenell as US Ambassador to Germany, who has broken protocol on two occasions, confirms it. Mr. Grenell in an interview with Breitbart said “I absolutely want to empower other conservatives throughout Europe, other leaders. I think there is a groundswell of conservative policies that are taking hold because of the failed policies of the left.” The Trump administration is seeking to undermine and destabilize the German chancellor.

http_com.ft.imagepublish.upp-prod-us.s3.amazonawsBy looking at the trends and rhetorics (which can shift very quickly as demonstrated by the change of position by Trump towards the North Korean dictator), a trade war is quite an eventuality. For the EU, trade has been the core dimension of its external policy and international presence. The EU sees multilateralism and free trade as one of its most successful policies. Furthermore, the EU is at a crossroad with the continuous rise of populist forces gaining traction in core EU countries, such as recently Italy. The EU ought to defend its interests and cannot cave in to foreign pressures, otherwise it would play in the hands of the Orban, Salvini and Le Pen of Europe. And last, the European market is one of the richest, largest, developed and influential in the world. By the weight of its market, the EU shall not shy away from direct confrontation with the US. As per Charlemagne of The Economist, the EU has three strategies in hand to chose from: capitulation, resilience, and containment. Resilience is the most likely strategy at this period of time.

Lastly, the main issue with regards to trade is China, and it has remains unaddressed. Both the US and the EU agree with the fact that China, since joining the WTO in 2002, has not played by the rules. The US could have worked with the EU and utilized the common procedures and processes, the international trading system. However, Trump said it on the campaign trail, and is now doing it while in office, the rules-based global trading system is being portrayed as the cause of American demise. Trump wants a trade approach based on bilateral deal-making, transactional relations and only fair for the US. Donald Tusk, the president of the European Council said in Canada, “the rules-based international order is being challenged, quite surprisingly… by its main architect and guarantor, the US.” For instance, Trump refused to sign the G-7 communiqué. For the EU, the liberal order and rules-based trading system are critical for its functioning. Cecilia Malmstrom said this clearly, “The E.U. has a responsibility to stand up for open global trade.”

The American president seems more at ease surrounded by dictators and authoritarian leaders than with traditional American allies. The affronts to the liberal order and America’s allies are beginning to add up considering his policy choice to leave the TPP, Paris deal, the Iran deal, relocate the US embassy in Jerusalem, and unilateral imposition of tariffs. Europe knows that Trump is temporary, but his continuous attacks on the liberal order will not only undermine the US position in the world but lead to a highly unstable multipolar order. “Trump’s preference for a divide-and-rule strategy produces a game” writes Javier Solana “that will create only losers.” Europe knows it, the US may have a serious headache post-Trump.

(COPYRIGHT 2018 BY POLITIPOND. ALL RIGHTS RESERVED. THIS MATERIAL MAY NOT BE PUBLISHED, BROADCAST, REWRITTEN OR REDISTRIBUTED WITHOUT PERMISSION).

 

A French Headache Called Mistral

Credits: Jean-Sébastien Evrard/Agence France-Presse — Getty Images
Credits: Jean-Sébastien Evrard/Agence France-Presse — Getty Images

The Mistral warships are becoming one of the hottest issues for the French government in light of the Russian invasion and annexation of Crimea and now Eastern Ukraine. On November 25th, some media outlets (read here and here) announced that France was moving on with the delivery of its first Mistral ship on November 27th. Soon after these reports, the French President, François Hollande, announced in a communiqué published by the French Embassy in the US that:

The French President believes the current situation in eastern Ukraine still does not permit the delivery of the first [Mistral] amphibious landing ship. He has therefore considered it appropriate to postpone until further notice the examination of the authorization request necessary for the export of the first amphibious landing ship to the Russian Federation./.
 

Ultimately, the questions have been since the invasion of Ukraine: Will France deliver the Mistral-class warships to Russia? and when? Additionally, another one has emerged: how can France arm the principal aggressor on the European continent?

Origins of the Deal

The Franco-Russian deal was signed in 2011 and consisted in the construction of two Mistral-class helicopter carriers. The first one, the Vladivostok, is supposed to be delivered this month, and the second, the Sevastopol, later in 2016. The value of the contract for the construction of the two warships is of €1.12 billion, which has already been paid in full by Russia. The 2011 contract for the sale of two Mistral-class amphibious assault ships was the first large sale from a NATO country to Russia in the post-Cold War era.

