Challenges for Transatlantic Economic Cooperation in a Trump Administration

Katrina Knisely

Georgetown University

Ms. Katrina Knisely is a first-year graduate student in Georgetown University’s Master of Science in Foreign Service program. After receiving her BA from Tufts University in Economics, International Relations, and German Studies, Ms. Knisely worked for three years at State Street Corporation in Boston, first as a management trainee rotating through various parts of the organization and then as a compensation analyst. She has also held internships with AICGS, SelectUSA (U.S. Department of Commerce), and the Council on Foreign Relations. She speaks German, Spanish, and is learning Turkish.

He is a 2016-2017 participant in AICGS’ project “A German-American Dialogue of the Next Generation: Global Responsibility, Joint Engagement,” sponsored by the Transatlantik-Programm der Bundesrepublik Deutschland aus Mitteln des European Recovery Program (ERP) des Bundesministeriums für Wirtschaft und Energie (BMWi).

Although stock markets have demonstrated an initial positive reaction to the inauguration of President Donald Trump, the new administration’s inward-looking economic policy agenda with the motto “America First” has also brought new challenges and uncertainty to the future of transatlantic and international economic cooperation. To mention a few: certain aspects of tax reform, deliberate introduction of trade barriers, and alienation of European trading partners who carry a trade surplus with the United States.

With the largest economy in the world, the United States has enormous influence in the overall dynamics of the global economy. The administration’s earlier support for a border-adjusted tax had been a large concern because if enacted, it would effectively impose levies on billions of dollars’ worth of imports. Legality in the World Trade Organization (WTO) notwithstanding, this measure would have been especially worrisome for European countries such as Germany, whose number one export market is the United States. However, fortunately for global trading partners and U.S. businesses with global supply chains, the measure has been shelved for the time being following immense pushback.

Nonetheless, dropping the border tax intensifies the challenges for the Trump administration’s plan to foster long-term growth through corporate tax code reform and domestic infrastructure investment. While valid policy pursuits per se, without additional income to balance out the additional spending and tax cuts, these measures are unsustainable. The U.S. budget deficit and the already high level of public debt would further increase, which would have worrisome consequences not only for the U.S. but also the global economy.

Additional challenges to transatlantic economic relations come in the form of increased and deliberate barriers to trade on the part of the United States. These may take the shape of a variety of new tariffs on intermediate goods—which make imports more expensive— as well as Trump’s executive order to strengthen the “Buy American” program for federal procurement. Domestically, isolationist rhetoric may lead to reduction in competitiveness and innovation, and in the international arena, one of the biggest worries is that other countries do the same and close off their markets to U.S. firms and suppliers. In short, both sides of the Atlantic have much to lose from increased restrictions on global trade that defy the multilateral rules-based system.

Finally, Trump and his key trade advisors have argued, despite evidence to the contrary, that trade deficits are bad. An investigation has been ordered to determine the extent to which the U.S. bilateral deficits are the “result of cheating or other inappropriate behavior.” Germany, as the largest economy in the EU, has unjustly been the target of much of this debate. The challenge will be for Germany along with the rest of the EU, to convince the U.S. administration that a trade imbalance does not mean that its member states are “cheating” or that Europeans are somehow destroying American jobs. By continuing to harp on the trade deficit, the United States for its part risks a deterioration in relations with the EU and key member states.

To be sure, the interconnected transatlantic relationship goes far beyond business and economics. With intensifying challenges with respect to climate change, refugee flows, and security, the United States cannot afford to weaken its bonds with Europe—or vice versa—in today’s era of irreversible globalization.