Trump’s zero-sum game and Europe’s response
With Donald Trump increasingly viewing Brussels as an economic enemy rather than an ally, setting a course for greater European independence from the United States is the bloc’s only realistic option
- Tuesday, 09 October 2018
When the Un Generally Assembly gathered in New York at the end of September, the world was bracing for the worst – and got it. Us president Donald Trump pushed his “America First” agenda to new heights at the expense of Washington’s long-standing alliances. The president’s fast and loose conduct on the international stage has deeply disgruntled the Eu and Canada, so much so that they have come to conclude that Washington has “gone rogue”.
As America is bent on going it alone, the hitherto rock-solid Eu-Us partnership is tearing at the seams. Why? Because in this administration’s mind-set, for America to win, Europe must lose. The worsening bilateral relation is in fact a calculated provocation inherent to “America First” that looks at international relations, especially trade imbalances, as non-negotiable, zero sum games.
Attempts to diffuse the tensions through a preliminary meeting between Us Trade Representative Robert Lighthizer and Eu Trade Commissioner Cecilia Malmström in early September ended in deadlock. Trump’s rejection of an Eu proposal to eliminate car tariffs as a one-sided deal benefitting only Europe chimes with his views that mutual gains do not exist. The Us president’s brisk rebuttal was delivered just hours after Commissioner Malmström indicated the Eu would slash its 10 percent car tariffs, providing the Us reciprocated.
Economic sanctions as a weapon
With Trump intent on reducing trade relationships to tit-for-tat retaliations, Washington is actively attempting to damage and dismantle the economic competitiveness of its allies. Sanctions weaponize the Us dollar, and although such measures are officially presented as corrective steps essential to defending American blue-collar workers, their true intent is more than obvious.
First, targeting the European automobile sector looks more and more like a deliberate choice designed to inflict maximum pain: the sector accounts for around 7 percent of the EU’s Gdp and employs more than 12 million people. If America presses ahead with tariffs, the effects will be felt across the Eu supply chain. Last year alone, EU auto exports to America stood at $38 billion, set against just $6 billion of Eu imports of Us cars. Next, the steel and aluminium tariffs are another example of Washington’s hardening approach to foreign trade. The duties, which hit some €6.4 billion worth of Eu exports, priced out some producers out of the Us market, and strained global supply chains.
But the real damage to Europe’s industrial heartland was dealt in April with the imposition of Us sanctions on several Russian tycoons, including Oleg Deripaska, the majority shareholder of the world’s second largest aluminium producer, Uc Rusal. On paper, their justification was to punish Russia, but the sanctions served in fact a dual purpose. Other than inflicting economic pain on Moscow, by cutting off the single most important source of metal to the Eu, the sanctions delivered a body blow to the continent’s small and medium enterprises (Smes) – and the very companies servicing a cross-section of industries, carmakers chief among them. More than 25% of the continent’s imports come from Russia.
The German industry with its numerous specialized auxiliary downstream industries for cars and construction has been especially vocal about the sanctions fallout. European aluminium producers have warned that Us sanctions could result in the closure of smelters, leading to severe shortages of the metal and disrupting the manufacture of everything from cars to cans. Similarly, Ron Knapp, secretary-general of the International Aluminium Institute (Iai) called the effects global supply chains will be “industry wide and globally damaging”. Without the metal, industrial activity will grind to a hold, effectively throttling the industrial-economic engine of continental Europe.
Bending under the weight of Eu pressure, the Us Treasury on September 21 extended the original sanctions deadline by another three weeks, from October 23 to November 12. But this move failed to alter the fundamental conditions of the market: rampant uncertainty about the ability of European companies to source metal remains.
Time for a fresh approach?
As the US is pursuing a protectionist agenda, it’s clear that Eu member states need to change tack. German Foreign Minister Heiko Maas said as much at the Business Forum at the 16th Ambassadors Conference in late August, stating that “Tariffs and quotas should be negotiated. However, they should not be an instrument to punish other countries. But that is what is happening at the moment and we need to respond to it.”
In that vein, Brussels should continue to negotiate the postponement of new tariffs through diplomatic means in the hope of political change in Washington – while simultaneously taking active steps to shockproof its industry.
Achieving this objective requires commitment to a new Eu-wide policy designed to support the continent’s industry. With Iran sanctions delivering blow after blow to European firms, the notion of decoupling European economies from the Us is gaining traction. Concretely, this means that policymakers should focus efforts on unlocking new markets and liberating businesses from the dominance of the Us dollar by creating effective alternative payment systems. It also means encouraging Smes to look beyond Us-based clients.
Even before Trump got a foothold in the White House, German Chancellor Angela Merkel urged Europe to take “our fate in our own hands”. Brussels should no longer pin its hopes on diplomacy saving the day alone or taking the transatlantic alliance for granted. It should instead strengthen its defences and limit the damage wrought by Washington’s punitive trade policy. With Trump increasingly viewing Brussels as an economic enemy rather than an ally, setting a course for greater Eu independence from the Us is the bloc’s only realistic option.