Opinion

Europe should lead the way with multilateralism

Despite the unique partnership with the USA, Europe needs to reflect on its place in an unstable world. Especially if the US Administration moves towards protectionism, the EU will need to build and deepen relationships with other partners.

By: and Date: March 16, 2017 Topic: Global economy and trade

This opinion piece was also published in Il Sole 24 Ore, La Tribune, Nikkei Asian Review and Nikkei Veritas.

Il Sole logo

La Tribune

nikkei

nikkei-veritas

The United States and Europe are more than allies. They share a long-standing and multi-faceted partnership. And the future of US-Europe relations is of fundamental importance for the global economy. However, this close connection has been under strain since the new US administration took office. For the European Union, this is a good opportunity to re-consider its geo-economic orientation.

Let’s not forget that the United States is the EU’s most important bilateral trade and investment partner. The EU exports more than US$ 600bn in goods and services to the USA, which exports more than US$ 550bn to the EU. Bilateral investments are also huge, amounting to more than US$ 2 trillion. Numerous European companies are active in the USA, not only selling but also producing there. The same is true for many US businesses in Europe.

But differences are emerging. Until the arrival of the current administration, the US supported a multilateral trade system and European integration. It also provided a security guarantee for Europe. Now the new US administration seems intent on replacing multilateralism with a bilateral approach, hoping to reduce trade deficits and to protect, in particular, the US manufacturing sector. On climate policy, the USA’s commitment to the Paris Agreement is being questioned. On defence, the NATO umbrella appears less certain than before. And Mr Trump has openly questioned the value of EU integration.

The USA’s new stance, although still undefined in many ways, has provoked uncertainty and nervousness in Europe’s corridors of power. So how can the EU best respond to the situation?

Trade is good for Europe. The EU is a relatively open economy. Trade intensity, measured as exports relative to GDP, is far greater in the EU (44%) than China (22%) or the US (13%).  The EU, like many other open economies, has benefited greatly from the multilateral system. Now Europe should stand ready to defend multilateralism, as I recently argued with my colleagues Maria Demertzis and André Sapir. The rules-based system, centred on the World Trade Organisation, lets all players trade with each other under high and comparable standards. Protectionism would reduce growth in the EU and around the world, and could mean lower standards and unfair competition.

Europe needs to prepare its strategic response in case the US openly defies the multilateral order and slides into protectionism. First, the EU should collaborate with partners around the world in defence of the WTO and other multilateral agreements such as the Paris climate pact. For example, if President Trump follows through on his tweets and imposes tariffs on Mexican imports, the EU could team up with Japan and others to defend Mexican rights and protect foreign investments in the country.

Second, the EU should accelerate work on deeper economic relations with China and other global partners. One obvious objective is to complete on-going negotiations on a bilateral investment treaty with China. But that does not mean that the EU should sacrifice its principles. It should insist on public rather than private dispute settlement as well as reciprocity in investment terms. Only after an EU-China investment treaty has been agreed should the two partners start negotiations on a bilateral trade agreement. The aim of the EU-China deal should be to improve market access and set high standards for the environment, corporate governance, consumer safety and workers’ rights. Any deal that would lower standards in the EU is not in Europe’s interest and should be rejected.

But it is equally important to advance with other countries, such as Japan, Singapore and the Mercosur bloc. And all these bilateral deals should be designed in such a way that it is eventually possible to integrate them into a more multilateral framework.

Third, the EU’s own trade governance needs to be reformed and internal imbalances addressed, to increase the EU’s external credibility. Strengthening Europe’s social model would ward off protectionist temptations.

And finally, the EU should prepare tools that could be deployed bilaterally against the USA. These include WTO-compatible anti-subsidy measures and possibly tax changes. On the whole, the EU should stand firm on its interests and principles, but avoid an unnecessary escalation. Much is at stake for Europe and the world – but with the right strategy, the EU could come out strengthened.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article
 

External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
Read article More by this author
 

External Publication

Global Economic Resilience: Building Forward Better

A roadmap for systemic economic reform calling for step-change in global economic governance to increase resilience and build forward better from economic shocks, prepared for the G7 Advisory Panel on Economic Resilience.

By: Thomas Wieser Topic: Global economy and trade, Macroeconomic policy Date: October 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Will ‘common prosperity’ address China’s inequality?

Why is China reviving this old mantra?

By: The Sound of Economics Topic: Global economy and trade Date: October 13, 2021
Read article More by this author
 

Opinion

European governance

The inconsistency in global strategic relations

All of this talk on strategic retrenchment and autonomy is the language of escalation, not of appeasement and collaboration.

By: Maria Demertzis Topic: European governance, Global economy and trade Date: October 13, 2021
Read article
 

Opinion

Xi’s pledge on financing coal plants overseas misses point

China’s domestic installation of coal-fired power plants continues at great pace.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 7, 2021
Read article
 

Opinion

Will China use climate change as a bargaining chip?

Beijing shows signs of changing tactics ahead of the COP26 conference.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 6, 2021
Read article More on this topic More by this author
 

Opinion

The geopolitical conquest of economics

Although economics and geopolitics have never been completely separate domains, international economic relations were shaped for 70 years by their own rules. But the rise of China and its growing rivalry with the United States have brought this era to an end.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: October 4, 2021
Read article More on this topic More by this author
 

Opinion

What Evergrande signals about China's economic future

Under Xi Jinping's new economic agenda 'common prosperity', China is cracking down on indebted real estate developers like Evergrande.

By: Alicia García-Herrero Topic: Global economy and trade Date: September 30, 2021
Read article More on this topic More by this author
 

Blog Post

Germany’s foreign economic policy: four essential steps

Germany and the EU need to develop a strong and proactive agenda to manage foreign economic relations, which are essential for German and European prosperity.

By: Guntram B. Wolff Topic: Macroeconomic policy Date: September 23, 2021
Read article More on this topic More by this author
 

Opinion

Europe doesn’t need a ‘Mega-Fab’

Europe should defend its existing dominance in equipment manufacturing for semiconductors and invest in chip design instead of luring high-end fabrication to its shores.

By: Niclas Poitiers Topic: Global economy and trade Date: September 22, 2021
Read article More on this topic More by this author
 

Blog Post

Opening up digital platforms and reducing anticompetitive risks

The current convergence in measures to open up digital platforms leaves a door open to some form of international coordination.

By: Georgios Petropoulos Topic: Digital economy and innovation Date: September 22, 2021
Read article More on this topic
 

External Publication

Investing in China: myths and realities

Concerns are real, but the country fares as well as peers at similar levels of development. Analysis published in fDi Intelligence.

By: Uri Dadush and Pauline Weil Topic: Global economy and trade Date: September 20, 2021
Load more posts