Containers are stacked on the deck of cargo ship. Picture taken October 13, 2021.

Commentary Type

Transatlantic relations in a super-electoral year

Photo Credit: REUTERS/Brendan McDermid

Keynote address delivered at "Evolving Alliances: Transatlantic Relations in a Super-Electoral Year, " the public panel of the Transatlantic Bridge initiative, IE University, Madrid, Spain


I am thrilled to be here with you and look forward to discussing transatlantic relations with you today and tomorrow. I am aware that this day is very special and full of mourning for many of you as we commemorate 20 years since the terrible attack at the Atocha Station. So today can also be a new reminder of the shared transatlantic commitment to stand together against terrorism.

Let me start by saying that overall, transatlantic relations are good. I am proud to note that my country, Sweden, was actually the first neutral country to recognize the new American Republic at the Peace conference in April 1783 and to conclude a trade agreement, including both most favored nations provisions and cooperation against smuggling!

After the Second World War, Europe and the United States cooperated, under American leadership, to set up the global institutions that would help us manage the post-war challenges. We built the international architecture to uphold the liberal world order standing against anarchy and authoritarianism.

We had the North Atlantic Treaty Organization (NATO) for security against the emerging communist bloc.

We saw the birth of the United Nations to foster cooperation on a grander scale.

The Bretton Woods Conference lay the ground for the post-war financial system with the World Bank and the International Monetary Fund (IMF).

And the General Agreement on Trade and Tariffs (GATT); later the World Trade Organization (WTO), for stability and open trade, a fundamental economic freedom. The United States was instrumental in creating the global trading system with openness, increased liberalization, and international norms and rules.

Modern liberal Europe was possible due to the help of the United States. The purpose of the Marshall Plan was to build a democratic and peaceful Europe to establish freedom and democracy at the heart of the global order. And that plan, with all its flaws, was successful.

And it worked for a long time. Yes, we had conflicts and deep divisions. But overall, the global world order survived. The fall of the Berlin Wall and the collapse of the Soviet empire united Europe and brought about an unprecedented era of democratization, global cooperation, trade liberalization and close transatlantic cooperation. Europe and the United States together.

Until recently. Growing protectionism on both sides of the pond, the global erosion of democracy, Russia's brutal invasion of Ukraine, the geopolitization of trade, the increasing isolationism in the US Congress, and the comeback of industrial policy. These are some of the challenges Europe has to handle, independently of who sits in the White House.

The transatlantic relationship has been one of the most significant in the world. Securitywise, politically, and economically. We trade for more than one trillion US dollars' worth of goods and services every year, $3.6 billion every day. More than sixteen million jobs are supported by the transatlantic economy. We can achieve fantastic things if we stay together. All countries and all states on both continents benefit from that trade.

TTIP: The trade agreement that never was

For two countries trading so much with each other, it is strange that we do not have a trade agreement. The Transatlantic Trade and Investment Partnership (TTIP) tried to fix that. It failed. It is still a good idea, but it will not happen anytime soon.

And then came President Trump

With President Trump, the transatlantic trade relations deteriorated with the new American official view on trade and transatlantic relations. "Trade wars were good and easy to win." The European Union was a "foe" who only wanted to take advantage of the United States. To fulfill the electoral promise of supporting the Rust Belt, the president decided to reopen old steel mines and started an investigation into steel imports, only 100 days into the administration.

In May 2018, he imposed tariffs on steel (25 percent) and aluminum (10 percent) under Article 232 in the American Expansion Act and accused European nations of being a national security threat by exporting steel. There were also threats on cars and French wine. The European Union introduced counter tariffs, on goods worth $3.6 million.

Trade thereby become weaponized in a way we had not seen before. A generation of Americans and Europeans fought together in the Second World War, 70 years ago. Some died side by side on the beaches of Normandie. The United States was considered as the liberator, the bastion for peace and democracy. Many Europeans therefore took huge offence to being called a security threat by the United States.

Then came the Biden administration

There was a significant relief in Europe after the election of President Biden. The pandemic saw a remarkable cooperation between European and American scientists and plants to develop vaccines and later to help roll them out.