The deal was signed in January 2011 between two former Presidents, Nicolas Sarkozy of France and Dmitry Medvedev of Russia. Aside from the obvious economic gains and industrial prestige, Nicolas Sarkozy justified the deal in order to end once and for all the old Cold War enmities. He claimed that “One cannot expect Russia to behave as a partner if we don’t treat them as one.” Was it Sarkozy’s ‘reset button’ moment?

Following the signature of the deal, former french President told STX workers that this deal “represents 6 million hours of work and 1,500 jobs over four years” at the shipyard in the coastal town of Saint-Nazaire. Once elected in May 2012, François Hollande declared that the deal would remain. It was only in 2014, months prior the first delivery, that the tension increased considering the geopolitical context. In May, despite the annexation of Crimea and invasion of Ukraine by Russia, the French government declared that the deal was still on creating some concerns across the pond. Despite the economic sanctions implemented by the EU-28 during the summer against Russia (principally individuals), France was still willing to deliver the warship on time. It was only early September that France, under pressures by its allies, laid out two conditions for the delivery: a cease-fire and a political resolution of the Ukrainian crisis. And since October, a political game between Moscow and Paris has begun between the two partners, with Moscow claiming that France would deliver the ship on time, and Paris responding that the government has yet to make a decision. In recent time, Russia is telling his French counterpart that France has until the end of the month to deliver the first Mistral, otherwise, Moscow could eventually seek for claims for a breach of contract. However, on Tuesday, November 25th, Yuri Borisov, Russian Deputy Defense Minister, has announced that so far Russia would not seek for damages.

The Mistral – A Game Changer

The Mistral-class helicopter carriers produced by the French shipyards of Saint Nazaire are important and powerful logistical military instruments. These Mistral-class ships offer a variety of tactical and materials advantages as explained by Military-Today (for more technical information on the Mistral amphibious assault ship (LHD) class see here):

  • transport and rapid deployment of helicopters (from 16 to 35 helicopters with 6 landing spots);
  • mechanized landing craft;
  • carry a full tank battalion (from 40 tanks to 70 lighter vehicles);
  • carry from 450 marines up to 900 troops;
  • become modular field hospital;
  • be deployed as command and control vessel with up to 150 personnel;

The figure below illustrates the versatility of Mistral-class warship.

Mistral

Undeniably, the Mistral-class would offer a serious strategic advantage to the Russian navy. For instance, in the case of the 2008 Russo-Georgian war, Russian admiral Vladimir Vyssotsky argued that “With a Mistral-type vessel during the South Ossetian conflict, the Russian military could have accomplished all its missions in 40 minutes instead of 26 hours.”

The headaches of the French Government:

Aside from the obvious technological and military functions, the Mistral-class warships are causing complex problems, of different orders – political, economic, and strategic -,  for the French government.

First, when money tromps regional stability. The financial crisis and its domestic impacts on the French economy and society are affecting the strategic vision of French leaders. The deal signed in 2011 was seen as an important economic boost for France. It not only created hundreds of job in the shipyards of Saint Nazaire, but as well boosted the production of heavy military armaments by the French armament industry. The French industrials are now fearing that a breach of contract may affect their global credibility and reliability for future armament sales with foreign states. Currently, France stands as the fifth world largest arms supplier. In 2012, France totaled €6.87 billion of arms sales, which provide over 50,000 jobs in France. Ultimately, the economic impacts could be serious for the French economy and its military-technological industries. Such claim was validated by a conversation between President Obama and Hollande in Paris in June. As reported by Vincent Jauvert of Euromaidan Press, Obama said “I am deeply concerned. The annexation of Crimea is not a good signal. Why not cancel the deal?” To which, Hollande replied “Because I do not wish to discard the reputation of France.”

Last but not least, with the €1.12 billion already paid in full, the penalty for France for not delivering the warships is valued at €250 million. In case, the Socialist government decides to stop the sale of the warships, €250 million fine plus the two unsold warships could become a serious political headache for the current government.

