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Perspectives: How EU trade policy should respond to a second Trump presidency

The EU and US will remain economic and political partners, whoever is elected president in the United States next November. Whilst not neglecting to protect is core interests, the EU will and should continue to pursue dialogue and deals.

There can be no sugar-coating of a harsh truth – the coming years in trade policy are going to be tough for the European Union.

Whoever is elected US president next November will challenge world trade rules. Or perhaps more accurately, to continue this ongoing process.

At the very least the US is likely to undermine World Trade Organization rules with regard to China, and to steel and aluminium. After a disappointing 13th ministerial conference, the institution’s long-term future is increasingly in question.

Agreement between the EU and the US on an approach to trade-and-climate-change issues is also unlikely, regardless of who is in the White House.

These problems come on top of those internal to Europe – such as slow growth and protesting farmers.

There can however be too much of a counsel of despair. Europe remains an attractive region in many respects.

Companies want to have a presence here. Other countries want to talk about improving relations with the EU and other European countries.

That is in part a reflection of openness and stability that must be maintained.

This also allows for some global leadership.

Developing these strengths is the best response to a US increasingly turning its back on global trade.

Staying friends

Deep ties between the US and EU have survived many past disagreements on trade policy. Quite simply: there are few alternatives for both sides.

In terms of the other major trade powers, there is little real prospect of either teaming up seriously with China, India, or Brazil. Institutional, political and historic ties matter.

Medium powers such as the UK or Japan can be supportive to the EU agenda on maintaining trade rules or agreeing on net-zero approaches. Their power is however restricted when then are differences with so many other important WTO players.

Part of the answer lies in maintaining dialogue with Washington. There has been extensive patient diplomacy between US and EU officials since at least the election of president Trump in 2016. While solutions have not been forthcoming, the efforts have to a certain degree contained disagreements.

European and US politicians and businesses will undoubtedly also maintain two-way travel that helps maintain mutual understanding.

While recognising differences, the EU should continue to seek trade deals.

Zero tariffs or mutual recognition of conformity assessment for industrial goods are theoretically achievable.

None of this may be sufficient to eliminate completely the fallout of a shock event such as a potential US withdrawal of MFN treatment for China.

But negotiations at the very least can be a way of playing for time.

Responding proportionately to threats

Disagreements which can be contained though dialogue are the easier part of handling the US.

Over the last eight years there have been a number of direct threats and attempts at coercing Europeans. This will particularly be an issue if Trump is re-elected.

Economically and politically, there are arguments not to retaliate against the US. To do so risks a trade war and undermining of the relationship.

But realistically, the case for taking action is far stronger. EU stakeholders need to see action being taken, supportive US voices need to be able to show that their interests are potentially affected by retaliation. And the US administration needs to see that the EU will stand up for its interests.

Responding to tariff imposition is easiest. As happened in Trump’s first term, the EU must be ready to raise tariffs on US goods in response to unilateral action from Washington.

Other US actions such as threatening the EU if it doesn’t also withdraw most-favoured nation status from China will be more complex to handle.

Here the new EU ‘anti-coercion instrument’ could apply, which offers many policy options, although which measures to take will not be an easy decision to make.

For example, president Trump may not care about restrictions with regard to services or investment foreseen in the anti-coercion toolbox. And EU action on intellectual property or procurement would have a higher risk of contagion.

The most obvious possible measures would be withdrawal of SPS registrations and authorisations. This may well however raise issues of credibility for the impartiality and problems for scientific credence of EU SPS decisions.

Ultimately, however, it all may well come back to the issue of raising tariffs.

As envisaged in the ACI, pursuing dialogue will be the first path to take in this situation. Should that fail, there will need to be a careful examination of the EU’s interests.

Spreading a positive agenda – beyond the US

Although some have suggested otherwise, the EU should definitely not follow any US action with regard to general rises in tariffs against China or revoking China’s MFN status. There is no evidence that this would be in its interests.

More broadly, the EU should show there is a better agenda. This should start with nurturing one key strength: being willing to engage in dialogue with a wide range of potential partners.

On the subject of trade and climate, the EU should put a far greater focus than previously to be placed on cooperation with third countries.

Efforts to ‘weaponise’ the Brussels Effect such as through the deforestation regulation have not shown that the EU is living up to its stated aims of wanting to protect the multilateral system.

Even before the farmers protests, the free trade agreement agenda was faltering. Now more so than ever, there is a need to think about other instruments.

Digital economy agreements may be positive. These should now be accompanied by trade-and-climate agreements.

Mutual recognition of green goods would for example be a way of showing a more positive agenda.

Conditioning agriculture imports on ‘mirror clauses’ is in general a bad idea (see here).

Rewarding countries that have similarly stringent approaches to regulation with lower tariffs could be a more constructive option.

There is also need for greater confidence in Europe’s attractions to business. Investors still want to source production across the bloc.

Putting up trade barriers would be an obstacle to this. EU strength comes from global engagement, all the more so if the US continues to withdraw.

Pursuing a path of openness and engagement will not be easy. Domestic pressures to follow the US in restricting trade are intensifying.

But this is too often an unacknowledged EU strength. Whether with the US or with others, this path needs to continue to be trodden.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

One Comment

  1. henrik.isakson@svensktnaringsliv.se

    Very well written!

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