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).

 

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Once upon a time, the EU was a Nobel Peace Prize Laureate

 

europee-crisis_0

Three years ago I wrote a piece beginning by: “It all started in the aftermath of World War II and in the emotional and material rumbles of Europe. The visionary great men of Europe — Jean Monnet, Robert Schuman and Konrad Adenauer —understood that peace in Europe would only be possible through deep economic integration, strengthening an irreversible degree of cooperation between Western European powers.” This was in mid-October of 2012, when the Norwegian Nobel Committee gave the Nobel Peace Prize to the European Union (EU). The rationale behind the prize was that the EU was a process permitting to make war unthinkable and allow for economic growth. This was a proud moment for Europeans, even though most of them did not pay much attention, and for Europeanists.

Radicalization of Domestic Politics

Today it is with real sadness to realize that in less than three years the survival of the EU appears in direct jeopardy and on the brink of implosion. Domestically, nationalism is ramping through either the rise of extreme-right wing parties, like the Front National in France, UKIP in Britain, Golden Dawn in Greece, or more recently through the

Image: AFP/Getty Image
Image: AFP/Getty Image

reemergence of extreme leftist parties like Podemos in Spain, Syriza in Greece, and the newly elected Jeremy Corbyn in Britain. In addition, the narratives and actions demonstrated by the Obrán government in Hungary talking of a Christian Europe is affecting the overall normative message of EU (read a previous analysis here). These movements demonstrate a radicalization of the political debate directly informed by a highly emotional and confused electorate witnessing a continuous and unstoppable decline of their socio-economic condition.

Directly related to the rise of European nationalism is the financial crisis, which has spilled over to the Eurozone. The euro crisis has left the 17 Eurozone economies, at the exception of Germany, into a state of economic lethargy. In the case of Greece, the country has been on the brink of default for years and its future does not look promising based on the reports produced by the International Monetary Fund, a member of the Troika. In the case of France, still an economic pillar of the Eurozone, the succession from right to left has demonstrated the inabilities of traditional political parties to build confidence, implement meaningful structural reform, and lower inequalities. Part of the problem is the divide between a common currency and national fiscal policies.

Regional Inefficiencies

Regionally, the lingering war in Ukraine is a direct illustration that war on the European continent continues to live on. A last minute cancelation by Ukrainian President Viktor Yanukovych of a bilateral agreement between Ukraine and the EU in November 2013 sent off Ukraine into one of its darkest periods. Two years later, Ukraine lost a piece of its territory, Crimea, which was annexed by Russia in spring 2014 after a quickly organized referendum (read here an analysis on Russian influence over Europe). Since the annexation of Crimea, not only as Ukraine lost the peninsula, which is never mentioned by

Photo: Kremlin.ru [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
Photo: Kremlin.ru [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)%5D, via Wikimedia Commons

the 28 EU Member States, but the war in the Eastern border of Ukraine has severely affected the political, economic and stability of Ukraine. The only instrument implemented by the EU, which has been very successful, is a series of sanctions against Russia. But unity among the 28 on keeping and deepening the sanctions is slowly disappearing in favor of national gains.

The second serious regional crisis is the current migration crisis. After the 2007 Arab Spring, many in the West and the Middle East and North Africa (MENA) were hopeful for a democratic transition of many countries under long-term dictatorships like in Egypt, Syria, Tunisia and Libya. The time of euphoria quickly turned sour for Arabs and Westerners, witnessing either the reemergence of authoritarian regimes (Egypt), their survival (Syria) or simply collapse of the state (Libya). Since then, the EU, which has not done enough with its American counterparts in assisting in the transition of these states, is seeing an unprecedented number of refugees fleeing their homes, which have become war zones like in Syria, Afghanistan, Eritrea, Somalia and so forth. The mass of refugees seeking for asylum in the richest EU countries is not new, but the current mass of refugees is unprecedented and is underlining the weaknesses of the EU (institutional) and dismantling European solidarity.

A Crisis for Ages – The Migration Nightmare

If the Eurozone crisis, or at least a Greek default, were framed as the event that could kill the Euro and ultimately the Union as whole, these were the good old days. The migration crisis is directly threatening the future of the Union. If Germany and Sweden have been the good Samaritans in welcoming refugees (in 2015, it is estimated that Germany could welcome between 800,000 and 1,000,000 asylum seekers), Chancellor Merkel with her Minister of Interior, Thomas de Maizière, have reinstalled border control at the frontier with Austria. This move by Germany has started a snowball effects with other EU Member States implementing similar measures. The closing of borders to control the movement of people is a direct violation of the Treaties. The border-free Schengen agreement is one of the most successful and visible symbols of the European Union. It is too some extent a sacrosanct dimension of the EU.

European Integration in Danger?

The European integration process is a complex story of crises and adequate responses through policy changes and bargaining power. The period of the empty chair, the end of european_crisisthe Cold War and the reunification of Germany, the war in Kosovo, the divide between old and new Europe around the Iraq crisis, the no to the 2007 Constitutional Treaty and the Eurozone crisis have all been serious crises, but yet manageable for the European leaders. It appeared that European actors understood the need to solidify the Union and put aside differences in order to solve a crisis. The migration crisis is showing the worst of Europeans and their leaders, and European solidarity remains to be seen. Jean-Claude Juncker, President of the Commission, called for courage in remaining altogether and implementing meaningful measures like quotas. With a weakening Euro, as the Eurozone crisis has yet to be solved, the Schengen agreement under attack, a possible Brexit in 2016/17, the EU appears to move towards an ‘ever-lesser Europe.’ Yes, once upon a time, the EU was a Nobel Peace Prize laureate.

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