The U.S. Presidential Election and the Outlook for Transatlantic Relations

Peter S. Rashish

Senior Fellow; Director, Geoeconomics Program

Peter S. Rashish, who counts over 25 years of experience counseling corporations, think tanks, foundations, and international organizations on transatlantic trade and economic strategy, is a Senior Fellow and Director of the Geoeconomics Program at AICGS. He also writes The Wider Atlantic blog.

Mr. Rashish has served as Vice President for Europe and Eurasia at the U.S. Chamber of Commerce, where he spearheaded the Chamber’s advocacy for an ambitious and comprehensive trade agreement between the United States and the European Union, which was officially launched as the Transatlantic Trade and Investment Partnership, and developed new engagements in the continent’s emerging markets.

Previously, Mr. Rashish was a Senior Advisor for Europe at McLarty Associates, and has held positions as Executive Vice President of the European Institute, on the Paris-based staff of the International Energy Agency, and as a consultant to the World Bank, the German Marshall Fund of the United States, the Atlantic Council, the Bertelsmann Foundation, and the United Nations Conference on Trade and Development.

Mr. Rashish has testified on the euro zone and U.S.-European economic relations before the House Financial Services Subcommittee on International Monetary Policy and Trade and the House Foreign Affairs Subcommittee on Europe and Eurasia and has advised three U.S. presidential campaigns. He has been a member of the faculty at the Salzburg Global Seminar and a speaker at the Aspen Ideas Festival. His commentaries have been published in The New York Times, the Financial Times, The Wall Street Journal, The National Interest, and Foreign Policy and he has appeared on PBS, CNBC, CNN, and NPR.

He earned his B.A. from Harvard College and an M.Phil. in international relations from Oxford University. He speaks French, German, Italian, and Spanish.

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prashish@aicgs.org

Transatlantic relations in recent decades have become increasingly focused not only on the bilateral relationship between the United States and Europe, but also on promoting common global objectives. The Presidency of Donald Trump brought this development to a halt. With the rise of China, there is now a global power that maintains a different perspective on international order from the U.S. and Europe. A unified transatlantic strategy is the best guarantee that the liberal international order continues to prevail as China’s power grows.

This article is part of a new Berenberg-AICGS report, “Die Amerikanische Präsidentschaftswahl,” released on October 14, 2020.


An Evolving Transatlantic Relationship: From Bilateral to Global

Until the election of Donald Trump as the 45th President of the United States in 2016, the transatlantic relationship had been undergoing a steady shift in focus. As the European Union grew through successive enlargements from an embryonic six-nation grouping in 1957 into today’s economic superpower comprised of 27 member states, the dynamics of its interactions with the U.S. changed. Transatlantic relations became focused not only on managing the bilateral agenda between Washington and Brussels, but also on identifying areas where the two sides of the Atlantic could work together to promote their common global interests. In other words, the transatlantic relationship became less about itself and more about the world.

The transatlantic relationship became less about itself and more about the world.

The evolution of U.S.-EU relations from an inward-facing to a more outward-looking focus took off in earnest with the end of the Cold War. With the disappearance of the Soviet Union and its military challenge to the West, the EU as a primarily civilian power had more opportunities to impact global events, for example through its enlargement policies in the European neighborhood. Both the Transatlantic Declaration of 1990 under the administration of Republican George H.W. Bush and the 1995 New Transatlantic Agenda under Democrat Bill Clinton aimed at encouraging the development of a transatlantic relationship more determined by the role of the EU, to complement NATO, and more focused on building a common agenda of global cooperation on non-military issues like trade, development, the environment, and human rights.

The George W. Bush administration was consumed with repairing the U.S.-EU relationship after the frictions caused by the Iraq War. It needed to rebuild trust before it could partner internationally with the EU. With this goal in mind, the Bush administration and the European Commission—with strong political support from the German government under Chancellor Angela Merkel—launched the Transatlantic Economic Council (TEC) to work on aligning the regulatory approaches of the two economies. While progress was slow, the TEC established important habits of cooperation that proved valuable to U.S.-EU relations.

