Cecilia Malmström
Former EU Trade Commissioner, Non-Resident Senior Fellow PIIE
USA
After the second world war, Europe and the US cooperated closely to set up global institutions that would help manage the post war challenges. Under American leadership, we built the global architecture to uphold the liberal world order standing against authoritarianism and anarchy.
NATO was formed for security against the emerging communist bloc. We saw the birth of the United Nations to foster cooperation on a grander scale. The Bretton Woods conference in 1944 laid the ground for the post war financial system with IMF and the World Bank. To facilitate open trade GATT (General System of trade and tariffs) was created in 1948, something that later became WTO. The purpose of the Marshall plan was to build a peaceful and prosperous Europe to establish freedom and democracy at the heart of global order. Overall, that was successful.
The transatlantic relationship has been one of the most significant in the world. We trade one trillion dollars’ worth of goods and services every year, 3,6 billion dollar per day. More than 15 million jobs are supported by the transatlantic economy. Strangely enough, there is no trade agreement between the US and the EU. The negotiations on TTIP (Transatlantic Trade and Investment Partnership) tried to fix this when launched in 2013. Sadly enough, negotiations were never concluded and there does not seem to be a willingness from any side to reopen them anytime soon.
Since then, a lot has happened. During the Trump era the transatlantic friendship came under severe stress. The new American president did not seem to value the liberal order the US had contributed to, neither NATO nor WTO. President Trump imposed tariffs on steel and aluminium on Europe and other allies. These were motivated by national security, something that offended many Europeans. How could European countries by a national security threat? Relations became very sour.
With President Biden in the White House, there was a collective sigh of relief in Europe. In September 2021 officials from Washington and Brussels met in Pittsburgh to discuss their differences on trade. This resulted in the creation of the Trade and Technology Council. It is not a trade agreement but has ten working groups about semiconductors, climate, AI, export controls, investment screening etc. It meets on a ministerial/commissioner level twice a year. TTC is an important forum to discuss areas of common concern, but it has not delivered much concrete policy. There is definitely room for stepping up the activities here.
Russia’s war on Ukraine brought the alliance even closer and we have seen a close coordination between Washington and Brussels in the support for Ukraine and in sanctions against Russia. That unity has been clear and vocal. President Biden and Commission president Ursula van den Leyen have a personal and warm relationship. She is the one the US calls when they ”need to speak with Europe”.
There are several challenges though. The Biden administration has a trade policy very much like its predecessor’s, albeit with a less aggressive rhetoric. Trade agreements are seen as old fashioned and the notion of facilitating market access and eliminating tariffs are not on the agenda. The new mantra is friendshoring and an ever tougher line versus China, characterized by tariffs and export controls. Washington is pushing the EU and other allies to choose sides. No efforts are being made to help reforming the WTO or reinstalling the dispute settlement system that the US destroyed by refusing to appoint judges to the appellate body.
Europeans are delighted about the massive investments being made in the green transition and carbon free technology and energy that are included in the Inflation Reduction Act. However, they are clearly concerned about the non-WTO compatibility and the focus on local content. We see the emerge of a new industrial policy with subsidies, a development that is fuelling a global subsidies’ race. The promises of tax credits and other privileges for European companies moving their investment to the US, has raised a lot of worries.
The US on its side, is clearly not happy with the EU’s coming carbon border adjustment mechanism which intends to put a price on carbon and address carbon leakage.
But the terrible aggression in Ukraine and the solidarity with the Ukrainian people is a strong glue that ties US and Europe together. Open disagreements would only please Vladimir Putin, which is why complaints and concerns are not voiced too publicly.
As the presidential election is approaching in the US, we see growing concern that Donald Trump will return to the White House in 2025. Already members of Mr Trumps staff and allies have flagged that Trump, if elected, could leave NATO and might insert a flat 10% tariff on all imported goods to the US. Furthermore, we know that the Republican party is likely to drastically cut the financial and military aid to Ukraine. All this leaves the European union to consider different options. Can the transatlantic relations survive four more years of Trump?