16 August 2019

The transatlantic cooperation- the economic interests defeating the rhetoric

Sergiu Medar

Lately, the transatlantic relationship has suffered from some tensions emerged due to Trump’s Administration conceptual changes in terms of international relations, in general, and the EU and NATO relations, in particular. They are failing to change the parameters of how both Atlantic’s coasts relation is evolving, meanwhile the mutual interests are not just lagging behind, but becoming more and more serious. Hence, it seems that even though relation’s parameters will change, it will still be as tied as before.

Image source: Mediafax

Starting with the NATO summit from July 2018, where Donald Trump’s critics against European allies were extremely harsh in terms of the used language, some analysts, most likely manipulated by the Russian fake news machine, hastened to forecast the end of the transatlantic relation. However, it seems that states’ leaders have a pragmatic agenda too, besides the declared ones, one to favor their states, created for home consume and regime’s political consolidation.

Besides the political-based appearances, the economic interests are, in fact, the ones to define the current world and states’ relations. Without stating that these political or security relations are subjected to such interests, these are, however, tied with the economic advantages which are shaping how states are joining international organizations or alliances.

Imposing sanctions or new taxes is rather becoming a negotiation mechanism of long-term economic relations, than actually reaching some immediate economic or political objectives. The identification of mutual economic interests and getting them to a stable relationship are the objectives that can be found behind a manipulative rhetoric, apparently directed towards political purposes.

As for the economic relations between states, trade exchanges and interests in terms of energy may be the ones to have the tightest connections with the political and security relations. States’ relations in energy field can only be stimulated or repressed by other economic fields’ relations evolution that have strategic value, like vehicles trade, economic exchanges in high-tech fields, IT, aeronautics, etc.

To that end, the transatlantic relation should not be exclusively regarded through leaders’ circumstantial political statements, but also through the numbers behind Atlantic’s coasts connections.

In 2018, although both parts increased their taxes, the US-EU trade level was $1,3 trillion. 54% of the US investments come from EU, meanwhile 64% of US’s global investments are from Europe.

The American investments in Europe have created 4,7 million jobs, meanwhile the European investments in US have produced 4,3 million jobs.

US’s main European partner is Germany. This situation continues, although the tensions between Trump’s Administration and the leader of the European economy are far from being solved, having ups and downs, but also a language revealing partners’ emotions.

Given these circumstances, in order to figure their true economic relation we must analyze the numbers reflecting the economic interdependency between US and Germany, essential for the US-Europe relation.

Starting with 2015, US became the biggest market for Germany products export. At the same time, German companies are the biggest investors in the American market.

According to Federal Statistical Office of Germany, in 2018, the total value of the German exports to US was 113,3 billion euro.

Also, the US-based products imports were worth of 64,5 billion euro, having the fourth place in a partners’ top on imported goods by Germany, after China, Netherlands and France. As for US, Germany has the seventh place as import market.

According to data published by the Economic Analyzes Office of Germany, this country’s private companies have invested in US’s economy, in 2017, $406 billion, which means 692.000 jobs on the American territory.

In 2017, US companies and citizens had investments in Germany worth of $136 billion. This means 1842 companies with 701.000 employees.

According to data provided by World Bank, in 2017, EU and US were producing 45,5% of the global GDP.

After seeing that the trade balance with EU, in general, and Germany, in particular, is way more lopsided, especially favoring Germany, Donald Trump has imposed taxes for steel and aluminum products imports. This sanction followed the section 232 of the Trade Expansion Act, from 1962, which allows each US organization to ask the US Trade Representative for investigations, when the import on certain products could be a threat against the US national security. The US Trade Secretary has acted his own initiative in April 2017, after Trump’s public statements and started an investigation on how such products imports from EU are threatening the US national security. After this investigation, in March 2018, the US president signed a directive according to which he applies 25% taxes for the products to have steel and 10% for the products to have aluminum. These taxes are paid to the American importer but, normally, are included in product’s acquisition price.

Given that the US-EU economic relation was not fined, introducing new taxes is affecting the transatlantic economic relations in terms of vehicles imports.

In order to avoid these exports’ imbalances as much as possible, Germany tries to build, on the US territory, as many German vehicles as it can. In 2018, there were 744 300 German vehicles built in US, almost twice more than the ones imported from Germany, 450 700 vehicles. 55% of the German cars made in US were exported. Germany has imported, in 2018, 149.000 cars, being the third American cars importer.