After a first term that focused on a “pivot to Asia,” the administration of President Barack Obama turned strongly toward Europe during its second four years starting in 2013. In February of that year, Obama and his EU counterpart, European Commission President José Manuel Barroso, announced the start of negotiations on a Transatlantic Trade and Investment Partnership (TTIP), an ambitious and comprehensive trade agreement that would cover nearly 50 percent of the global economy.

What was distinctive about TTIP was not so much its aim to eliminate tariffs or pick up where the TEC left off on regulatory policies. Rather, it was the objective to forge joint approaches to the global economy by agreeing on rules covering subsidies, state-owned enterprises, intellectual property, the environment, and data transfers that demonstrated its geoeconomic ambition. As progress inside the WTO through the Doha Round of negotiations was looking increasingly unlikely, a key idea behind TTIP was for the U.S. and the EU to step in to create new high-standard rules that would help to counter China’s already increasing challenge to the transatlantic conception of global trade and investment. These rules could one day be brought into the WTO once a U.S.-EU led coalition gathered enough critical mass.

With the advent of the Trump administration the evolution of transatlantic relations into an outward-looking partnership slowed essentially to a halt. Trump’s presidential campaign in 2016 was in part built on grievances about the U.S. global role, portraying the United States as a victim of the liberal international order that it had done so much to construct in the years immediately following World War II. Europe was the main recipient of U.S. economic largesse via the Marshall Plan and had the largest presence of U.S. troops overseas. It was also the battleground of the Cold War that pitted two divergent ideologies—liberal democracy and communism—against each other.

Importantly, Europe had become the principal U.S. partner in defending this rules-based order and the multilateral organizations that constitute it—NATO, the United Nations, the Organization for Security and Cooperation in Europe, the World Trade Organization, and the World Bank and International Monetary Fund. The strong political and economic relationship with Europe became, among other things, a sign of the U.S. commitment to a cooperative rather than a unilateral approach to international relations. For the Trump administration and its ideology of “America First” devoted to the maximization of the U.S. freedom to act, this meant the relationship with the EU based on common support for the liberal order was suspect.

Trump, Europe, and America First

In the Trump administration’s view, the EU was not so much a welcome and necessary ally in the pursuit of a just and prosperous global order as an obstacle to projecting unbridled U.S. power. According to this logic, a divided Europe would better serve U.S. interests because Washington could assert its power more effectively with individual European countries than when faced with a bloc of 500 million people. Candidate Trump had already signaled his preference for country-to-country relationships when he supported Brexit in 2016. Beyond the EU’s role within the transatlantic relationship, the fact that it is based on the idea of shared sovereignty also did not endear it to a Trump White House that sees undiluted national sovereignty as indispensable to a country’s security.

Once he became president, Trump called the EU a foe because of its trade policy, and railed against the trade deficits he claimed the U.S. had run with the EU for several years (despite the fact that when services and primary income are accounted for the bilateral trading relationship is in rough balance). The White House chose not to view current account balances as the product of macroeconomic factors like the U.S. savings rate and the role of the dollar in international markets, or as a function of consumer preferences; rather, it has attributed them solely to what it sees as other countries’ unfair trade policies. Trump turned rhetoric into action when he imposed national security tariffs on U.S. imports of steel and aluminum, including from European allies. Despite an agreement in July 2018 between Trump and then European Commission President Jean-Claude Juncker to start talks aimed at “zero tariffs, zero non-tariff barriers, and zero subsidies” between the U.S. and the EU these national security tariffs, based on section 232 of the 1962 trade act, have remained in place.

Germany, the largest economy in the EU and a strong proponent of multilateralism, has been a particular target of the president’s ire. He has been outspoken about what he saw as its unfair advantage in transatlantic trade in automobiles, a politically sensitive sector in the United States because of its presence in a number of Midwestern swing states that were key to Trump’s 2016 election. The president has threatened on several occasions to place new national security tariffs on U.S. imports of cars and car parts, which would hurt Germany most of all. While the U.S. Department of Commerce has completed an investigation of the matter, its report has not been made public, indicating that the administration may prefer the leverage that the threat of tariffs brings more than their actual implementation, which could be economically costly.

