Europe versus the United States

Relations between the two transatlantic allies are certainly not at their best. With  Trump Administration’s continued slippages, the mistrust between the United States and the European Union is breaking records. After decades of mutual rapprochement and loyalty, relations between the two partners are more fragmented than ever. The tension between the two is not something that only harms the 28 members of the EU and the North American country, but it also shakes up the liberal order established after the Second World War. To forge the existing relationship, it took two world wars, a $13 billion economic plan to save a devastated continent – the Marshall Plan – the design of a new world order – Bretton Woods – and the overcoming of a 45-year ideological and nuclear struggle.

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Having overcome every imaginable obstacle, and after years of concord, it seemed unthinkable to foresee that the eccentric attitude of a media character such as Donald Trump would jeopardize one of the most beneficial mutual relationships in history. At a time when foreign powers want to impose alternative models of governance, the truth is that this situation only foments doubts about the viability of the current system and sow uncertainty at a global level.

This new scenario is certainly due to the isolationist attitude of Trump, who, among other things, closed the doors to the Transatlantic Trade and Investment Treaty (TTIP), which could have relaunched economic relations between the two partners, withdrew from the Paris Accord on Climate Change or planted the EU in the anti-nuclear treaty with Iran (the JCPOA). Trump’s discomfort with the transatlantic relationship can be more explicit however. One only has to see the support for Eurosceptic movements such as Brexit, or the adulation to anti-European leaders such as Vladimir Putin, to realise how far both actors are right now. Moreover, in the words of the president himself, “the European Union is as bad as China (…) it is incredible how badly they treat us (…) we have a deficit of 151,000 million dollars, and in addition we spend a fortune in NATO to protect them”[1].  As if that were not enough, Trump also castigated the EU since it was “set up to take advantage of the US”, and “we can´t let that happen”[2] . It has been more than a century since the US saw the EU as a commercial rival and a military cargo, but it seems that this anachronistic vision is once again taking over the oval office. 

This distancing, however, has not only been suffered by the European Union, but also by the institutions that represent the liberal international order such as the G7 or the UN[3]. Feeling more comfortable among authoritarian leaders such as Recep Tayip Erdogan, Vladimir Putin or Xi Jinping, there has been a permanent disregard by Trump for these institutions by demanding Russia’s readmission to the G7, avoiding signing any joint communiqué – if no special consideration is given to American interests – abandoning climate change commitments, demanding 4% spending from NATO countries or promising an “ideal” treaty to the UK if it leaves the EU.

In conclusion, the transatlantic partnership has become a more than uncomfortable relationship for many. The question is whether such a change in mentality has come to stay, or whether it is a passing storm.

Resistance or confrontation?

This last hypothesis – the passing storm one – is the one desired by the great majority of Europeans. Having all the stars aligned themselves by bringing together the two least valued presidential candidates in history and presenting himself as an enemy of the so-called establishment, Trump’s victory could be seen as a punctual manifestation of the enormous discontent that exists in the United States with respect to its political class. According to this view, we would not be facing a structural change in transatlantic relations or a permanent threat from the current order, but rather a mere  warning. Faced with this, the EU should adopt a constructive position and try to maintain its sanity in the face of the incessant attacks by the American Administration until the next elections[4]. In no case should it choose to give in to Trump’s blackmails insofar as it would undermine Europe’s own credibility and only achieve short-term effects that could harm the relationship with future US governments – in this scenario, Trump would not remain in the White House beyond 2020 or even earlier in the event of an impeachment.

On the other hand, there is the possibility that few want to keep in mind but that seems dangerously likely: that the present situation is a prologue to what is yet to come. In this circumstance, the Trump phenomenon would not merely reflect national discontent with American politics, but  a profound redefinition of “US national interest and security”, of its traditional allies or of the role the country should play in a world whose globalizing movement is detrimental to Americans and a source of undeserved benefits for all those countries that decide to take advantage of the US. We would therefore be facing the consolidation of a movement that goes beyond North America and that would extend to our continent through the populists, nationalists and protectionists movements embodied by people like Marine Le Pen, Mateo Salvini or Nigel Farage.

