As we all know, Donald Trump kicked off the reinvention of trade relationships by imposing customs barriers on steel and aluminium. In addition to the duty of protecting this industry and the jobs connected with it, he was motivated by the strategic nature of this sector which is intrinsically linked to the army. Economy, employment, National Security. This is clearly about national sovereignty. Hence, logic and supranational bodies are again undermined (particularly the WTO and the EU).
Customs barriers: the EU on Trump’s radar
The Chinese competition is brandished as a red flag in order to sweeten the pill. As it happens, it is not China that is most worried. Although China produces about half of the world’s steel, it only ranks 11th among the countries most affected by the tariff measure. Surprisingly enough, the most affected countries belong rather to the allied camp: Canada represents 16% of US steel imports, followed by Brazil at 13%, then South Korea (10%), Mexico (9%) …
Figure 1 – Source: IHS
Europe does not appear on this chart at all, because the EU still does not exist in the minds of the media – especially (and conveniently?!) North American media. In fact, the EU is the largest steel exporter to the United States, accounting for 5 million tonnes out of the 35 million imported by Donald Trump’s country. As we pointed out at the beginning of this GEAB report, the EU’s response places it in complete contradiction with its fundamental principles of Transatlanticism and Free Trade. This, in itself, is a great achievement in the work of ‘moving the lines’ that Trump has been engaged in since entering the White House.
While the President’s measure may be particularly targeting the EU and has promptly succeeded in setting it against its principles, it might also be said that the business model Trump is focusing on is perhaps much more European than Europeans might believe…
Trade relationships: The glory and decadence of the European model
The fact is that the EU was a kind of driving force for globalisation between the years 1990 and 2000 due to its successful domestic free trade model and it legitimately worked to export its model of regional integration to other regions of the world. Then – and this is probably where it started to fail – it began to dream of being the champion and centre of the liberalisation of world trade. A step too far!
The EU’s regional integration had already begun to experience difficulties faced with the integration of countries economically and politically very different, like Eastern Europe countries. So, how could it aim to apply these principles to the entire planet? Nonetheless, in the 1990s, the EU embarked on a string of free trade agreements, mostly negotiated by the strongest against the weakest. But the EU was so successful that these agreements seemed economically unavoidable to its partners, even though several aspects were often difficult to swallow (Remember the trade agreements with Morocco, forcing the country to remove its restriction on European products, but accept the European agricultural restriction on its own products…).
The EU then attacked bigger parties, like India, with whom it has been trying to sign a free trade agreement for at least… 11 years! The huge wealth difference in favour of Europe and size difference in favour of India have generated reluctance on both sides, thus showing that ‘free trade is good when you are the strongest’, in direct contradiction to the European assertion ‘my free trade is good for everyone’.
Figure 2 – EU trade agreements at global scale. Source: European Commission.
The formation of free trade zones with the whole planet stopped when we attempted to connect the United States to Europe, via the famous TTIP. The Europeans, who hadn’t asked many questions before, started to understand that if ‘free trade is good when you are the strongest’, with the United States it was a bit difficult to tell who was actually the strongest! This is how civil society began to take a closer look at what was in the texts of these agreements and came across such scandalous subjects as the US-imposed ISDS clause (present in most of their own trade agreements with Australia, Japan, etc.) consisting of an extra-judicial investor-state arbitration mechanism.
Another step too far! The whole mechanism of free trade agreements shut down on both sides of the Atlantic. The US and EU trade empires broke against each other, imposing a complete overhaul that has just been kicked off by Donald Trump. The article in this GEAB issue on the model used by the United Kingdom begins to shed light on future trends, following a pattern that is starting to be called ‘pro-trade nationalism’, a model affirming that every state needs to be connected to the world commercially, but that each state is also entitled to adapt its openness to the protection of its national interests. Let’s face it, pro-trade nationalism will still serve the interests of the strongest, but we are counting on the new multipolar configuration of the world, in which there are several strongest ones!
The Chinese excuse to rethink the European model
It will be interesting to see in a future issue the strengths and risks inherent in this emerging model of global multipolar trade. For now, our purpose is to show that the EU is also about to switch to the ‘protectionist’ camp, as it is still called for the moment.
The EU’s retaliatory action against the US (customs restrictions on Harley Davidson, Levi’s jeans, bourbon) represents the first twist to its liberal rule. However, just behind the United States, there is China, which is a number one problem for the EU, the latter being the soft underbelly of global trade, entangled in its free trade rules and as such unable to organise itself in the face of the influx of Chinese currency.
Our readers know how much we are in favour of the EU’s awareness of the new geopolitical realities, which is not at all a question of denying or rejecting, but of accepting and understanding in order to better get reorganised.
Donald Trump’s attack on our steel exports to America provides a perfect opportunity to launch a debate on new bases for our trade relationships. We believe that the consensual theme of China will readily address the issue of developing a pro-trade protectionist European model via the negotiation of a much-needed EU-China trade agreement or even partnership. This will provide the basis for further strong to strong agreements, starting with EU/US, then EU/Russia …