The Trump administration has also called out Germany for not meeting the NATO target of spending 2 percent of GDP on defense. In July of this year the issue came to a head when Trump announced that the U.S. would move nearly one-third of its troops out of Germany as a kind of punishment for Berlin’s lagging military expenditures. Although the issue of German defense spending predates the Trump administration, the unilateral manner in which the troop decision was taken has added to German-American and broader transatlantic tensions. It has also come in for bipartisan criticism at home for compromising the U.S. ability to defend its interests not only in Europe, but also further afield given the role U.S. bases in Germany have played as logistics centers for operations in the Middle East and North Africa.

A third area of considerable tension within the transatlantic relationship during the Trump administration that has Germany at its center is the Nord Stream 2 gas pipeline. The construction of a second pipeline to provide Russian natural gas to Europe, via a German port in the state of Mecklenburg-Vorpommern, is not without controversy in the EU and Germany itself. Concerns have been raised about the political ramifications of European dependence on Russian gas as well as the potential impact of reduced revenues for Ukraine, currently a key transit country for Russian gas flowing to the EU. The Trump White House, backed by bipartisan support in Congress, is considering the application of sanctions on any entity helping to complete the small remaining portion of the pipeline, including German firms and the port authority in the town where the pipeline will come ashore.

The China Challenge and the Transatlantic Response

For thirty years the U.S. and the EU have lived without the common threat of the Soviet Union. But since at least the mid-2010s the rise of China has presented the transatlantic relationship with a new global power with both a state-capitalist economy and a view of global order that distinguishes it from the U.S. and the EU. While China does not constitute the kind of political and security challenge to Europe that the Soviet Union did, that does not make devising a strategy to respond to its rise any easier. Where the Soviet Union was a generally military-heavy, inefficient command economy isolated from the world trading system, China—despite the increasing role of the Communist Party—is a modern and successful technological superpower that is deeply integrated into trade and investment networks worldwide.

Under a more traditional Republican or Democratic president, the White House would look to the U.S. relationship with the European Union as a vehicle for building leverage to push back against China’s subsidies of its state-owned enterprises, forced technology transfer policies, intellectual property theft, and artificial intelligence in the service of the state. It is true the European Union has more at stake economically with China than the United States, and remains divided over an important issue like the role of the Chinese telecommunications firm Huawei in European 5G networks. Yet the EU is slowly awakening to the strategic challenge from Beijing. In a major policy review in 2019 the EU labeled China a “systemic rival” and has taken several trade and competition policy steps in the last year that are clearly (if not explicitly) aimed at controlling the impact of China’s economic behavior on the competitiveness of EU firms.

It is not the EU’s internal divisions that have put up an obstacle to transatlantic cooperation on China but rather the Trump administration’s inclination to cast the challenge from Beijing in bilateral terms.

On balance, however, it is not the EU’s internal divisions that have put up an obstacle to transatlantic cooperation on China but rather the Trump administration’s inclination to cast the challenge from Beijing in bilateral terms.

President Trump does not want the U.S. to share the limelight with Europe or other allies when it comes to China, preferring to create conditions where the U.S. can claim solitary “victory” in a showdown. That helps to explain the U.S. approach to China’s economic practices, which have consisted mainly of imposing steep tariffs on the country’s exports. By September 2019, two-thirds of U.S. imports from China were hit by the new tariffs, and Chinese retaliatory tariffs covered nearly the same amount of its imports from the United States. In both cases the tariffs were as high as 25 percent. A study by the U.S. Federal Reserve showed that as of November 2019 the administration’s tariffs on China were costing U.S. consumers $1.4 billion per month.

