Opinion

Strategic autonomy or strategic alliance?

It is hard to imagine how either the EU or the US can do better on the big issues if they pursue their interests separately.

By: Date: February 2, 2021 Topic: Global Economics & Governance

This piece was originally published in the Money Review section of Kathimerini and in El Economista.

On the day of the United States presidential inauguration, European Union leaders lost no opportunity to express relief that the world hegemon was back, ready to cooperate and help solve common problems.

But the truth is that, during the last four years, the world has not simply stopped and waited for the US. The EU in particular took important steps in understanding the importance of strategic autonomy. Pushed by the uncooperative Trump administration, the EU pursued bilateralism, aiming to protect its own interests.

This pursuit of strategic autonomy by the EU is de facto an attempt to separate from the US. The big question now a new US president is in place, is whether we need to continue such a pursuit.

The answer to this question should depend on how aligned the new US administration will be with the EU on fundamental issues. There is great scope for the two to align on climate change and on how to fight the pandemic. However, there is also scope for significant disagreements.

The most obvious is how to deal with big tech companies that are considered to have acquired too much power to the detriment of good economic outcomes. In particular, given their global nature, it is not clear how to tax the services these companies provide.

The EU appears a lot more decided on this. The European Commission in December issued a draft law, the Digital Markets Act, in which it proposes to monitor and ultimately prevent the built up of power for those big digital firms. What is interesting about this proposal is that it is extra-territorial in nature: it applies to all firms operating in the EU irrespective of whether or not they have a physical presence in the EU. This was a necessary feature or otherwise the Act would not capture the big firms, which are all non-EU based. But it also creates the impression that the EU is looking to attack US firms, a fact that will not sit well with the new administration.

If regulation is about controlling the size of big firms, taxation is about redistributing their profits. After many attempts to coordinate, at the Organisation for Economic Cooperation and Development (OECD) level, President Trump withdrew from international tax negotiations in the summer of 2020. The French authorities have repeatedly argued that if there is no agreement at the international level, they will unilaterally tax the big technology groups. The US considers this an unfair practice as, again, it affects largely US firms and has threatened retaliation. With the transition to a new administration, the two sides have called a truce and have agreed to discuss again within the OECD multilateral taxation framework. This will be the first challenge for the new OECD leadership.

And then, there is of course China. The change of administration in the US will not change its policies towards China. If anything, the Biden administration will seek to strengthen the US stance by calling a “democracy summit”: a place where like-minded countries meet to form a front against China. The EU, on the other hand, is very reluctant about this and insists that it does not want to take sides, preferring instead to maintain a very transactional relationship with China. Public opinion in the EU is turning increasing unfavourable but also recognises that China is the world’s biggest economy. But while the EU could afford to play the waiting game when the US administration was perceived to be unreasonable, fence-sitting will be a lot more difficult with a much more amicable President.

So, when it comes to concentration of market power in big tech companies the EU is clear on how it wants to proceed. The US is less clear. On China, the US is very much decided on the level of antagonism it wants. But the EU hesitates.

But while economic interests may not be always aligned, there is much more at stake than economics alone. It is hard to imagine how either the EU or the US can do better on the big issues if they pursue their interests separately. The new US administration provides an opportunity to restore not only what the previous administration so carelessly risked, but to advance on issues that will reduce divisions in an ever-more divided world.

On the 20th of January, Council President Charles Michel talked about a “Europe that plays a stabilising and constructive role …in line with our true weight in the world….” But true weight comes with building strategic alliances.


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 More on this topic More by this author
 

Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
Read article
 

Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Read article More by this author
 

Podcast

Podcast

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: The Sound of Economics Topic: Energy & Climate, Global Economics & Governance Date: June 11, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Europe should not neglect its capital markets union

The European Union’s capital markets remain very underdeveloped compared to the United States. The market for equity, as measured as the size of the total market capitalisation of listed domestic firms relative to GDP, is much larger in the US and in Japan than in Europe.

By: Maria Demertzis, Marta Domínguez-Jiménez and Lionel Guetta-Jeanrenaud Topic: Finance & Financial Regulation Date: June 7, 2021
Read article
 

Opinion

A transatlantic climate alliance

When Joe Biden visits Europe for the first time as US president, he should begin forging a transatlantic green deal.

By: Ana Palacio and Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: June 4, 2021
Read article More on this topic More by this author
 

Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: June 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Form a climate club: United States, European Union and China

Can the three biggest economies agree a carbon tax on imports to catalyse climate action globally?

Speakers: Simone Tagliapietra, Sheldon Whitehouse and Guntram B. Wolff Topic: Global Economics & Governance Date: May 3, 2021
Read article More on this topic
 

External Publication

Form a climate club: United States, European Union and China

If the three biggest economies agree a carbon tax on imports, it will catalyse climate action globally.

By: Guntram B. Wolff and Simone Tagliapietra Topic: Energy & Climate Date: March 23, 2021
Read article
 

Blog Post

An update: Vaccination in the EU

Progress has been made, but more progress is needed.

By: J. Scott Marcus and Niclas Poitiers Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: March 17, 2021
Read about event More on this topic
 

Past Event

Past Event

Declining competition: a transatlantic challenge

Join us for a discussion of transatlantic competition with Kristalina Georgieva, Margrethe Vestager and Amy Klobuchar among others.

Speakers: Romain Duval, Kristalina Georgieva, Greg Ip, Amy Klobuchar, Nancy Rose, Tommaso Valletti, Margrethe Vestager, David Wessel and Guntram B. Wolff Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 15, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Low interest rates: a transatlantic phenomenon

Structural factors are putting downward pressure on rates: is it time for macroeconomic policy to play second fiddle in managing demand?

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 10, 2021
Read article Download PDF
 

Policy Contribution

Low interest rates in Europe and the US: one trend, two stories

Interest rates have been on a long-term decline, associated with declining productivity growth. To tackle this, the priorities are to reduce market concentration and, in Europe, change the financing model.

By: Maria Demertzis and Nicola Viegi Topic: European Macroeconomics & Governance, Global Economics & Governance Date: March 10, 2021
Load more posts