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Europe must not let Trump destroy trade

Trump meets EU leaders
Flagwaver in chief. Source: dpa

US President Donald Trump is getting serious about translating his contempt for the international system into concrete policies. His decision to impose $50 billion (€40.6 billion) in punitive import tariffs on many Chinese goods could severely disrupt global trade. And while he made a last-minute decision to exempt EU goods from such tariffs, Europe may yet end up in the line of fire.

Mr. Trump’s “America First” approach will not, it is now clear, leave the rules-based international order unscathed. The United States developed the post-war order, and has enforced its rules for decades. But that is no longer the case. Indeed, Mr. Trump’s recent actions are not just about trade, but about his country’s departure from Pax Americana itself.

Few countries are more connected to the post-war order than Germany, which, like Japan, owes its economic resurgence after 1945 to the rules-based trading system. Germany’s economy relies heavily on exports, which means that it is acutely vulnerable to trade barriers and punitive tariffs imposed by major trading partners.

Mr. Trump’s protectionist policies thus challenge the entire German economic model as it has existed since the 1950s. The fact that Mr. Trump has repeatedly singled out Germany, one of America’s closest allies in Europe, is no small matter. While optimists will say that his bark is worse than his bite — that his pronouncements on trade, like his threats toward North Korea, are simply part of a negotiating strategy — pessimists can respond with a reasonable question: What if Mr. Trump really does mean what he says?

A tit-for-tat transatlantic trade war would produce losers on all sides, and could usher in a new period of isolationism and protectionism.

In Germany, there should be no illusions about what a transatlantic trade war would mean. Despite belonging to the EU and its single market, Germany would be one of the biggest losers, owing to its trade dependencies and the current state of transatlantic power relations.

To be sure, EU member states that have accused Germany of arrogance might view this outcome with some schadenfreude. But a weakening of the EU’s largest economy would have immediate negative effects on the entire bloc. And now is hardly the time for disunity. The United Kingdom’s withdrawal from the EU is already causing political dissonance among member states, and anti-European populists have just won a combined parliamentary majority in Italy.

Making matters worse, neither Germany nor the European Commission, which deals with trade issues on behalf of EU member states, is currently in a strong position to stand up to Mr. Trump. The foolishness of German policymakers who chose to ignore longstanding criticism of the country’s persistently high current-account surplus has been laid bare. Had the last German government reduced the surplus — which reached a new record high last year — by boosting domestic investment, Germany would be in a far better position to respond to Mr. Trump’s threats.

When thinking about the possibility of a transatlantic trade war, we should also recall the saying, usually attributed to Mahatma Gandhi, that, “An eye for an eye only ends up making the whole world blind.” A tit-for-tat transatlantic trade war would produce losers on all sides, and could usher in a new period of isolationism and protectionism. If it goes far enough, it could even lead to a collapse of the global economy and the disintegration of the West. For this reason, the EU has no choice but to negotiate, however grudgingly.

One foreseeable consequence of Mr. Trump’s trade revolution is that it will push Europe closer to China, which is already reaching out to the EU through its Belt and Road Initiative of investment and infrastructure projects across Eurasia. As Eastern-oriented alternatives to transatlanticism increase in the years ahead, striking the right balance between East and West will be one of Europe’s most difficult challenges. Europeans now have to worry not just about Russia, but also about a new Chinese superpower.

Destroying or disturbing transatlantic trade relations is in the interest of neither the US nor Europe. Chinese leaders are probably privately celebrating the Trump administration’s promise to “make America great again,” because, so far, it has merely undercut US interests and promises to help make China great again. Indeed, notwithstanding Mr. Trump’s just-announced tariffs on China, in response to its alleged intellectual-property violations, one could be forgiven for thinking that his main foreign-policy goal is to aid the Chinese in their bid for global influence.

Upon taking office, one of Mr. Trump’s first moves was to withdraw the US from the Trans-Pacific Partnership, a trade deal that would have created a bulwark against China in the Asia-Pacific region. Now, China has a chance to set the rules of trade in an area comprising some 60 percent of the world economy. Likewise, the effects of Mr. Trump’s import tariffs on steel and aluminum will mostly help China, while hurting America’s European allies. If the Chinese seek to capitalize on their unexpected windfall, one can hardly blame them.

In the coming months, Europe’s fundamental weakness will become increasingly apparent. Europe’s prosperity depends on America’s willingness to provide security guarantees and stewardship of the liberal international order. With the US abandoning its post in pursuit of atavistic nationalism, Europeans are on their own. One hopes that Europeans can act quickly to preserve their unity and salvage the international system that has provided them with peace and prosperity for generations.


Copyright: Project Syndicate, 2018.

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