Episode 127: A New Normal in Transatlantic Trade?
Daniel Caspary
Member of the European Parliament
Daniel Caspary was born in Karlsruhe, Baden-Württemberg. He holds the rank of First Lieutenant in the Reserve and graduated with a degree in Technical Economics. He is an authorized representative at MVV Energie AG. Daniel Caspary has been a Member of the European Parliament since 2004, member of the Committee on European Affairs of the German Bundestag since 2007, and member of the executive committee of the CDU Baden-Württemberg since 2011. From 2009 to 2017, he served as Coordinator (Spokesman) of the EPP Group in the Committee on International Trade and as a member of the EPP Group Bureau. From 2014 to 2017, he served as Parliamentary Secretary of the CDU/CSU Group in the European Parliament. Since 2017, he has been Chairman of the CDU/CSU Group in the European Parliament and member of the Executive Committee of the CDU Germany.
Jeff Rathke
President of AGI
Jeffrey Rathke is the President of the American Institute for Contemporary German Studies at the Johns Hopkins University in Washington, DC.
Prior to joining AICGS, Jeff was a senior fellow and deputy director of the Europe Program at CSIS, where his work focused on transatlantic relations and U.S. security and defense policy. Jeff joined CSIS in 2015 from the State Department, after a 24-year career as a Foreign Service Officer, dedicated primarily to U.S. relations with Europe. He was director of the State Department Press Office from 2014 to 2015, briefing the State Department press corps and managing the Department's engagement with U.S. print and electronic media. Jeff led the political section of the U.S. Embassy in Kuala Lumpur from 2011 to 2014. Prior to that, he was deputy chief of staff to the NATO Secretary General in Brussels. He also served in Berlin as minister-counselor for political affairs (2006–2009), his second tour of duty in Germany. His Washington assignments have included deputy director of the Office of European Security and Political Affairs and duty officer in the White House Situation Room and State Department Operations Center.
Mr. Rathke was a Weinberg Fellow at Princeton University (2003–2004), winning the Master’s in Public Policy Prize. He also served at U.S. Embassies in Dublin, Moscow, and Riga, which he helped open after the collapse of the Soviet Union. Mr. Rathke has been awarded national honors by Estonia, Latvia, and Lithuania, as well as several State Department awards. He holds an M.P.P. degree from Princeton University and B.A. and B.S. degrees from Cornell University. He speaks German, Russian, and Latvian.
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Peter S. Rashish
Vice President; Director, Geoeconomics Program
Peter S. Rashish, who counts over 30 years of experience counseling corporations, think tanks, foundations, and international organizations on transatlantic trade and economic strategy, is Vice President 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 ahead of the launch of the Transatlantic Trade and Investment Partnership. Previously, Mr. Rashish was a Senior Advisor for Europe at McLarty Associates, Executive Vice President of the European Institute, and a staff member and consultant at the International Energy Agency, the World Bank, UNCTAD, the Atlantic Council, the Bertelsmann Foundation, and the German Marshall Fund.
Mr. Rashish has testified 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 featured speaker at the Munich Security Conference, the Aspen Ideas Festival, and the Salzburg Global Seminar and is a member of the Board of Directors of the Jean Monnet Institute in Paris and a Senior Advisor to the European Policy Centre in Brussels. His commentaries have been published in The New York Times, the Financial Times, The Wall Street Journal, Foreign Policy, and The National Interest, and he has appeared on PBS, CNBC, CNN, NPR, and the BBC.
He earned a BA from Harvard College and an MPhil in international relations from Oxford University. He speaks French, German, Italian, and Spanish.
President Trump claims the international trading system is unfair to the United States. The Trump administration is seeking to rectify trade imbalances through tariffs and is trying to reshape the global economy. Member of the European Parliament Daniel Caspary joins this episode of The Zeitgeist to discuss how Europe is responding to the U.S. administration’s trade measures and the importance of continued transatlantic engagement.
Host
Jeff Rathke, President, AGI
Guests
Daniel Caspary, Member of the European Parliament
Peter Rashish, Vice President and Director, Geoeconomics Program, AGI
Transcript
Jeff Rathke
Welcome, listeners, to this episode of The Zeitgeist. We are delighted to have with us Daniel Caspary. Daniel, thanks for being with us today.
Daniel Caspary
Thank you for the invitation.
Jeff Rathke
We are speaking on June 2. Daniel Caspary is the head of the German Christian Democratic delegation in the European Parliament. He’s also a member of the Trade Committee and has a lot of expertise in that field. We are delighted to have the opportunity to speak today during your visit to Washington.
Daniel Caspary
Thank you so much for having the opportunity for this exchange.
Jeff Rathke
Daniel is a member also of the Presidium of the Christian Democratic Union of Germany. He is from Baden-Wurttemberg around Mannheim. Is that your hometown?
