Image courtesy Jonathan Ernst/ Reuters
There is a lot riding on the current G7 Summit in Canada. It will show the obvious and further erosion of the Transatlantic Alliance resulting from the trade policies of the Trump administration. On June 1, Trump’s highly contentious steel and aluminium tariffs came into effect. The EU will soon be retaliating with measures of its own. This bodes ill for international relations and global trade. It is imperative that business considers the implications of this.
A quick look back.
Let us briefly consider the history. The Transatlantic Alliance was a construct of the Allies that dates back to the Bretton Woods conference of July 1944. It came from a common belief that the postwar world needed to prevent a recurrence of the sorts of conditions that gave rise to the crippling depression of the 1930s, destructive nationalism and a second world war.
A key pillar of the alliance was a trade and monetary regime (World Bank, IMF, GATT etc). This was largely defined by the United States and Britain. Since the end of World War Two, the United States and Europe, in general, have been on the same page in their commitment to freer trade and market liberalization. This is no longer the case.
Trump and Transatlantic turbulence today.
Today, President Trump appears to be bent on breaking what has been a fundamental pillar of American foreign, economic and strategic policy for 74 years.
To be fair, he is fulfilling the promises he made during the 2016 election campaign. As the president he is doing what he was elected to do. He is making America great again. However, it is important to consider the wider implications of his policy objectives.
Many of America’s closest allies in Europe are losing faith in the relationship and in Washington’s credibility as a reliable partner. Trump is testing some key constructs on which transatlantic relations, and indeed world order, have rested. Very real cracks are starting to appear.
Key leaders of the European Union have openly declared a frustration over the policy choices taken by President Trump. Angela Merkel of Germany openly stated that the United States could no longer be seen as a credible partner and that Europe had to be bold enough to pursue its own interests.
Emmanuel Macron of France has also been explicit in declaring that the time had come for the European Union to chart a course independent of the United States. Importantly, Macron warned in September 2017 of the dangers of protectionist policies and about the withdrawal of the United States from the transatlantic relationship.
These pointed observations by Europe’s most powerful leaders are increasingly gaining currency.
The result of American policy under Trump is a further erosion of Washington’s ability to influence world events. American credibility is rapidly waning. This will assuredly create opportunities for aspiring challengers to impose their own influence, for better or worse, on Europe and the wider international system. Trump’s statement today that Russia be reinstated as a G8 (G7+1) member will only have further destabilizing effects on the transatlantic relationship. Furthermore, it will embolden Russia and will exasperate many Republicans and Democrats on the US domestic front.
The Iranian nuclear complication
The fracturing transatlantic relationship will further be tested by the politics of nuclear weapons. In this context the trade card is already being played. On May 8, the United States withdrew from the so called Iran nuclear deal ( formally known as the Joint Comprehensive Action Plan).
Subsequently, the White House and the US Ambassador to Germany pointed out that sanctions may be imposed on those nations and businesses who continue to trade with Iran. This riled the Europeans. It has added to the wider trade dispute with Europe as many businesses in European Union member states, in particular France and Germany, want to do business with Iran.
This development is something to monitor carefully as it may have further destabilizing consequences in transatlantic relations.
Where to next? US-EU division means bad news for business…
The current G7 Summit seems to be demonstrating how the United States and Europe are moving apart. The President of the European Council, Donald Tusk, said as much himself.
On the eve of the G7, White House leading trade advisor Larry Kudlow dismissed the trade dispute, especially in relation to Canada, as family bickering.
I disagree with Kudlow. This is going beyond a mere squabble. It is evident that the growing divide between the US and Europe is becoming serious. The apparent atrophy of the Transatlantic Alliance should not be taken for granted. There are many implications that go beyond trade. The most important being strategic and defense related.
The Transatlantic Alliance has been essential to the creation and maintenance of the international order under which so many nations have benefitted. Business has benefitted greatly from the liberal, rules based international order. That Trump, and some of his key advisors, shows scant regard for its history and the importance of what the alliance has facilitated is truly astonishing.
With the United States mid-term elections only months away trade will continue to be an important issue. I do not expect Trump to soften his position. He needs to energize his base to have a reasonable chance of maintaining a Republican majority in the House. He will continue to argue that by snubbing some of Washington’s closest allies he is putting America first and creating American jobs.
As the Transatlantic Alliance continues to diverge, the global business community will find itself operating in an uncertain and increasingly chaotic international political environment. History shows repeatedly that politics wins out over economics. If there is one thing business leaders do not like, it is uncertainty.
Trump’s confrontational attitude at G7 serves to further undermine transatlantic relations and, ultimately, American interests. In the medium to longer term Trump’s policies, and the tit-for-tat protectionist responses that are likely to follow, will become a major problem for business.