The desire to make China’s challenge to the international economic system a bilateral issue between Washington and Beijing rather than a common effort of the transatlantic relationship can also be seen in U.S. priorities in its negotiations with China to ease the tensions created by the tariff tit-for-tat. Beyond some modest commitments on intellectual property rights, the Phase I deal the U.S. and China agreed to in 2019 focuses on increasing China’s purchases of U.S. goods and not on commitments to eliminate unfair economic practices—which would benefit all China’s trading partners, not just the United States. This managed trade approach also reflects the Trump White House’s concern that bilateral trade deficits are a sign that a country is losing in global markets; increased Chinese purchases of agricultural products, manufactured goods, and energy would show the U.S. is winning.

While the administration’s rhetoric has been focused on portraying China as a challenge to U.S. leadership rather than to the liberal international order more broadly, there has been one lower-profile attempt at cooperation with allies. Since the WTO ministerial conference in Buenos Aires 2017, the Office of the United States Trade Representative has been engaged with its EU and Japanese counterparts in a trilateral effort to agree on a common agenda for WTO reform on the main issue where China is considered to be upending the rules-based trading system—its subsidies to state-owned enterprises. The three sides issued what looks like a final communication in January 2020 with recommendations for joint action. But the White House seems disinclined to take the logical next step: forging a broader coalition of the willing within the WTO to launch formal negotiations to create new rules for these contested areas of trade policy. Without such progress the trilateral effort will be bereft of any real geoeconomic impact.

Alternative Transatlantic Futures: Trump Disruption-Deconstruction, or a Biden Transformation?

It is common for one or both sides in a U.S. presidential campaign to portray a given election as “historic”; that can be an effective way to energize voters to turn out to vote. And while in 2016 there were already intimations of the kind of changes that might be in store with a Trump victory, it is no exaggeration to say that the 2020 contest will be a turning point. Donald Trump has taken over the Republican Party, turning its traditional conservative, small government, free market, and free trade orientation into a platform for his populist, nationalist, mercantilist, and interventionist views. Although the United States was already becoming politically polarized before 2016—with Americans becoming ideologically separated by geography, education, cable news viewership, and the echo chamber of social media—Trump has purposely sought to foment divisions for his political benefit.

During his first term, President Trump acted in defiance of several U.S. and global laws and rules, for example by imposing tariffs on countries after his authority to do so had expired and by signing trade agreements that did not conform to WTO requirements. But while he has weakened a number of important agreements and institutions that the United States in some cases has relied on for decades to advance its interests—WTO, NATO, the Paris Climate Accord, the World Health Organization—he has not broken them.

The most important question for the transatlantic relationship is whether during a second term President Trump would be content to continue acting as a disruptor or rather would he take his policies to the next level and adopt the stance of a “deconstructor.”

The most important question for the transatlantic relationship is whether during a second term President Trump would be content to continue acting as a disruptor or rather would he take his policies to the next level and adopt the stance of a “deconstructor.” In other words, would the president be satisfied with keeping his base of populist voters happy with continued displays of defiance toward international norms?  Or would he like to leave a more historically significant (and foreboding) legacy—destroying the post-World War II international order based on liberal notions such as the rule of law, openness, multilateral cooperation, and the primacy of the individual over the role of the state?

Of course, as the America baseball player and manager Yogi Berra once said, “it’s tough to make predictions, especially about the future.” That is all the more true about a U.S. president who has used unpredictability as a governing and diplomatic tactic, and whose record in office is closer to a series of tenuously related one-off accomplishments than the result of a careful and steady strategy. This preference for short-term victories over long-term coherence can in part be explained by Trump’s self-proclaimed belief in his mastery of the “art of the deal.” His role as disruptor-in-chief coexists with an inclination to seek moments of showmanship when he can put his signature on a negotiated document accompanied by a public handshake with foreign leaders.