After Russia's terrible invasion of Ukraine, an act of brutal atrocity, the United States and Europe have once again stood together, coordinating very closely on sanctions against Russia and support to Ukraine.

But on trade, things continued to be complicated. As a candidate, Mr. Biden had been a fierce critic of President Trump's trade policies, but once elected nothing really changed. The Biden administration has been very forceful in declaring that it would do no trade agreements that involved market access, and over all the policy has been to focus on American workers, strengthening the Buy America and the Jones Act. The administration has continued the trade war against China, although with slightly more diplomatic rhetoric.

In the WTO the United States and the European Union used to work together; this is no longer the case. The WTO Appellate Body is still blocked, and at the Ministerial Conference 13, the United States was very passive.

GASSA – Global arrangement on sustainable steel and aluminum

The steel tariffs were declared noncompliant by the WTO: The Biden administration exchanged them for quotas, 1,400 in 27 different countries. Cumbersome. There have been negotiations to try to find an arrangement on sustainable steel, putting tariffs on steel that come from dirty production in nonmarket economies.

The European Union has been hesitant, [as it] would jeopardize the Carbon Border Adjustment Mechanism (CBAM) and also target China in a non-WTO compliant manner. Furthermore, quotas still remain. Negotiations have now been paused and the whole issue kicked down the road until March 2025, after the elections on both sides.

One thing that the administration did do - TTC

In September 2021, US and European officials met in Pittsburgh to discuss their differences on trade. Under the Trump years mistrust had developed and there was a lot to talk about.

This resulted in the creation of the Trade and Technology Council, TTC. TTC was not intended to be a trade agreement of any kind. It has 10 working groups, and they cover a range of issues—from artificial intelligence (AI), semiconductors, digital, tech standards, export controls, investment screening, to clean technologies. It meets often in working groups and twice a year on a ministerial/commissioner format.

It has also been an important forum to coordinate Russian sanctions and supervising them. The United States seeks to have a stronger stand from the European Union on China, and the European Union, as it struggles with its own efforts to find a joint position on China, wants by all means to avoid the TTC becoming a "China bashing" exercise.

[It is] important to build institutions and cooperation that can survive, independently of who is in the White House. TTC has made a few useful things: AI principles, charging device standards, semiconductor discussion, coordinating investment screening procedures. Everything that can build trust is good. But I think there is general agreement that the TTC has underdelivered.

And then came IRA

As the Trade and Technology Council was very much about recreating trust, it was a kind of a cold shower for Europeans to learn about the the Inflation Reduction Act (IRA) via media and not within the TTC format. The Inflation Reduction Act is a legislative package adopted by Congress aimed to massively invest in the green transition and in climate-friendly technology.

More than $300 billion in federal dollars will support green technology, green energy, energy saving, solar panels, batteries, etc.

The European Union, and most of the world, have welcomed the package and its focus on the green transition. After the withdrawal from the Paris Agreement by President Trump, large climate investments are good news. The problem is that the package contains some clearly discriminatory elements.

Production and components have to be made locally in the United States, or countries with whom the United States has a free trade agreement. This seems to be clearly against WTO rules (non-discrimination and local content).

The European Union has reacted by fine-tuning its Green Deal and with an industrial plan and the Net-Zero Industry Act. Faster and quicker handling of subsidies applications if related to Green Deal and digital. Relaxed rules for state aid rules. Increasing tensions as companies threaten to invest in the United States.

More state aid and industrial policy risk seeing a global subsidies race. The subsidies also risk damaging the internal market. There is a reason we had tough rules.

Critical minerals agreement

If there had been a trade agreement between the United States and the European Union, a TTIP, things would have been much simpler. Europe would then have access to the tax credits for electric vehicles. But now an innovative deal is in the making concerning raw materials. A similar one has been made between the United States and Japan. It concerns rare earth metals. The dependence on these minerals—cobalt, lithium, bauxite, nickel, copper—is vital to the production of computers and phones, but also in batteries, wind turbines, and electric vehicles. They are essential to the new green technology needed for the climate transition.

