The incoming European Commission faces a dilemma on the transatlantic trade relationship because of the unpredictable policies of the Trump administration. Anabel González and Nicolas Véron propose a way for the EU to succeed in an increasingly complicated global trade drama.
Should the Commission negotiate with the United States to de-escalate sanctions and defuse myriad issues and work through the World Trade Organization (WTO)? Or should the Europeans simply wait the administration out, knowing that making a significant deal is nearly impossible and hoping that President Donald Trump will no longer be in the White House after 2020?
Whether or not Trump follows through on his threats of more tariffs on Europe, the European Union cannot afford to just wait and see. It should test whether the administration can agree to some specific timely deals to minimize the risk of car tariffs; the conditions are not there, however, for a broader agreement. It should also try to settle the long-standing dispute over subsidies pitting Boeing against Airbus. Most important, Europe should bring together China and like-minded countries to uphold and reform the WTO. A united EU internal front is critical to deliver on these goals. [...]
The European Union has a special role in sustaining the multilateral trading system and preventing its potential demise. While the US approach has been less than constructive, the European Union is well placed to exercise leadership of middle-sized powers and developing countries to build a large coalition in support of the system. It may even be able to bring China around to play a constructive role in effective WTO reform. The immediate concern is focused on the Appellate Body crisis, which most likely cannot be sorted out without a greater commitment by emerging-market countries to the system and negotiation of new rules on subsidies, forced technology transfer, notifications, and others. Temporary solutions may be necessary, but ultimately, engagement with the United States is indispensable.
The European Union draws credibility from its long-standing principled commitment to the rules-based order, from established policy instruments such as its competition policy, and from its economic might. But it must further rally its citizens around the compatibility of an open trade policy and the fight against climate change and oppose economic-nationalistic agendas of some political leaders. The greater the divides between member states and with the EU institutions, the lesser the chances of the European Union forging effective policies toward the United States and China.
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© Peter G Peterson Institute for International Economics
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