Following this logic, Trump would be re-elected in 2020 and the EU should be prepared to definitively cease to be the greatest American concern on the other side of the Atlantic. In the spirit of giving up its position as  the main provider of global public goods, the European Union should be prepared to guarantee its own security and step out from the American umbrella[5].

Similarly, there are more than enough indications that the United States will increasingly opt for economic protectionism. Firstly, because of the exorbitant increase in tariffs generated by the trade war initiated by the US against China. At present, the United States exceeds by far the average tariff level of the G20 countries – world’s top economies- which is 2%, by having surpassed the 4% barrier.  With China’s average tariffs of 6%, the United States is expected to surpass the Asian giant and become one of the most protectionist developed countries with tariffs at 8%[6], which would be a real attack on the global liberal regime -driven by the US- for which so much work has been done to date[7]. Other elements that favour this isolationist strategy are the independence in the energy sector that the United States has achieved – it has become a net exporter of oil and already produces more than Russia or Saudi Arabia[8] – and the financial and technological autonomy it has vis à vis the rest of the world – we could talk, instead, of the world’s dependence in American financial institutions and technological firms.

With a glimpse of a war between the current hegemonic power – the US – and the contender – China -, the former has been planning how to face the challenge for years. With a policy already initiated with Obama based on the “pivot towards Asia” and a lesser cooperation with Europe in terms of security, the EU was being warned about its comfortable position so far. Open to the possibility – it seems that it will be the case – that this trend will continue in the future, it must be decided from Europe whether the fight between giants will be seen from the barrier or, conversely, whether one will be capable to participate in it.

What should the EU do?

Europe should assume that the American “Jacksonian” phenomenon will continue in the future and that the world order as we know it today will mutate. Organisations such as the WTO or NATO are going to require players to champion multilateralism, economic openness and global stability. With the US focused on its own interests and territory, the European Union should reaffirm its values, forge new alliances and strengthen existing ones – with, for example, Japan, Canada and Latin America – and rethink its strategic position in regards to the United States and China.

The major problem facing the European Union is internal. Unlike the rest of the great powers, the EU is not a state but a highly complex structure of 28 national entities, all of them with their own interests and ways of perceiving the world. Being a bureaucratic giant, the European Union is going to face an arduous task when it comes to rid itself – partially – of the ties that have united it so far with the United States and to begin to act more autonomously and independently. Today, EU countries share widely differing views on how the existing liberal model should evolve. On the one hand, we have a set of countries which, like the United States, do not share a model based on supranational institutions. Countries such as Hungary, the United Kingdom, Poland, the Czech Republic or Italy are governed by national institutions that aspire to minimise the role that the EU has to play both globally and internally. Confronting this position, countries such as Spain, France and Germany are struggling to achieve “The United States of Europe” – as Victor Hugo or Winston Churchill would say -, that is, a more cohesive continent capable of projecting greater security towards the outside world.

Therefore, not only does the EU lack the advantage of having a single Administration that defines what steps to take and when[9], but Rather,  it has 28 national Administrations and a European one, something that undoubtedly bureaucratises and slows down European action in an extremely fragile and volatile context where reaction and adaptation are key instruments. Likewise, as we have already mentioned,  it also counts with innumerable internal obstacles and too many divergent political visions that prevent it from achieving ambitious objectives and playing as a united actor in the world stage.  This lack of internal coherence and decision making capacity has been in the  in the Crimean, Syrian or more recently in the Venezuelan crisis.