Daniel Caspary
My hometown is close to Karlsruhe, but my constituency has the beautiful cities of Mannheim—you just mentioned—Heidelberg, Karlsruhe, the northern part of the Black Forest, Stuttgart with the car manufacturers of Mercedes and Porsche; I think many of your listeners may know those brands.
Jeff Rathke
Clearly someone for whom international trade is a big issue. We are speaking on June 2, and I point out the date because just later this week, June 5, we will have a visit of the German Chancellor Friedrich Merz in Washington, where he will be meeting with President Donald Trump and, of course, trade is going to be a big part of their discussions, I assume.
We are in an extraordinary period of transatlantic trade relations. Peter Rashish, vice president of AGI, and I are pleased to have this opportunity to talk with you. The Trump administration is trying to reduce the bilateral trade deficit in goods with the European Union, and the tariff measures by the Trump administration have garnered widespread criticism and attention. How do you think the European Union should respond to this situation, Daniel? Are they doing the right thing? What should the European response look like, in your view?
Daniel Caspary
What you could have seen in the past was that the European Commission and the European member states stayed very calm. I think that was the good reaction, because we see how strongly our supply chains are intervened across the Atlantic. We see the big interdependence. And we, of course, as Europeans, see that from our perspective, our biggest problem is not on the other side of the Atlantic but is somewhere in Asia, when we talk about China, for instance, and therefore the European Union has a big, big interest to keep up the strong relations with the United States on the one hand on security issues but on the other hand, on trade. When you talk about the trade deficit, I think it’s a big problem that in the debate it only seems to be the problem concerning goods where yes, de facto, we have a trade balance surplus from the European perspective of about €160 billion a year. But on the other hand, we have of course services where the United States have a big trade surplus in relation to the European Union, and when you then come to the core, then we are talking about 50 billion deficit for the United States overall. And that is if you see the huge amount of trade, that’s 3 percent of transatlantic trade. And what we don’t understand on the European side is, yes, €50 billion is a lot. But on the other hand, 3 percent of our bilateral trade, that’s nearly nothing. And to make such big chaos because of nothing, taking into account our big interdependency, which I just tried to explain, I think that is something which is difficult to understand for us in Europe.
Jeff Rathke
“Difficult to understand,” I think that’s a delicate way of putting it. It’s also true, though, that the United States administrations before the Trump administration have also had concerns about a trade imbalance between the United States and Europe, so in that regard, the instruments Donald Trump is using are new and the ferocity with which he applies them is new, but the issues themselves are not new. How do you see that in a broader historical context?
Daniel Caspary
Again, to come to the point. I’m an economist by education. I’m still convinced—and that is our conviction, I think, of the big majority of the European politicians—that you don’t get a trade balance by imposing tariffs. If you see, for instance, the car market in Europe, we have so many imported cars coming from Japan, coming from South Korea, coming from other countries. We have an open market, but the point is, do American companies in Europe really produce those kind of cars the European consumers want to buy? And the question is, I always understood the U.S. economy and the U.S. policy as very competitive, on the one hand and as very much competitiveness-driven. That also seems to be a little bit lost in this actual debate. So do tariffs really help to make the U.S. economy more competitive? Or does it do more harm?
Peter Rashish
Daniel, as important as a transatlantic economic relationship is, let’s zoom out for a moment to a broader level and look at the current U.S. administration’s policy. Do you see the United States retreating from its historical role or 80-year role as a guarantor of global economic order, or do you think instead it’s not against that idea that the United States should have some role, but it’s rather that it wants to create some kind of different economic order? And if that’s true, do you think there’s a role for the EU in the Trump administration’s vision, if it has one, of some kind of different global economic order?
Daniel Caspary
First of all, the question is, hasn’t it been the United States who created the existing order with the GATT, with the WTO, and all the rules which have been in place during the last decades, and therefore it is again surprising for Europeans that the the United States now is attacking this order the United States created. So, that’s the first question, perhaps, I would like to give back. And the second thing is yes, of course, within the WTO, we need changes. It’s questionable from my perspective, did China ever really want to become a reasonable member of the WTO, or was China perhaps a step too much? But now the question from my perspective will be, talking about global trade, will the Trump administration be the winner by destroying the actual order and go back to this tariffs and single bilateral deals? Or will the European Union and our partners like Canada, like Japan, like South Korea, I hope like India, like Indonesia, and others, will we be able to keep up something, what may look like multilateral trade agreements or base? And the question is, if we manage as Europeans to keep up this order, then I think it will be a big problem for the United States. And if the United States really managed to bring everything down, then it may be that the United States may win. But in the end, I’m very much convinced that if you take the United States, if you take the European Union, summing up everything, it would be best for all of us not to fight down the existing order, but to strengthen it, to bring it back to a functioning situation. For instance, the WTO, with all its possibilities, I think that would be more beneficiary for the workers and consumers on both sides of the Atlantic.
