war on the rocks

Trump’s Tariffs and the Future of Transatlantic Ties

June 5, 2018

On May 31, the Trump administration announced steep tariffs on European, Canadian, and Mexican aluminum and steel. In doing so, it invoked a rarely used provision of the 1962 Trade Expansion Act that allows the president, without congressional approval, to block imports believed to be threatening to national security. Stung by these hostile measures, America’s European allies responded by imposing their own tariffs on goods as varied as Kentucky bourbon and Harley-Davidson motorcycles.

European officials did not hide their frustration and anger. “Throughout these talks [on avoiding the tariffs], the U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU,” said Cecilia Malmström, the European Union’s trade commissioner. “This is not the way we do business, and certainly not between longstanding partners, friends and allies.” European Commission President Jean-Claude Juncker went further. “Our U.S. friends are turning their back on anything that smells like multilateralism,” he said.

As fears of a trade war grow, the United States and Europe find themselves in a bad situation that is quickly getting worse. This puts at risk the fruitful transatlantic partnership, which for 70 years has fostered the spread of open trading regimes, free markets, and democratic institutions across the transatlantic community. President Donald Trump’s efforts to start a trade war and the Europeans’ angry reaction provide an opportunity to assess the future of this partnership: What will be the shape of transatlantic ties post-Trump, and what will be the nature of economic and security collaboration in this “transatlantic relationship 2.0”?

A Populist Turn

On the American side, economic populism seems to be guiding policy. U.S. Commerce Secretary Wilbur Ross has claimed that “economic security is national security,” in effect supposing that the U.S. trade deficit — long a favorite punching bag of Trump’s — poses a threat to the American homeland. It is true that military analysts have long seen certain materials — such as steel and oil — and a robust manufacturing base as crucial to maintaining a strong military. The idea is that the hollowing-out of a country’s manufacturing sector could reduce the country’s ability to manufacture arms, thereby damaging its national security.

But Ross goes too far in using this idea to justify a protectionist trade policy. His argument runs against the spirit of an older quotation perhaps apocryphally attributed to the French thinker Frédéric Bastiat: “When goods don’t cross borders, soldiers will.” This belief has embodied much of European and American foreign policy since World War II. NATO was constructed, in part, to protect free markets and liberal trading regimes from Communist systems that sought to abolish them them. It is not for nothing that Article 2 of the North Atlantic Treaty, which founded the alliance, states that the allies “will seek to eliminate conflict in their international economic policies and will encourage economic collaboration between any or all of them.” Similarly, Secretary of State John Kerry often said “foreign policy is economic policy,” meaning strong trade agreements — and the mutually beneficial prosperity they encourage — are fundamental tools for expanding American influence.

It is hard to find real-world evidence for Ross’ view, at least in the American experience. The United States has run trade deficits since the 1970s, yet it maintains the strongest and most advanced military and the largest economy in the world. The homeland, bordered by robust trading partners, has never been safer from conventional attack. The U.S. manufacturing sector has suffered less from trade deficits than from automation and technological change, which have allowed companies to produce more with fewer workers. In any case, the trade deficit is in large part structural — it is due to the dollar’s position as the sought-after global reserve currency. As Robert J. Samuelson has explained, high demand in global markets appreciates the dollar, making imports less expensive for U.S. consumers. Raising tariffs does not alter these facts. If tariffs are imposed, the trade deficit might fall, but only because domestic consumers, faced with higher prices, are forced to consume less — weakening the U.S. economy and conceivably triggering another round of tariffs by Trump.

Such a downward spiral has plagued the world before, following the passage of the Smoot-Hawley Tariffs of 1930. The result worsened the Great Depression and helped contribute to the outbreak of the Second World War.

The Impact on Transatlantic Relations

NATO has weathered transatlantic economic spats before. In 2002, George W. Bush imposed tariffs on imported steel. In response, the European Union and other countries filed a complaint at the World Trade Organization (WTO). The WTO ruled against the tariffs and authorized $2 billion in sanctions. The Bush administration ultimately backed down by removing the tariffs, and transatlantic relations recovered.