Second, the delivery of the Vladivostok would send the wrong message to Moscow. By providing such military instrument in times wherein Russia is destabilizing the Eastern neighborhood of the Union, France cannot afford from a strategic point of view to deliver it. Since 2008, Russia has perturbed the European continent with the war in Georgia (2008), the invasion and annexation of Crimea, the incident of Malaysian airliner (weapons provided by Russia to Ukrainian separatists), and the sponsoring of Ukrainian separatists. Politically, France, despite its deep and historical ties with Russia, cannot provide such capability. The invasions of Crimea and now of Ukraine directly threaten the stability on the European continent. President Hollande argued that the delivery was on hold because of Russia’s behavior running “against the foundations of security in Europe.” Additionally, Vladimir Putin is advancing Russian interests until he will meet a serious challenge. Until then, Putin won’t alter his strategy.

Third, what about Europe? The EU has had trouble formulating a clear response and strategy in dealing with Russia for over a decade. For France to deliver the warships in this difficult time for the Union would demonstrate its absolute irrelevance in foreign affairs. Individually, EU Member States such as the United Kingdom, Germany and naturally Eastern EU Member States have expressed their concerns. London has for instance called on suspending the deal. Despite the criticisms emerging from 10 Downing Street, the UK is still receiving large amount of money and investments coming from Russia. From Eastern Europe, these warships represent a real threat to their national security. Radek Sikorski, Polish Foreign Minister, advanced that “Russian generals have already said what these ships will be used for: to threaten Russia’s neighbors in the Black Sea and that means Europe’s partners.”

The deal is a bad one for European security. How can France provide military assets to a state in search of destabilizing the European balance of power and promoting its interests at any cost? France is unable to respond to such crucial question.

Fourth, what about the French political voices? The French political extremes, right and left combined, have expressed their opposition to the current status-quo on delivering the warship. For instance, Marine LePen of the Front National, extreme-right, argued that it was a clear demonstration of French submission to American hegemony.She said that it “reveals our subservience to American diplomacy.” A similar argument about American imperialism was formulated by Jean-Luc Mélenchon, the extreme left.

Marine Le Pen, whom has become an apparent force in shaping the French political debate, added that the decision to uphold the delivery is serious as “it runs contrary to the interests of the country.” From her point of view, the reasons are double: French jobs would be at risk and France would have to pay a fine if it failed to deliver the warships. Aside from the economic argument made by the Front National, one should underscore that the party recently accepted a €9 million loan from a Moscow-based First Czech Russian Bank. Moscow has become a large financial sponsor for extreme-right parties throughout Europe.

Even, Nicolas Sarkozy holds the same message that the extreme right, which is not surprising, when arguing mid-November that “France needs to honor its words and deliver the Mistrals, France decides by itself, not from what the US wants.” Sarkozy, in search of re-gaining the leadership of the right wing party, UMP, and ultimately the French presidency is demonstrating once again his desire to fulfill his personal ambitions rather than demonstrating his understanding of geopolitics.

In sum, the future of these two Mistral-class warships is still unclear. On the one hand, as advanced by the New York Times, “a decision by France to suspend the deal would encourage other European countries to accept whatever sacrifices future sanctions might entail.” Such action would demonstrate the commitment by France to stand against Russia in its clear violations (read analyses on the issue here and here). On the other hand, some experts have argued that France could sell it to other buyers, preferably NATO members. In recent days, Canada, or even the European Union (in theory), have appeared as a possible buyers of the warships. Until then, the Mistral-gate is here to stay.

(Copyright 2014 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).

The End of European Illusions or The Return of Geopolitics

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Five years ago, the European project, known as the European Union (EU), was perceived and seen as a boring endeavor between a group of rich and developed nations. The EU was described as the future of the nation-state, some type of postmodern-entity striving within a complex anarchical system. Robert Kagan even portrayed the EU as a 21st century entity facing a 19th century power, Russia. Instead of asking complex questions about EU strategies in dealing with complex geopolitical dynamics, most international relations scholars and experts were looking at technical issues about power relations between small sub-agents within European institutions to explain decision-making and norms-formations. For over a decade, big questions were set aside for technicalities such as: Is the EU able to defend its interests on the European continent? Has the EU developed clear redlines on how to handle threat on the European continent and its neighborhoods? How would EU Member States behave and act under direct threat?

To some degree, these high politics questions were avoided the same way problematic questions about the limited degree of fiscal integration could jeopardize the whole European experiment in case of a crisis affecting the Euro. For over 20 years, EU Member States have lived with the illusion of a region free of geopolitics, a region free of forces possibly leading to another continental war. Ukraine is demonstrating that such geopolitical-less region was an illusion that Member States were happy to buy into. Ukraine in some ways marks the end of the European illusion, which was not the case in 2008 with Georgia.