After some estimations made by the Peterson Institute for International Economy, the possible imposition of 25% forecasted taxes for cars would negatively affect the US GDP with $13-14 billion. After being informed with the consequences, at the end of July 2018, the US president met with Jean-Claude Juncker, European Commission’s president, in Washington. He interfered for not imposing new trade borders in the transatlantic relation. On this occasion, it was decided the postponement of new taxes.

US and EU decided to continue to negotiate in order to get to an agreement on trade exchanges between Atlantic’s two coasts. The preliminary conditions to actually start these negotiations were established at the beginning of May 2019. They will take place, but only as Trump keeps threatening to impose new taxes.

Given the huge economic interest between US and EU member states, we expect for the harsh tonalities in both parts’ rhetoric to decrease and for them to get to an economic compromise, one to favor both parts. This economic compromise is a free exchange transatlantic agreement, an initiative which started long time ago, but did not make any important progresses. In January 2019, USTR (United States Trade Representative) has published the objectives of the future free trade agreement between US and EU. The European Union Council also published, in the middle of April 2019, two negotiation mandates for the free trade exchange. These measures, although are still incipient, are still a sign that the situation will, slowly and with lots of patience, get solved.

Another conflictual subject between the European Union and US is the European Army project. Although this idea is nothing new, perspectives on the subject got more intense after Donald Trump’s intervention at the NATO summit, from July 2018, perceived as undiplomatic by some European analysts. He tried to impose to NATO states a minimum level of 2% of GDP for military costs. When firstly created, some thought the European army project was competing with NATO. US’s reaction, but also of other NATO states, was extremely negative. In the meantime, through discussions and negotiations, they realized that EU’s member states cannot, for now, operationalize a military power able to deter Russia, the main threat against European states, without US, Canada, Norway, Turkey and Great Britain’s participation. Hence, many people, including military personalities from European states, think that NATO is the only collective defence and security solution for Europe. Some of NATO’s member states’ efforts, supporters of the European Army program, have led to these states’ military costs increase, which is also what Trump was asking for. This way, at least for now, it is shaped the idea that the European Army cannot work but inside NATO. Therefore, this conflictual element for the transatlantic relation gets diminished in the near future.

A third subject that created major conflicts between Atlantic’s coasts is avoiding Europe’s energy provision to come only from Russia. The main divergence is the Nord Stream 2 project. In order to clarify its position, the US Congress has created, and presented in front of the US president, a legislation which wants to block the Nord Stream 2 and impose a series of conditions to limit Russia’s options in terms of providing energy to Europe as unique source. The new law presents also the sanctions to be applied to companies and people not following the conditions presented in the law.

On 8th of February, European Union’s Council has approved the Gas Directive, by which they are imposing a series of measures to be taken to continue the Nord Stream 2 project, but also about other gas pipelines connecting Russian sources to European consumers. Given Germany’s interests in making these projects, especially the one passing through the Baltic Sea, Mrs. Merkel assumed the guarantor role on Russia accomplishing European directives’ conditions. Until now, no details were revealed on how Germany accomplished this obligation, nor if Russia followed the requirements. However, the project continues and US will, therefore, apply the promised sanctions. The US Congress Resolution asks the US government to hurry the provision efforts with liquefied gases to Europe, as alternative source for the ones delivered by Russia.

As Russia did not follow the imposed conditions, although Mrs. Merkel assured everyone about the Russian promises, German chancellor’s credibility in terms of Russia’s support has decreased. Given that the German chancellor will soon end her mandate, we can hardly predict whether the future chancellor will still develop bilateral trade relations with Russia. If US will make it to sell sufficient gases quantity to Europe and Cyprus will start delivering gases to Europe, it will decrease European state’s dependency on the Russian gases, hereof, the pressure and divergences between EU and US in the energy field will also cool down.

Given Russia’s lately close relation with China, mostly seen on the common projects established at the recent meetings between both states’ leaders, US must be very careful with their relation evolution. Also, the European Union, although not being the main target of this possible alliance, it can also be economically and strategically affected by the Russia-China relation. This is another long-term reason for the transatlantic refreshment relation.

All the elements presented above are reasons according to which the transatlantic relation will, on short and medium term be, again, world’s peace guarantee and the essence of the international economic relations, based on prosperity and equilibrium. The trade and security interests are prevailing over any rhetoric.

Translated by Andreea Soare