It is important to remember that Trump is the president who on the one hand withdrew the United States from the Trans-Pacific Partnership, a trade agreement aimed at creating a counter to China among twelve countries in the Asia-Pacific region, and on the other signed the U.S.-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement. And he is the one who announced the U.S. withdrawal of several thousand troops from Germany but also facilitated a peace treaty between Israel and the United Arab Emirates and shortly thereafter between Israel and Bahrain.

With Trump: A Slow Unraveling of the Transatlantic Relationship, Rather Than a Big Bang?

Based on the evidence from Trump’s performance so far, there is a serious chance that transatlantic relations, and its foremost vocation—preserving the rules-based international order—will suffer irreversible damage during a second term. But to quote “The Hollow Men” by the British-American poet T.S. Eliot, that would be most likely to happen “not with a bang but a whimper.” A second four years under Donald Trump could witness more disregard for traditional allies, a stepped up “divide and rule” approach to the European Union, intensified hostilities with China covering security, technology, and trade, and disregard for international legal obligations. Yet it may not be deliberate U.S. efforts to deconstruct the transatlantic relationship that bring down the liberal international order, but rather the centrifugal forces unleashed by the lack of a coordinating role played by the U.S. (and the broader transatlantic relationship) to maintain it. The future of the World Trade Organization and the global trading system is one case in point.

Despite President Trump’s criticisms of the WTO, the U.S. has remained a member of the global trade body during his administration. It has even brought cases to the WTO’s dispute settlement system, which could be seen as an indirect endorsement of the organization. But Trump has seriously weakened the WTO by blocking the appointment of new judges to its Appellate Body out of unhappiness with a number of its decisions, effectively rendering the dispute settlement system toothless. And the president has on multiple occasions threatened to withdraw the United States from the WTO.

Yet an argument can be made that during a second term the Trump administration would not leave the WTO because of the huge economic costs that would entail. There will be no “bang,” to quote Eliot again. Instead, under four more years of a Trump administration it is what does not happen, it is the accumulation of U.S. inactions that would be more likely to lead to the de facto end of the rules-based trading system—Eliot’s “whimper.”

What the WTO would need to remain the arbiter of the rules-based trading system is not so much a large-scale multilateral negotiation like the failed Doha Round but rather more informal efforts among like-minded economies. But it is precisely here that the United States could be expected to neglect to empower the transatlantic relationship during a second Trump term. Although the U.S. may not be the superpower it once was, at least in relative terms, it is hard to imagine a successful economic diplomacy initiative to reform the multilateral trading system without Washington’s leadership and in close cooperation with the European Union. But based on the Trump administration’s record during its first term the U.S. would likely choose to forego such a coalition-building role. Not only has Trump portrayed the liberal international order as harming U.S. national interests; he has also shunned opportunities for leadership where the U.S. has had to share the spotlight with other countries.

Not only has Trump portrayed the liberal international order as harming U.S. national interests; he has also shunned opportunities for leadership where the U.S. has had to share the spotlight with other countries.

While the EU and Japan could be expected to try to assemble coalitions to advance a forward-looking model for the global economy, without U.S. support and leadership it is not certain they would succeed. As a result, over time the rules-based global economy would continue to fray, with China increasing not only its prosperity but also its power and influence. 

With Biden: Prioritizing Domestic Reform—And Reinvigorating Transatlantic Relations?

If former U.S. vice president Joe Biden wins the election the country is likely to see a major shift in emphasis. Biden can be expected to return the presidency to the norms and codes of conduct that all contemporary holders of that office have subscribed to before Trump. He has also pledged to rebuild U.S. alliances and to rededicate the country to multilateral cooperation by rejoining the Paris Climate Accord and the World Health Organization from which the country withdrew under the Trump administration. Biden called Europe the U.S.’ “indispensable partner of first resort” in 2013 and although the world has not stood still since then, this idea should remain a guiding principle for a new Biden administration

At the same time that Biden will revive much of the U.S. approach to Europe and to the world that existed before Trump, he is also likely to be a different kind of president than the last two Democrats to hold the office, Barack Obama and Bill Clinton. His presidency will not only be one of restoration; it may also be characterized by attempts to achieve transformation. In part because of the economic devastation produced by the coronavirus pandemic, in part because of ongoing concerns about worsening inequality, and also because of a change in the political center of gravity of the Democratic Party, a Biden administration can be expected to pursue domestic policies that would bring the United States much closer to what in Germany would be called a “social market economy.”