It would be unfair, however, to fail to mention the efforts  made by the European Union to create more efficient and versatile structures . Two examples of this is the creation, ten years ago, of the figure of the High Representative of the European Union, whose role is to act as the Union’s Foreign Minister and offer a more unified vision and action from Brussels to the world, and the elaboration of Permanent Structured Cooperation (PESCO) at the end of 2017[10]. It is precisely in this last area – defence – that many argue that the European Union should focus its efforts. Although it is true that the European Union has an expenditure of 200,000 million euros – which would equal Chinese investment or quadruple that of Russia – it does not do so jointly, since there is no real coordination or cooperation between its different national military forces. Additionally, a European Defence Fund (EDF)  has been  endowed with 13 billion euros in order to renew European armaments and military installations and an annual budget of 1,500 million euros is being negotiated in the 2021-2027 European budget[11].

Beyond all these astronomical figures, the truth is that what the European Union really needs is common strategic thinking. No matter how much is invested in defence, if there is no real consensus when it comes to decision making, all these numbers are rather wet paper. A clear example of this problem is the different strategic vision held by Germany and France: while the former defends investing – in military terms – in Eastern Europe to counter the Russian threat, the latter chooses to focus on the EU’s southern border with a view to combat the phenomenon of migration, terrorism and human trafficking[12].

In short, the European Union needs to prepare for a lesser role of the United States in NATO – something likely – and achieve greater strategic and military autonomy in order to be able to act without having to be permanently dependent on decisions taken from Washington.

Contrastingly, the area par excellence in which the European Union can draw muscle is the commercial one. As the world’s largest trading power, the second largest exporter after China and the first largest importer, it seems that the defence of the now threatened world trade belongs to the Europeans. Beyond focusing on gaining political and economic influence at a global level, the EU has an obligation to defend its Member States and their economies. To grasp the importance, in international trade terms, that the European Union has, we must bear in mind that 31 million European jobs and that more than 600,000 European SMEs depend on the exporting activity of the EU[13]. Thus, it is Brussels’ duty to defend European interests worldwide regardless the existence of any trade war or any other external threat.

To combat American isolationism and protectionism, the EU must strengthen its relationship with its current partners. Along these lines, the EU has concluded important trade agreements with Canada, Japan, Singapore and Mexico. In addition, this year it has managed to conclude the agreement with Mercosur – Argentina, Brazil, Uruguay and Paraguay – after almost twenty years of negotiation. With this landmark agreement, it has been possible to construct an international market comprised by more than 800 million people – representing 25% of world’s GDP – , to reduce tariffs by more than 4,500 million euros a year and to allow 91% of European goods – mainly automobiles – and 93% of South American goods – mostly agricultural goods – to travel freely without any tariff[14].

The EU’s role would not end here. Beyond achieving cooperation with other countries by signing treaties, the EU should aim to modernise and adapt the WTO to today’s times. The aim would be to provide the institution with sufficient mechanisms to monitor the correct implementation of trade policies around the world and to ensure much more efficient dispute settlement procedures. To this end, an EU-China rapprochement will be more than necessary.

Finally, in order to strengthen its global trade and economic role, the EU should encourage the use of the euro as an international currency. Today, the dollar is the currency par excellence, and 60% of the world’s reserves are invested in it[15]. This idea, already put forward by Jean Claude Juncker in the debate on the state of the Union in September 2018, once again requires the EU body to face its own internal obstacles, this time in terms of the banking and tax unions. Many argue that the current state of affairs with Iran and the US threats against any country that decides to trade with the Ayatollah Khamenei regime is the perfect opportunity to stop relying on the dollar and start trading in euros globally[16]. Since the SWIFT – banking code to carry out any international transference of monetary funds – is dominated by the United States and therefore, by the American currency, the current scenario should foster European creativity and allow the creation of a parallel system, that would not only enable European companies avoid American sanctions and impulse the euro as an international currency but,  more importantly,  could materialize the independence from the EU regarding the United States as an international actor.

Will the European Union be able to take advantage of all the opportunities offered to it, or will it be resentful of its own ineffectiveness and indecision?

