Transatlantic Reprieve? – Biden Presidency and Trump’s Trade War with EU

Written by | Monday, November 2nd, 2020

The EU’s trade relationship with the US has suffered during the tenure of President Donald Trump. Trump’s obsession with bilateral trade deficits, and his perception that the EU takes advantage of the US, have led to him using national security concerns as an excuse to levy tariffs on EU steel and aluminium exports – while continually threatening to do the same to European cars. The EU’s response to Trump’s unorthodox trade policy has been to strike mini-deals where necessary, to avoid further escalation, but otherwise wait him out in the hope that someone more amenable will replace him. A Joe Biden victory on 3 November would offer an opportunity to re-set the US-EU trade relationship, and open up some new opportunities for productive co-operation. But the Biden approach may not be as pro-free trade as the EU would like, with protectionist rhetoric around Buy American provisions featuring prominently in his campaign. And the two powers would continue to disagree on many issues, particularly on how best to deal with China.

Trade policy is unlikely to be a top priority for a Biden administration that would be tasked with mopping up the economic wreckage of COVID-19. And when trade does enter the discussion, domestic political pressure will probably centre on efforts to re-shore some medical and other critical supply chains, bring China into line, and bolster American influence in the Asia-Pacific region. However, Biden and the team around him are keen to re-build bridges with the EU, and mend some of the damage caused by Trump. This would mean that Trump’s threat of national security tariffs on imports of European cars would probably be taken off the table once and for all, and the chances of the US removing its tariffs on imports of EU steel and aluminium would be high. It is also possible that a Biden presidency could finally see the end of the 16-year dispute between the US and EU over their respective subsidies to Boeing and Airbus. If Biden wins, and signals that he is willing to negotiate a compromise settlement once in office, the EU would probably hold fire, opening up the possibility of a settlement.

But those hoping for a swift US-EU trade deal to place transatlantic economic ties on a firmer footing are set to be disappointed. A comprehensive US-EU free trade agreement would probably be viewed as more hassle than it is worth by both the US and EU. The legacy of the failed TTIP negotiations under President Obama lingers, and the divergence between US and EU attitudes to food standards and agriculture market access has, if anything, widened, with a larger Green presence in the current European Parliament. And while it is possible that Biden and his advisors would be happy to pursue an agreement with the EU focused solely on uncontentious issues such as industrial goods and mutual recognition of conformity assessment, it is unlikely that a trade deal that failed to unlock new market access for American farmers would be ratified by Congress. Furthermore, Biden would need to regain approval from an increasingly protectionist Congress to negotiate US trade agreements on its behalf, further reducing his scope for flexibility and compromise.

There may be opportunities for transatlantic co-operation in trade-adjacent areas, however. On climate change, a Biden administration would re-join the Paris Agreement, and he intends to explore the introduction of a border carbon adjustment mechanism (BCA) that would see additional charges levied on carbon-intensive imports. At the very least, the EU and US should ensure their climate and BCA regimes do not lead to new carbon charges being applied to the imports of goods from each other’s territories. On digital services, EU-US disagreement over if and how to tax (largely US) tech giants will rumble on. Yet it is possible that a Biden administration could commit to re-engage with the OECD multilateral negotiations so long as the EU, and member states such as France, agreed to hold off from unilaterally introducing their own schemes. But it is more difficult to see how disagreements over data sharing can be resolved.

But perhaps the biggest challenge for the US and EU relationship will remain their divergent opinions on how best to respond to the rise of China. Here, it is unlikely that US attitudes towards China under a Biden administration would soften. My colleagues have explored the implications of this for wider EU foreign policy in a recent CER policy brief ‘Europe, the US and China: A Love-Hate Triangle?’. In the trade policy space, a renewed focus on China’s human rights abuses could see Biden take an even tougher line than Trump, and introduce further economic sanctions, alongside current restrictions on the activities of US multinationals operating in China and their ability to use Chinese technology. And while the US will look to the EU for support, it might not be forthcoming, at least not to the extent desired, due to conflicting views between member states over how best to address the China question, and a reluctance to risk embedded economic ties. However, the recent efforts by the EU to beef up its screening of foreign direct investment and to develop measures to prevent companies operating in its market from benefiting from foreign subsidies point to a hardening of attitudes towards China.

As to the US’s recent efforts to undermine the WTO, and in particular its refusal to appoint new members to the appellate body (AB), we should remember that the US’s issues with the WTO did not originate with Trump, and will linger long after he leaves office. But a Biden administration will probably work more constructively to update the rules. If the deadlock on WTO is resolved, it would offer an opportunity for the EU to work with the US to re-shape the multilateral rules-based approach. It is not a certainty, however, and would remain politically challenging for the EU, which has historically disagreed with much American criticism of the WTO and its AB. Ultimately, there are many reasons for Europeans to hope for a Biden victory, above all the restoration of normality and predictability in America’s relations with its allies, after the chaos and mutual incomprehension of the Trump period. But they should not kid themselves that Biden is a European in disguise. There will be plenty of transatlantic disagreements ahead; and Biden’s priority will be the interests of the US and its voters, not the promotion of freer transatlantic trade.

‘What Would a Biden Presidency Mean for US-EU Trade Relations?’ – Op-Ed by Sam Lowe – Centre for European Reform / CER.

The Op-Ed can be downloaded here

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