Peter Rashish
But am I right that it sounds like you’re saying that perhaps, the balance of economic power—to use a kind of realpolitik term—or at least the role of different economic pulls—the U.S., the EU, countries like India or Brazil—that that’s been changing, and that in your view, if the EU and some of the other countries you mentioned, Japan, South Korea, India, if enough of these countries try to reform the existing institutions, that that could be enough to hold together a kind of multilateralism in the future, even if the U.S. is not there for a while, am I right? Do I hear you correctly on that?
Daniel Caspary
We should try to do this because as said, I’m an economist by education, and my impression is that the Trump administration sees international trade as a kind of investment deal like for real estate: if someone is getting this piece of land, the other one can’t get it, so you have a winner and a loser. But international trade is not the one or the other one gets the piece of land. International trade from my perspective is more like baking pizza and you can make a pizza bigger or smaller. If you set up international trade, rules-based trade, fair international trade, that can be a situation that the pizza becomes bigger and bigger and everyone benefits. And therefore, I think on the European side, we just seem to have another understanding of the possibilities of rules-based trade order than the actual U.S. administration.
Peter Rashish
As long as we can agree on what kind of pizza to order, there should be a win-win situation there.
Daniel Caspary
Yeah. Definitely, it can be baked bigger.
Peter Rashish
Good to hear, good to hear.
You brought up the World Trade Organization, and it sounds like you do think it could have a future. But I think it’s also fair to say that it’s been struggling a bit. You mentioned China, that’s probably one of the reasons; it’s hard to know exactly what kind of economic policies China is pursuing. The transparency has been a bit of a challenge. I think there was the expectation that China would move more towards a fully capitalist economy. But there are other challenges to the WTO, whether it is digital trade or climate or other things, right? When we look at how the global economy is going to be organized and who’s going to set the rules and how we’re going to keep things in some kind of generally good working order, do you think that part of that will be more coalitions of the willing, where groups of countries get together on an issue-by-issue basis and say hey, let’s try to get some new rules here and let’s try to make that for as big of a group as possible, but we’re not going to necessarily get stuck by trying to get everything agreed by consensus in the WTO. Do you think that that’s going to be a helpful way to get to this next stage of global economic order?
Daniel Caspary
I hope but I don’t know if the WTO will be the future platform. But as said, taking the leading role of the United States creating the WTO and GATT several decades ago, I think creating even a new order, if it’s a reformed WTO or something totally new, definitely would be benefiting the United States, the European Union, like-minded partners, if you would be able to set something up and I can understand that the United States are unhappy about, for instance, some behavior of China when we see dumping, when we see jobs going to China because of unfair practices like state aid, state subsidies, tax reductions, which are against the WTO rules. I can fully share the situation and I can fully share the problem. We are facing the same problem on the European side, but then the answer again, from my perspective, should not be to try to become more self-standing, because take a very interlinked economy on both sides of the Atlantic. You can’t build any chips, fabric in the United States without supply from the Netherlands, for instance. You can’t produce any medicines in the United States without getting some products from Bayer or BASF, to just give some examples. And if we have this situation and if we then see that China does not stick to so many rules, that China is playing these unfair games that have nothing to do with fair competition or rules-based trade, then my question is, shouldn’t we try to make us on the right side—“us” as transatlantic partners— stronger by closer linking, deeper linking our economies. If we take into account the big investment of European companies in the United States, of U.S. companies on the European side, then we definitely would be better off. If we try to get a good settlement, perhaps remove all the tariffs, perhaps to talk about joint common transatlantic standards, that should be what we should focus on, and not the question do we have a trade deficit of 2 or 3 percent going in this direction? And if you allow again a question to the U.S. administration from this perspective, imagine taking into account our trade deficit on services. We would start the same debate with the United States, talking about the big tech companies being active on the European side, and if we say we want to get rid of this 110 billion trade deficit on services. I think you should not compare apples and pies, but.
Peter Rashish
It’s interesting what you say because one, I think a pretty notable initiative of the first Trump term was this effort among the U.S., Japan, and the EU in the WTO context to come up with some ideas from reform, particularly in this area of subsidies where China has been very active, let’s say. The administration seems quite focused on bilateral relations and tariffs right now, but let’s see whether at some point they would be open to reviving that kind of idea.
Looking at the EU, you’re in the European Parliament, you’re in the Trade committee, you’ve been part of the decision-making, and you know these issues very, very deeply. Given as far as we can see into the future and what the global economy is going to turn into, do you think that the EU has the right kind of toolkit to deal with the current or likely future global trading system? It has been developing some new instruments it can draw on that are not just reaching out to sign trade opening deals, but also things like the anti-coercion instrument or some new rules on fighting subsidies. Are you confident that the EU is not just aware of the challenge but has or will have the right kind of tools to deal with this much more disrupted global economy?
