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‘We’re not going back’: The U.S. and Europe are entering a new trade era

The dramatic shift means that issues like climate and tech will grow more intertwined with trade.

The trade relationship between the U.S. and the EU used to hinge on issues such as whether Americans could label their cheese using European names like Gorgonzola — or whether Europeans should buy U.S. chicken washed in chlorine.

The focus now is more existential—and could make trade disputes more difficult to resolve.

The first pandemic in living memory has forced a rethink of global supply chains. Massive investments are now pouring into climate change efforts. New technologies like artificial intelligence and next generation 6G communication networks threaten to upend how economies and governments function.

Running beneath it all: growing anxiety over competition from China and an increasing focus in both the EU and U.S. on propping up domestic industries instead of encouraging global imports.

“This is a different world: Climate, non-market economy policies and practices, supply chain vulnerabilities are top of mind,” said Daniel Mullaney, who retired this year as the United States’ long-time top negotiator on trade issues with Europe.

The dramatic shift, which was on display at meetings between U.S. and EU officials in Sweden this week, means that issues like climate and tech will grow more intertwined with trade, making cooperation more challenging as each side competes with an outdated rulebook.

“The evolution over the last 10 years was driven by a lot of different factors, and we’re not going back,” Mullaney said. “It’s not a question of the last administration is out and now everyone can go back to the way things were before and heave a sigh of relief. Things were already changing, including in Europe, even before the last administration.”

A new forum started during the Biden administration is attempting to bridge the gap. The U.S.-EU Trade and Technology Council, the body that met in Sweden, is taking a more outward-looking approach than previous efforts aimed at increasing commerce between the U.S. and EU, whose 27 member nations negotiate trade as a single bloc. That includes more discussion on how the two sides can cooperate on the standards and regulations of technologies and industries that will be central to future economic growth.

A group of high-level officials wrapped up their fourth TTC meeting on Wednesday in Luleå, a small industrial city above the Arctic Circle that is a hub for “green” steelmaking in Europe and home to U.S. tech giant Meta’s data servers.

Less than a decade ago, the two sides were pursuing an entirely different strategy. The Transatlantic Trade and Investment Partnership, a traditional free trade negotiation started under former President Barack Obama, put U.S. and EU commercial interests front and center. Those talks eventually died as European leaders came under intense political pressure–driven by a grassroots movement that viewed closer economic integration with the U.S. with growing alarm.

Under former President Donald Trump, trade relations hit a low point as the two sides entered into a tit-for-tat tariff fight after the U.S. raised tariffs on imports of steel and aluminum. The EU retaliated by slapping duties on iconic American exports like bourbon and Harley Davidson motorcycles. Trump also threatened to hit imports of European automobiles with high tariffs. The two sides eventually agreed on a small package of tariff cuts.

Since the collapse of free trade talks and the tariff frenzy of the Trump era, there’s no longer the political will to address traditional trade frictions. Long-standing trade issues range from EU restrictions on genetically modified crops to U.S. “Buy American” requirements that limit European companies from bidding on government projects.

“On many of these irritants, we just found a way to live with them,” said Hosuk Lee-Makiyama, director of the European Center for International Political Economy, a Brussels-based think tank.

Rather than return to the traditional give-and-take of tariff negotiations, the Biden administration has embraced a “worker-centered” trade policy. Instead of pushing trading partners to adopt digital regulations more amenable to U.S. tech companies or open their markets to more U.S. investment, it’s heavily focused on raising foreign labor and environmental standards to level the playing field for U.S. workers. That’s all happening without offering the reward of greater access to America’s lucrative consumer market for fear of political repercussions.

Meanwhile, the World Trade Organization, which should be the nerve center for establishing new global rules for commerce in a new era, has lost its clout. Many blame both the EU and the U.S. as two of its most prominent members for failing to keep the Geneva-based organization relevant. The unwieldy, consensus-based organization has struggled for most of this century to come up with a framework for new challenges in the global economy, including sustainability and addressing China’s behavior.

“The world was very happy when China came to the WTO because most people thought China was going to change, but it’s China that changed the WTO up to a certain point,” said Hugo Paemen, a former EU ambassador to the U.S.

Sergei Grits/AP Photo

Without an effective global or bilateral trade forum to litigate disputes, the two sides are now dealing with rising trade tensions related to new climate policies. The EU was angered after its auto companies were essentially cut out of a major U.S. tax credit for electric vehicles.

Congress purposefully crafted the law to exclude foreign-produced vehicles, batteries and minerals unless they are from a free-trade partner. The EU, which lacks a free trade deal with the U.S., is now negotiating a deal that would allow European companies to benefit at least partially off the tax credit if the automobile uses so-called critical minerals extracted or processed in the EU that could be used to make batteries.

In Sweden this week, Secretary of State Antony Blinken, who was attending the most recent TTC meeting, highlighted that Europe’s largest deposit of rare earth metals was recently discovered a few hundred kilometers away.

“It shows that Sweden has a bright future as a mining nation – increasingly important, again, for the green transition,” he said.

Similarly, U.S. companies have expressed concern over the EU’s Carbon Border Adjustment Mechanism. The measure allows the bloc to impose a fee on imports of products that come from countries without comparable carbon pricing found in European countries, thus leveling the field.

Skepticism remains high over whether the TTC will deliver concrete results to address these issues or head off any future disagreements.

“You have to cook with the ingredients that you have, which right now is TTC. And they’re trying to make the best out of it. [But] it’s not a lot,” said former European Trade Commissioner Cecilia Malmström, who is now a senior fellow at the Peterson Institute for International Economics.

The challenge for transatlantic policymakers going forward is how to make the trade model of the past fit with the world’s new problems and new perception of globalization.

“We’re still going to have boxing matches,” said Lee-Makiyama. “But at least we can agree we’re going to stop kicking each other under the belt.”

Source: Politico



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