American and European politicians are saying the right things about a new approach to transatlantic trade.
The past few years have been marked by bilateral tensions that have hampered efforts to work together on key issues such as China or WTO reform, and the election of Joe Biden has convinced many that the time has finally come for a productive common agenda. This has led to numerous declarations of a new era of collaboration and “changing the world”.
But talking is cheap.
In order to build the trust necessary for a truly productive working relationship, both sides must abandon unilateralist policies and tendencies. On the US side, this includes lifting the EU’s steel and aluminum tariffs and rethinking the recent “Buy America” proposals. For Europe, that means stopping the “asymmetrical” taxation and regulation targeting US companies and workers, including the Digital Markets Act proposal published this week.
The level of ambition and rhetoric on both sides of the Atlantic is sky high right now. The President-elect has called for confidence in the EU to be restored and for a return to multilateralism. Meanwhile, the Chair of the House Ways & Means Committee is promoting a new US-EU trade deal similar to the previously abandoned transatlantic trade and investment partnership.
European officials have kept pace. In early December, the commission published a “new forward-looking transatlantic agenda” aimed at removing longstanding bilateral trade stimuli, setting common standards for emerging technologies, restricting China’s unfair trade practices and modernizing the WTO, among other things. Likewise, some senior EU trade officials have spoken openly about how much easier it will be to work with the Biden government.
There is certainly cause for optimism. The United States and Europe have much in common – a commitment to democracy and free markets, an urgent need to protect businesses and workers from China’s unfair trading practices, and a shared responsibility for creating the WTO. And for the first time in years, senior US and EU leaders seem to understand the importance of eliminating bilateral differences in order to focus on more existential issues.
But behind all the “happy conversation”, important things remain unspoken and certain disturbing actions can speak louder than words.
To restore confidence, the United States must reverse the EU’s steel and aluminum tariffs. During my time in the White House, there was no other problem that worried my European colleagues more than being targeted by US tariffs in the name of national security. The elected President Biden has so far remained silent on this issue. Hopefully he will quickly realize that the best way to address the distortions in the steel and aluminum markets caused by Chinese overcapacity is not to target the EU, but to ask the EU to join the United States to join to target China and the rest of the US rallying world to do the same.
The Biden government must also change what the campaign for “Buy America” has promised, a policy that particularly irritates the EU and contributes directly to the decline of TTIP.
I am confident again that the president-elect will soon recognize that there are more effective ways to stimulate domestic production in strategic industries domestically without creating tension abroad. In particular, a solid program of targeted subsidies, research and development spending, and public-private partnerships to advance strategic industries can better accomplish laudable US goals without a transatlantic headache.
Europe must also show political courage, reconcile its actions with its words and reverse its own unilateralism. Make no mistake, a tax policy that sets Gerrymandern’s size and business model thresholds to attract American digital businesses for revenue while exempting Europeans is no less one-sided than US steel and aluminum tariffs. It is no less important to remain committed to negotiating with the OECD before taking action that will seriously harm an ally than trying to resolve problems through the WTO.
The European law on digital markets, which was published just this week, also threatens to put a considerable strain on Allianz. The EU is again committed to asymmetrical policymaking targeting American businesses to achieve regulation and massive fines, while using creative thresholds to exempt European digital and non-digital competitors.
To make matters worse, the EU is constantly pointing out the need for “digital sovereignty”, that this is no coincidence, but a concerted plan to protect EU champions from foreign competition. The EU’s choice to move forward on its own is also in stark contrast to its own transatlantic agenda, which proposes joint standards-setting with the United States. The EU must reverse course, resist its growing one-sided drive on digital issues and actually coordinate with its ally before proceeding.
None of these policy changes will be easy. However, they are needed to really reset US-Europe trade and to show that the recent optimism is justified.
Clete Willems is a partner at Akin, Gump, Strauss, Hauer & Feld, a CNBC employee and a Nonresident Senior Fellow at the Atlantic Council. His proposal for a joint US-EU WTO reform agenda is available here.