Daniel Caspary
We sharpened our swords. You mentioned the anti-coercion instrument, we renovated our anti-dumping instrument. We have our subsidies instrument. We have our screening instrument for foreign investment. To make this very clear, we are looking for foreign investment, but not foreign acquisition of IPI and other things. So, I think we did a lot in this respect. The other thing is, what this European Commission under Ursula von der Leyen is now doing, also focusing on our strength. So if we for instance improve our internal market, that could be a big chance for the companies and that could also be very interesting for U.S. companies to even get more engaged on the European side of the Atlantic. If we really manage to integrate fully our internal market. Take the defense area, that is also something where we on the European side have to better cooperate and will better cooperate, taking into account security risk coming, for instance, again from foreign technologies. Talking about companies like Huawei and others. And therefore there’s so many areas where we could improve transatlantic corporations and where we see, as Europeans, that we have to readapt and perhaps reshape and rewrite some policies. I think there’s also some money to earn for U.S. companies in Europe.
Jeff Rathke
Well, of course, there is a a bit of dissonance in some of the criticisms that you hear from the Trump administration because on the one hand, they seem to be unhappy with the idea of European Union, the regulatory environment. on the other hand, what are the alternatives to that? Twenty-seven different national regimes for trade regulation? That would be an even bigger headache for American companies and other foreign actors in the European market to deal with. But that’s sort of a question that doesn’t often get asked, at least in the public discussion.
Daniel Caspary
Yeah, or when we are talking about over-regulation on the European side, good European regulation will replace twenty-seven national regulations. So, is it over-regulation, or is it deregulation? It’s a question of understanding and questioning.
Jeff Rathke
You talked about the American trade surplus in services with Europe, and I want to connect it to another big global shift that we’ve seen in the last few years, driven in part by the Trump administration but not only by the Trump administration. That is this shifting balance between economic efficiency and what people call economic security. In other words, the national security aspects of international economic engagement and how to protect those elements that are important for national security while also being engaged in the world. Do you see this balance changing in how Europeans look at the world? The balance between openness and efficiency versus security?
Daniel Caspary
Definitely, that’s changing on the European side. Take again, for instance, the Huawei debate for our national telecommunications network and other strategic sectors. That’s the debate which is going on. But what I see with concern is that since the new Trump administration is in place, I also hear more and more people leading in politics or leading in business who raise the question, OK, we have to get more independence from China, but we also should get more independence from the United States. Can we rely and trust the U.S.? For instance, the debate about the latest air fighters, the F35, for instance, is a debate which I regret a lot, because I’m convinced that the transatlantic relationship is a strong relationship, that we have been in a position for the last eighty years, that we could trust and rely on the other one. Take, for instance, the NATO, which seems to be questioned by the Trump administration all the time. I think there was only one Article 5 case in the history of NATO; that was after 9/11 and it was about the 80 Germans dying because we fulfilled our Article 5 obligations and helped, for instance, in the war in Afghanistan. Then seeing this debate ongoing with, let’s say the problems created by the Trump administration, perhaps it’s the wrong picture. But by the questions or the trade fight or trade battle which is ongoing, that of course also leads to insecurity and uncertainty in other areas. And I see this with the big concern. Because again, I think the transatlantic partnership is something very unique and has been something very unique. And it’s not only Europe, it’s also the United States who until today benefit a lot from this strong relationship.
Jeff Rathke
Thinking then about the security impacts of international trade, there are some who argue that for Europe, it is a national security issue, whether one has what some people might refer to as digital sovereignty. Do you share this view? Does Europe need to have a greater domestic capacity to provide a platform for digital services?
Daniel Caspary
We have to, yes. But I’m very much convinced that we should not try to build up something like this by imposing, for instance, tariffs on services or digital services coming from the United States. Again, it has to be something with the quality, reliability. Therefore yes, we have to try to help European companies to go this way. Again we don’t try to solve this problem by keeping out U.S. companies or making it more difficult for U.S. companies, but to create an environment for new companies to grow on the European side and that is the answer we should give. Gaining more sovereignty by building up our own strength and not by keeping out others.
Jeff Rathke
Well, I think that’s a great place for us to wrap up our conversation. Daniel Caspary, thank you for sharing your observations on European trade and economic dynamics, the relationship with the United States, the intense interconnectedness of the transatlantic economy, and the impact it would have to try to pull that apart. Thank you very much for being with us.
Daniel Caspary
Thank you so much.
Jeff Rathke
And we look forward to having all of our listeners with us on the next episode of The Zeitgeist.
This podcast is made possible by support from the Konrad Adenauer Stiftung.