ANNEX 1

Tariffs in G20 countries (%)

Source : World Bank

ANNEX 2

Global currency reserves (in $bn and in %)

Source: IMF

References

Barigazzi, Jacopo and Posaner, Josua. EU to US: Don’t worry about our military plans. Politico (2019). https://www.politico.eu/article/european-military-defense-army-nato/

Blas, Javier. The US just became a Net Oil Exporter for the first time in 75 years. Bloomberg (2018). https://www.bloomberg.com/news/articles/2018-12-06/u-s-becomes-a-net-oil-exporter-for-the-first-time-in-75-years

Brunsden, Jim, Schipani, Andres,  Harris, Bryan, and Mander, Benedict. EU-Mercosur trade deal: what it all means. Financial Times (2019).  https://www.ft.com/content/a564ca96-99e7-11e9-8cfb-30c211dcd229  

Closa, Carlos and Molina, Ignacio, The future of the EU. Elcano Royal Institute, report nº23 (2018). 

Galindo, Gabriela. Trump: EU was ‘set up to take advantage’ of US. Politico (2008). https://www.politico.eu/article/donald-trump-eu-was-set-up-to-take-advantage-of-us-trade-tariffs-protectionism/.

Goodin, Emily. Trump claims the European Union is ‘as bad as China’ on trade but claims that every country is calling every day, saying, ‘let’s make a deal’. Daily mail (2018). https://www.dailymail.co.uk/news/article-5906813/Trump-European-Union-possibly-bad-China-trade.html.  

Steinberg, Federico.  The EU against the hostility of president Trump. Elcano Royal Institute (2018).

Vidal-Folch. What world is Europe interested in? El Pais (2018). https://elpais.com/economia/2018/08/29/actualidad/1535567912_332493.html

Wolf, Martin. Martin Wolf on Bretton Woods at 75: global co-operation under threat. Financial Times (2019). https://www.ft.com/content/e82a1f48-a185-11e9-a282-2df48f366f7d 

[1] Goodin, Emily. Trump claims the European Union is ‘as bad as China’ on trade but claims that every country is calling every day, saying, ‘let’s make a deal’. Daily mail (2018). https://www.dailymail.co.uk/news/article-5906813/Trump-European-Union-possibly-bad-China-trade.html. 

[2] Galindo, Gabriela. Trump: EU was ‘set up to take advantage’ of US. Politico (2008). https://www.politico.eu/article/donald-trump-eu-was-set-up-to-take-advantage-of-us-trade-tariffs-protectionism/. 

[3] Steinberg, Federico.  The EU against the hostility of president Trump. Elcano Royal Institute (2018). 

[4] Ibid

[5] Ibid

[6] Wolf, Martin. Martin Wolf on Bretton Woods at 75: global co-operation under threat. Financial Times (2019). https://www.ft.com/content/e82a1f48-a185-11e9-a282-2df48f366f7d  

[7]    See annex 1

[8] Blas, Javier. The US just became a Net Oil Exporter for the first time in 75 years. Bloomberg (2018).   https://www.bloomberg.com/news/articles/2018-12-06/u-s-becomes-a-net-oil-exporter-for-the-first-time-in-75-years

[9]   Steinberg, Federico., l.c.,p.2.

[10] Closa, Carlos and Molina, Ignacio, The future of the EU. Elcano Royal Institute, report nº23 (2018). 

[11] Barigazzi, Jacopo and Posaner, Josua. EU to US: Don’t worry about our military plans. Politico (2019). https://www.politico.eu/article/european-military-defense-army-nato/ 

[12] Ibid

[13]Vidal-Folch,Xavier. What world is Europe interested in? El Pais (2018). https://elpais.com/economia/2018/08/29/actualidad/1535567912_332493.html  

[14] Brunsden, Jim, Schipani, Andres,  Harris, Bryan, and Mander, Benedict. EU-Mercosur trade deal: what it all means. Financial Times (2019).  https://www.ft.com/content/a564ca96-99e7-11e9-8cfb-30c211dcd229  

[15] See Annex 2

[16] Steinberg, Federico.,l.c.,p.2 , 5