The problem is that the European Union is to 85-90 percent dependent on rare earth metals from China, which owns or controls the extracting and mining processes in many countries. The United States is in the same situation. No or negligible extraction is done in either the European Union or the United States.

With tension rising between China and the West, the need to diversify vulnerable supply chains has become acute. Several EU countries have these minerals underground, but investment costs are high, and permit procedures, environmental impact assessments, etc., are lengthy and complicated.

So, what shall we do?

This is an election year with lots of uncertainties. We might see the comeback of President Trump and possibly new leaders in Europe. We will certainly see a more polarized European Parliament. If Trump comes back, it will be even harder to engage on Ukraine and NATO. Europe needs to take a stronger role and scale up on defense. We have already seen different proposals, and the European Council will discuss these in two weeks.

Donald Trump has flagged his intention to impose a 10 percent flat tariff on all imports and an additional 50 percent on China. And he means it, we have seen it before, and now former USTR Lighthizer has written about it. Will a Trump administration leave the WTO?

The European Union has launched a whole range of different strategies—Open Strategic Autonomy, Economic Security Strategy, Net-Zero Industry Act, and of course all the elements of the Green Deal. Some of these are more useful than others.

We as Europeans need to realize that 90 percent of global growth is happening outside Europe, so we need to become more competitive. The Financial Times writes today about the European competitive crisis. We need urgently to reform and strengthen the internal market.

The European Union must engage more with other countries and create strong alliances. We can do that through our free trade agreements and use the soft power that comes with it in trade, cooperation, engagement, innovation, etc.

We need to strengthen existing agreements with Japan, Canada, Singapore, Vietnam, etc. [The agreement with] New Zealand will soon enter into force and so will our agreement with Chile. The agreement with Mercosur will be difficult before the elections of the European Parliament. We should resume negotiations with Australia, Mexico, Indonesia, and India. The European Union should seek to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It is a dynamic agreement where we could help develop standards. It would strengthen our strategic alliance in that region. We should also adhere to the Digital Economic Partnership Agreement (DEPA).

We need to find a joint strategy on China. Derisking is wise for critical minerals, but more than 90 percent of our trade with China is not vulnerable. We need to engage with China on green trade, on climate, and on reforming the WTO. We have important trade defense instruments, yes, but we need to use them wisely. Companies are already diversifying and making their supply chains more sustainable and flexible.

We need to reform and modernize the WTO. There was unfortunately not much success at last MC13, but Europe needs to keep on working with middle power countries and promote reforms and plurilaterals. We are sad to see the lack US engagement here. Ambassador Tai, the US Trade Representative, has said that the WTO is not fit for purpose. I agree with that, but then let's work together to change it.

The WTO could ideally play a key role in supervising the different jurisdictions on carbon pricing and also seek to revise the anti-subsidies rules and try to find agreement on what is a good/bad subsidy.

With the United States (and other like-minded countries) we should work more on critical minerals. We could consider joint investment and seek to work together with countries who are already mining or processing these minerals. Possibly we can assist in making the process more sustainable and make sure the host countries keep a larger part of the revenue. This could also reduce dependence on China.

We need to try to develop the TTC and make it more focused. We should seek to agree on nonpolitical win-win solutions on joint standards and conformity assessments in AI, pharma, and tech and digital standards.

And we need to find a solution on CBAM; it risks becoming a new irritant in the transatlantic relationship. The carbon border adjustment mechanism aims to reduce carbon leakage but also create a fairer, level playing field.

The United States fears that this will hurt US exports to Europe, as it thinks it could choose other means to achieve its climate objectives. This is an issue that needs to be solved. How can we agree on a system to measure carbon emissions? GASSA could potentially be a forum to engage.

Ladies and gentlemen, the transatlantic relation is strong and solid but can become very rocky. We are in for a bumpy ride. I wish I could be more optimistic. We need to find concrete areas, a bit under the radar, where we can find results and maintain cooperation. Luckily, this conference has that specific objective. I am looking forward to that discussion. Thank you.

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