If Biden’s “Build Back Better” campaign proposals are any guide, Biden would focus on making capitalism more equitable, inclusive, and politically and economically sustainable over the long term through government investments in infrastructure, the workforce, social services, and to combat climate change, as well as by strengthening labor unions and small businesses. It would accelerate an emerging concern that American capitalism needs to move from its strong current focus on shareholder value to a conception taking account of broader stakeholder interests.

These steps could help to reinforce a sense of partnership between the United States and Germany and other countries in the European Union based on common values. The approach to economic policy and the role of the government on both sides of the Atlantic would come to resemble each other more closely, even if ingrained historical and cultural differences mean that the two societies will remain distinct in significant ways.

Precisely because of a Biden administration’s focus on an ambitious domestic agenda, a U.S.-EU trade agreement is not likely to be high on its list of priorities, at least in the first year or two.

But precisely because of a Biden administration’s focus on an ambitious domestic agenda, a U.S.-EU trade agreement is not likely to be high on its list of priorities, at least in the first year or two. While Biden has not ruled out eventually engaging in new trade deals, these would have to come after investments to make the U.S. workforce fitter to succeed in a globalized economy. Instead of a formal free trade negotiation, a Biden administration would be more likely to devote its economic diplomacy to rebuilding transatlantic habits of cooperation on global issues like the multilateral trading system, climate change, cybersecurity, public health, and development. This approach could include working with the EU to lead a coalition of like-minded countries to reform the WTO and to promote high-standard rules to counter China’s state capitalist system. If this does happen, a Biden administration would be resuming the earlier evolution of the transatlantic relationship since the end of the Cold War from one focused on internal bilateral affairs to one dedicated to mutual prosperity and security through joint actions to create a more stable and more just rules-based order.

Conclusion: Whoever Wins the U.S. Election, the U.S. and Europe Will Face a Polarized World

It is fair to say that a victory by Joe Biden over Donald Trump would be preferred by nearly every government in the European Union. His administration would no longer view the EU as a foe on trade and would share much of the EU’s cooperative, multilateral agenda on global issues. A Biden White House would not be on the lookout for opportunities to claim unilateral victory on every given issue but rather would seek practical solutions that more often than not are likely to include close partnership with allies.

But the arrival of a Democratic administration would not change a fundamental fact about the international system: its increasing polarization owing to the rise of China. Certainly, from a purely economic point of view it is neither in the U.S. nor the European interest to seek a decoupling from China given the extent of their trade and investment there. But as Adam Smith, one of the founding fathers of free trade theory, said in “The Wealth of Nations” in defense of the seventeenth century Navigation Acts, a series of laws preventing the use of foreign ships for British trade, “As defense, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.” Sometimes short-term prosperity has to be sacrificed in the interest of long-term security.

As a unitary state and a long-standing great power, the United States is accustomed to weighing economic opportunity against national security imperatives in its international strategy. This balancing act does not come as naturally to the European Union, which is a trade and competition policy superpower but is lacking a single foreign and security policy. As can be seen in President Ursula von der Leyen’s call for a “geopolitical” European Commission, the EU is waking up to the need to act more coherently across policy areas on the world stage. That is a welcome development for U.S. interests. But there is a risk the EU will prioritize its independence—for example, its “technological sovereignty”—at a time when a unified transatlantic strategy encompassing trade, technology, and security will be the best guarantee that the liberal international order continues to prevail as China’s power grows. If the United States under a new Biden administration puts aside Trump’s “America First” rallying cry and extends the hand of cooperation to the European Union it will be in the EU’s own interest to find ways to make its sovereign ambitions consistent with closer transatlantic relations.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American Institute for Contemporary German Studies.