Transatlantic Economic Cooperation After Trump

The election of Joe Biden will put a committed transatlanticist in the White House.  No longer viewed as a hostile entity, the European Union can again be a valuable ally to the United States and seek influence on relevant U.S. policies, not least with regard to trade and China.

The Trump administration launched a head-on assault on the global trading system, though in fairness to it the World Trade Organization (WTO) was already partly paralyzed by the time Trump took office. It has already been a generation since the last global trade negotiation round was completed, but the demise of the WTO has accelerated dramatically in recent years. Its crucial dispute-settlement mechanism has now ceased to function, due to a multi-year U.S. veto on new appellate judges being appointed. The Trump administration just before the election also blocked the appointment of Nigeria’s Ngozi Okonjo-Iweala as WTO Director-General.

The EU has always stood by the multilateral trading system, and if Biden is serious about revitalizing many of the international organizations Trump shunned, he must join the EU and the rest of the world in reforming and reviving the WTO. This means at least dropping the veto against to Okonjo-Iweala, working with the EU and other WTO members to agree to appoint new appellate judges and reform the dispute-settlement mechanism, pushing forward the recent U.S. agreement with the EU and Japan to confront Chinese trade practices in the WTO, and working with the EU and others to establish a WTO-compliant carbon border adjustment framework so that members can take action against climate change without suffering competition setbacks in the global market place. Only with a once again functioning WTO can trade, in the post-pandemic context, return to its role as a major driver of global economic growth.

The last four years have seen a significant deterioration of bilateral transatlantic trade relations, even if the volumes transacted remained impressive. The Trump administration targeted European steel and aluminum exports of to the United States via alleged national security concerns. It constantly threatened to levy high tariffs on imports of European cars and car parts. And it did nothing to solve long-standing transatlantic trade disputes over issues like aircraft subsidies, data privacy, corporate taxation of Internet services providers, or various sanitary and phytosanitary standards.

For the transatlantic economic relationship to be reset and the EU to be as valuable a partner for the United States as possible in any economic confrontation with China, the Biden administration will have to engage constructively on many of these disputes. Bogus steel and aluminum tariffs must be removed. The recent imposition by the EU of $4 billion of WTO-sanctioned retaliatory tariffs over U.S. subsidies to Boeing is a reminder that it is time to finally fix mutual aircraft subsidies concerns. Biden will also have to end the Trump administration’s last-minute stalling of the OECD global corporate-tax reform process and ensure that participation for U.S. firms is not optional. Otherwise, national EU (and elsewhere around the world) digital services taxes will quickly proliferate, poisoning the transatlantic trade relationship.

The formative foreign and economic policy challenge for Biden will be managing the U.S. relationship with an increasingly authoritarian China. He has made it clear that he will use democracy as an organizing principle in the defense against rising authoritarianism and corruption as well as to advance human rights. The EU—except perhaps a coupe of members like Hungary and Poland—will be a natural ally in this. Recent European government decisions to limit or exclude Huawei from 5G networks illustrate how European political assessments of China are moving closer to that of the United States. There is no good reason for why the EU in general, when asked, should not support the United States in economic confrontations with China, including on issues like  sensitive technology exports, demands for restrictions on Chinese government subsidies and—should circumstances in Hong Kong or Xinjiang (or Taiwan)—deteriorate further, also on potential economic sanctions against Beijing.

Data privacy and the business models of the world’s largest technology firms has been a frequent source of transatlantic tension, whether regarding the legal of transfers of Europeans’ private data to U.S. located services or the competition policy crackdown launched by the European Commission in the mid-2010s. Following the implementation of data-privacy laws that are quite similar to EU rules in California and other U.S. states, new federal legislation looks increasingly likely and could move the United States closer to EU standards. While the access of U.S. intelligence services to Europeans’ personal data will remain highly contentious, new federal-data privacy legislation could serve as a firmer foundation on which to establish new jointly agreed pathways for data-driven transatlantic trade. If so, the EU should approach such a process constructively. The same is true for the building federal and state level antitrust investigations of the practices of the largest American technology firms, which may in the end be more successful than EU actions to date.

The start of the Biden presidency is likely to quickly engineer a strong rebound in favorable European public opinion of the United States, not least because he has pledged to return the United States to the Paris Climate Accord and move aggressively to further reduce U.S. carbon emissions. The possible lack of a Democratic Senate majority, however, risks stymieing his climate aspirations. If the EU moves aggressively to increase its emissions price and the United States does not implement similar measures, carbon border taxes on U.S. exports to Europe will become inevitable in just a few years. It would be impossible for EU leaders to grant Biden a request for any material exemptions.

Joe Biden’s election means Europe and the world have avoided a nightmare scenario, and it makes a return to a constructive transatlantic relationship possible. Yet, the world is different than it was four years ago, and the U.S.-EU relationship must see new gives-and-takes to work as well as in the past. Hopefully, Biden and EU leaders are conscious of the opportunities in front of them.

This is part of our series on the policy implications of the 2020 U.S. elections for U.S. allies—you’ll find the rest of the series HERE.