Today the risks of escalation are higher. First, the Trump administration has levied the tariffs on national security grounds — a senseless provocation, given that the measures target U.S. allies, thus suggesting absurdly that these countries are threats to national security. Second, the tariffs are the latest in a series of events that have strained transatlantic ties. The United States and members of the European Union have found themselves divided on climate change given the American withdrawal from the Paris Accord; on nonproliferation policy with the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA); and on defense cooperation with Trump’s continually harping on burden sharing.

There may be no direct and concrete connection between transatlantic economic disputes and NATO. But it is naïve to think that economic disputes will not poison discussions with our allies and initiatives in areas outside of trade. As an ambassador, I saw firsthand how disputes between allies rarely stayed contained within neat and tidy silos marked “economics,” “politics,” or “defense.” Trust, respect, and goodwill are the glue that hold all successful relationships together. Allied missions, such as the Resolute Support Mission in Afghanistan, have always depended on collaboration based on shared interests and values, and an atmosphere of trust and goodwill.

What’s Next?

Despite these challenges, perhaps the allies will prove able to insulate NATO from a trade war’s effects. Perhaps, as Stanley R. Sloan has written, they will develop strategies for “coping” with an unpredictable Trump Administration. But what if such strategies fail? In a post-Trump era, how might Europe act to reshape a wrecked transatlantic relationship? Below I offer three visions for “transatlantic relations 2.0.”

It gets worse before it gets better: In this scenario, Trump does what he does best. He invents a crisis by provoking a confrontation, backs down, and then takes credit for solving the crisis.

Paradoxically, this scenario might strengthen the transatlantic bond in the long term, even if it weakens it in the short term. Trump has ripped open long-festering wounds about defense spending and trade deficits. The result has been a brutal but potentially cathartic honesty where shouting has replaced diplomatic niceties, which previously swept frustrations under the rug.

After the shouting is over, Europeans and Americans could come together to build a stronger, more mature, and more equal partnership, albeit one based less on values than on interests. If the Europeans are still committed to a transatlantic partnership after all they have endured, and can make productive use of this crisis to strengthen their independence, the outcome could be more equitable burden-sharing and reduced European dependence on the United States — but also less American leverage over European policies. In this scenario, transatlantic relationship 2.0 is different, but not necessarily worse.

It gets worse, but we muddle through: In this scenario, a trade war inflicts profound damage to transatlantic relations in both the short and the long term. European countries prove incapable of building a more unified and stronger Europe. The allies remain dependent on the U.S. security guarantee, but more by necessity than by choice.

Neither side is willing to suffer the painful cost of ending the partnership. Diplomatic niceties return, but they are muttered with pursed lips and through clenched teeth. While defense cooperation continues, so does lopsided burden-sharing and resentment. And, on other issues, such as trade, the spirit of unity and shared values is permanently damaged, leading to ambivalent cooperation only when necessary to protect narrow individual interests when they occasionally and temporarily align.

Divorce: In an atmosphere already poisoned by acrimony over trade, defense spending, and abrogated global agreements, the European Union builds alternative economic and security partnerships to reduce dependence on U.S. leadership. It develops its own military capabilities — not to complement NATO, but to move away from it. (In fact, French President Emmanuel Macron is already pushing for a collective European intervention force independent of NATO.) In this scenario, the alliance would remain, but largely as a talking shop, while Europe constructs its own integrated chains of command and expeditionary forces, as well as more diversified trading partnerships with the rest of the world.

For its part, the United States would seek bilateral agreements to achieve whatever cooperation it can with European countries, in turn further alienating the European Union, which sees transatlantic bilateralism as a threat to its unity. The transatlantic bond all but dissolves as trade relationships suffer and political ties fray. The only winners are the triumphant Russians, who have succeeded in dividing and weakening the West.

Sensible people on both sides of the Atlantic may come together to preserve and rebuild what they can. But it remains to be seen which of the following marriage metaphors will best describe the “transatlantic relationship 2.0”: a stronger and more independent partnership after an initial falling-out; a resentful and bitter staying together, because neither side can afford to leave; or a messy divorce. The consequences of the third outcome would be dire. What is at stake is bigger than the diminished prosperity and security of the transatlantic community. It is the rupture of a partnership, whose institutions, norms, and values have created democracy, freedom, and peace for millions around the world.

 

Azita Raji served as the U.S. ambassador to Sweden from 2016 to 2017.

Image: European Union