Instead of Trade Wars, the U.S. and EU Need a ‘Safe Trade’ Agenda



Peter S. Rashish | World Politics Review

Since the onset of the coronavirus pandemic, the Trump administration’s trade policy has been shifting from an inclination to punish to a yearning for retreat. After imposing tariffs on trading partners that cost U.S. consumers $12 billion last year, the White House has been looking for ways to repatriate industrial activity from China and launch a new state-led industrial policy. But cutting the economic cord with China will not magically halt its geopolitical rise, and imitating its state-led approach to the economy would make America both less secure and less prosperous.

Instead, the next U.S. administration should launch a “Safe Trade” agenda that creates growth, resilience and security without abandoning U.S. engagement in the global economy, which would only give China free rein to reshape the international trade regime to its preferred set of rules. A Safe Trade agenda would complement government initiatives to secure against supply disruptions—like the stockpiling of goods essential to public health—by building a diverse set of high-standard trade and investment relationships to help ensure continued prosperity when the next shock begins, or if a certain sector is unexpectedly affected. And it would seek to strengthen the global trading system so that it creates greater security for the U.S. and like-minded countries.

But the United States is no longer powerful enough to make international trade safer all by itself. To do so, it will need to draw upon its relationships with its partners, particularly the European Union. Although it has been misunderstood and devalued by President Donald Trump and his administration, the EU remains America’s most economically important and most natural trade and political partner.

A Safe Trade agenda advanced in close collaboration with the EU would accomplish three things.

First, it would boost economic growth to help the U.S. and the EU emerge from the pandemic. Leaders from both sides of the Atlantic already identified this as a goal in the aftermath of the global financial crisis. As part of a search for new sources of growth, the U.S. and the EU launched negotiations for the Transatlantic Trade and Investment Partnership, or TTIP, in 2013. But those talks hit roadblocks in the fall of 2016, and they were abandoned after Trump’s election victory.

The next administration should build upon the best elements of TTIP and make a U.S.-EU trade agreement a priority, but with Safe Trade as a central objective. Although the current pandemic-induced economic crisis is distinct from the global financial crisis, in that it has features of both a demand and supply shock, a U.S.-EU commitment to zero tariffs—and lower, if not zero, subsidies—as part of a broader trade agreement would boost confidence and help raise economic output as lockdown measures are eased. The two sides should make a priority of eliminating the steel and aluminum tariffs imposed by Trump on national security grounds, as well as all tariffs on medical devices and equipment.

Although it has been misunderstood and devalued by the Trump administration, the EU remains America’s most economically important trade and political partner.

Second, while reduced trade with China in public health and national security sectors may be prudent, it needs to be part of a broader U.S. effort to spread its trade around. By diversifying their economic relationships, the U.S. and Europe can reap the growth that comes from trade, while becoming more resilient in a crisis. A new U.S.-EU trade agreement that improves on TTIP would be a first step, but the effort could also include negotiations with other like-minded countries in Europe, Latin America and especially with markets in Asia that can partially replace China or reduce dependence on it in global value chains. As part of this agenda, the U.S. should eventually seek to rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and push for membership for other Asian economies that can meet its high standards.

The U.S. and the EU should also build on the work done on global value chains by the Organization for Economic Cooperation and Development, a group of 37 advanced market economies, by proposing that its member states formulate and adopt best practices to guide their companies in supply chain diversification and resilience. While one effect of the pandemic is likely to be an increasing regionalization of supply chains, the U.S. and the EU can help ensure through new OECD principles that such a shift is as growth-enhancing as possible.

Although the trans-Atlantic economies—which account for more than 40 percent of global GDP—are already highly integrated, ties could be deepened through measures to promote growth and security for the technology-intensive and greener virtual economy that has gained momentum since the emergence of COVID-19. Lower barriers and common standards for the digital economy could also help spur trans-Atlantic innovation in artificial intelligence and the Internet of Things, creating healthy competition for China’s technological and industrial leadership ambitions as part of Beijing’s Made in China 2025 plan. A U.S.-EU Safe Trade agenda should therefore also aim to establish the world’s gold standard for the data-driven economy.

Germany’s role in advancing this agenda will be crucial. In addition to being the largest economy in the European Union, it has also often occupied the middle ground between advocates of liberalized trade and hands-off domestic policies on the one hand, and those taking a more protectionist and interventionist stance on the other. However, more recently, Germany’s increasing wariness about China’s intentions has translated into greater comfort in Berlin with policies to assert the EU’s economic sovereignty, such as investing in EU-only supply chains. This “Made in Europe” approach could close off opportunities for trans-Atlantic cooperation, undermining the ability of both the EU and the U.S. to offer an alternative to China’s state-driven approach. It is therefore important to make the case that U.S. or EU sovereignty in isolation will be less effective in countering China’s trade practices than leveraging the economic influence the two sides can bring to bear together.

Finally, a Safe Trade agenda would seek to ensure that the global economy continues to operate according to rules that advance U.S. values and interests. The World Trade Organization is at once a major accomplishment in multilateral governance and, for the moment, ill-equipped to manage the kind of challenge that China’s state-driven economy presents to international economic relations based on liberal values. While the Trump administration was wrong to bring the WTO’s dispute settlement system to a halt by blocking the appointment of new judges to its appellate body, finding the necessary consensus for reform will take time.

One avenue to accelerate progress would be for the U.S. to complement multilateral diplomacy within the WTO with efforts at the bilateral level with the European Union. A large coalition in favor of open and progressive trade rules, spearheaded by joint U.S.-EU economic statecraft, could create leverage for success within the WTO. The U.S. and the EU—joined by Japan—should take their trilateral efforts at WTO reform since 2017 a step further and develop new trade rules and enforcement measures for issues like state-owned enterprises and industrial subsidies that would serve as a vanguard for action by the broader WTO membership. The timing would be propitious, as the EU is finally demonstrating its willingness and capacity to act in a strategic way about China’s state support for its industries.

As important as this new Safe Trade agenda will be, it is also essential to recognize its limitations. Trade policy is neither the main cause of, nor the remedy to, many of the most urgent economic challenges the U.S. and Europe face. Domestic policymakers will need to step in when it comes to reducing inequality, preparing the workforce for the age of artificial intelligence or mitigating climate change. But strengthening trade ties between the U.S. and the EU, and organizing that effort around Safe Trade, will shore up and boost a source of growth and security that will contribute to addressing all of these other challenges.

Peter S. Rashish is senior fellow and director of the Geoeconomics Program at the American Institute for Contemporary German Studies (AICGS) at Johns Hopkins University. This article draws upon a recent AICGS report, Enduring Partnership: Recommendations to the Next U.S. Administration for the German-American Relationship.

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