European illusion of perpetual peace, growth and stability ended abruptly with the global financial crisis. The global crisis spiraled into a Eurozone crisis affected most Eurozone

Credit: © picture-alliance/dpa
Credit: © picture-alliance/dpa

and non-Eurozone members. Despite the crisis, the Euro has remained a strong currency after the Dollar, but has been perceived domestically as the cause of all European traumas. The Eurozone crisis has exposed a two-speed Europe. The Northern Members, led by Germany, have until recently survived the crisis – even though German economy is showing signs of weaknesses -, while Southern Members have simply sought to survive and save the last elements of the post-World War two welfare state. These financial and economic turmoils have shifted into unsustainable political and societal situations in most weakened EU Member States such as France, Italy, Spain among others. The rise of the extremes has been a reality that Europeans have to live and deal with. The crisis has directly threatened the core of European welfare state.

Regionally, the European continent is far from being this safe-heaven free from territorial conquest and traditional war. Russia under Putin has sought to reaffirm its sphere of influence over ‘lost’ territories and strengthen its regional and global relevance. Putin’s Russia can only exist through foreign attention/recognition, especially from NATO countries. Putin’s interpretation of history, at least Russian history, is key in order to

Credit: AP Photo/RIA-Novosti, Mikhail Klimentyev, Presidential Press Service
Credit: AP Photo/RIA-Novosti, Mikhail Klimentyev, Presidential Press Service

understand his actions since in power in 2000. Putin looks back at the lost decade of the 90s as a dark moment in Russian history initiated by Western powers. The then NATO and EU enlargements of Eastern and Central European states were perceived as an attack on Russian national interests. Putin has developed a foreign policy embedded into realpolitik. The use of energy as a weapon against Ukraine almost every winter has been a calculated move by Putin to send a clear signal to Western Europe. But the turning point was the 2008 war against Georgia. At this point, Russia clearly underscored the gap in Western narratives – read NATO and the EU – between commitments to protection of non-NATO members and actions to protect/defend them from Russia. The Ukrainian crisis is the latest illustration of Western risk aversion and unease in confronting Russia. Additionally, Euro-Atlantic members are well aware that the Ukrainian crisis started over a trade agreement between Ukraine and the EU. Almost a year later, Ukraine has lost a part of its territory to Russia, Crimea, and is seeing a civil war in its Eastern territories. If a bilateral trade agreement triggered such tensions in Europe, one can only imagine Putin’s reactions and actions following talks on either EU or NATO enlargement with Ukraine.

The latest chapter in NATO summits in Wales incorporated two dimensions: first, coalition building against the Islamic State in Iraq and Syria (ISIS); second, the strategy in addressing Russia. Concerning the first aspect, coalition building against ISIS, President Obama has succeeded in getting his message heard and approved. Following the NATO summit, six EU Member States, Denmark, France, Germany, Italy, Poland, and the United Kingdom, plus Australia, Canada, Turkey, have agreed on joining a US-led coalition against ISIS. However, when it comes to Ukraine, NATO failed to come with a plan, let alone a strategy. If Obama feels confident on degrading and destroying ISIS, the only thing that the West can do against Russia is containing it. The rounds of sanctions against Russia have deepened the tensions between both sides, but have yet to seriously affect Russian economy and influence Putin’s actions.

The decades of European growth from the Treaty of Maastricht (1992) to the Treaty of Lisbon (2009) have seen remarkable deepening and widening processes. In terms of deepening, EU Member States were committed to increasing the integration process of the Union; while the widening process, materialized into four waves of enlargement, led to the inclusion of 16 new Member States. Aside from the regional tensions in the Balkans, the EU was believed to offer its Member States a zone-free of geopolitics, a fortress limiting the dark forces of globalization – immigration, state violence, territorial conquest -. Not only it has never been true considering the violence and wars in the Balkans, but it has certainly been an illusion bought by Member States and incorporated in academic research. The series of crisis starting with the 2007 financial crisis, the Arab Spring, continuous and deepening of violence in the Middle East, and the Ukrainian crisis underscore not only the uneasiness of EU Member States to address them, but also the inabilities of the EU to shape its world. The integration process was so successful that the EU Member States have lost their ways in dealing with geopolitics.

(Copyright 2014 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).