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Protectionist policies from the Trump administration place the EU under attack

Marcus Walsh-Führing / Jan 2020

Image: Shutterstock

The battle over the international multilateral system has been at the forefront of the current political debate. Donald Trump and his economic advisors Larry Kudlow, Peter Navarro and Steven Mnuchin seem to be in the driver seat away from multilateralism leaving European leaders picking up the pieces. Only time will tell if their destructive policy toward trade and multilateralism will reposition American influence in the global trading system.

Trump’s economic advisors have promoted an economic policy based on protectionist measures and the deregulation of the United Sates economy. This departure from free trade to protectionist policies challenges ideas from every administration since Woodrow Wilson. In Trump’s defense, it is important to address the stealing of intellectual property and currency manipulations from China that have taken away from the economic growth of the global economy. However, it is against the best interest of the United States to go after your allies that help protect western society and provide trustworthy diplomatic relationships for the opportunity to restore American hegemony.

This sentiment has been at the centre of United States foreign policy in the post-WWII era. The question now is whether political relations and economic integration will withstand the Trump administration.

The first pillar of the European Union (EU) is the integration of the European communities which is based on the elimination of barriers to trade in the single market. Since the creation of the Single Market, integration has created a European economy with efficient supply chains and markets.

This has led the EU to become a champion of international institutions that support global trade rules, most notably the World Trade Organizations (WTO). The recent political attacks from the Trump administration on the WTO and the escalating trade tensions around the world have forced the EU to be the stalwart in the protection of the neo-liberal order. To offset the economic dominance of Russia, China and the US, European member states are dependent on global trade rules placing the single market between a rock and a hard place.

Historically, Europe has been reliant on a strong relationship between Germany and France. With Germany retreating from its role as the trailblazer of the European project and France in the process of redefining its new role, the EU is left with uncertainty in its leadership ranks. The EU Commission will have to utilize its political power to fill the leadership role.

The EU-US relationship is in jeopardy

Trump’s actions isolate Europe by decoupling the US and European economies and jeopardizing the political goodwill developed between western countries. The impact of Trump’s hostile acts in upending the trade system will have short-term positive effects for American industry and labour, while the long-term looks less certain. With the United States experiencing the longest period of economic growth in more than a decade, the Trump administration has been able to use public opinion and sentiment to justify its actions. The question arises, what will happen during the next economic downturn when the house of cards starts to tumble?

If history is any judge, the brunt of an economic recession in the United States will be felt in the American Midwest and with small businesses. This leaves the United States as an international actor that cannot be trusted to uphold the liberal order that it helped and championed after World War II. For liberalism to gain credence from a scenario where the United States is an untrustworthy partner will be difficult.

The current political agenda of the Trump administration and the dismantling of the liberal order has forced the incoming EU Commission President Ursula von der Leyen to want to make Europe stronger on the global stage. In essence to make “Europe Great Again” will require protectionist measures and greater regulatory autonomy, especially in the technology and environmental sectors.

A proactive approach can already be seen in von der Leyen’s assertiveness on the global stage. The political action taken by the von der Leyen administration is necessary to challenge the threats from the United States. This, however, will be met with opposition from member states as an expanding executive that is centralizing regulatory autonomy will be seen as abusing its jurisdictional power.

To maintain economic clout, member states have to embrace capital intensive stimulus that challenges austerity policy in member states, like Germany. The Commission President has taken a step in the right direction by proposing a Green New Deal to transform the European economy to meet global challenges. Critics of the plan say that von der Leyen’s agenda does not go far enough.

The critics of austerity politics believe that the lack of investment from countries like Germany has been hindering the competitiveness of the European economy in global markets.

Protectionism is the new normal: What the EU can take away from the USMCA

Future politics will be based on protectionist policies that fuel economic sentiment on the political right. As the Trump administration ratifies The United States Mexico Canada Agreement (USMCA), the clear winners are labour unions and auto manufactures in the trade zone. While the USMCA has been championed by both sides of the partisan divide, it has been seen as a clear break from Republican orthodoxy. This has set a new precedent for US negotiations of free trade agreements.

Protectionist measures from governments around the world challenge the narrative that advocates limited government and deregulation. In the current political narrative, the free market thesis is under direct assault.

The new policies set forth in the USMCA have forced the EU to change its general trade strategy with the United States. This provides new challenges and opportunities for the EU to strengthen the Single Market and promote its regulatory agenda on a global scale. It will force the EU to protect European investment and industry through a viable European competition policy to address Trump’s position towards international trade.

To denounce the Trump administration tariff wars means that the way forward should be a balanced approach. Then, how are EU countries supposed to react to Trump?

It seems that the only way to challenge the Trump administration is to play its game with a mixture of economic nationalism and protectionism. This might not be the best approach for a trading bloc that is based on the exact opposite principles. It seems the next best option is for politicians to support and strengthen von der Leyen for the sake of protecting competitiveness and regulatory policy in Europe.

If the EU follows through with the implementation of the Green New Deal, the Commission will be defending a political position that is protectionist in nature.

Marcus Walsh-Führing

Marcus Walsh-Führing

January 2020

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