Transatlantic Cooperation: possible scenarios

The EU-US summit on 15 June 2021 marked a new phase of EU-US relations. After four years of isolationist rhetoric and open economic hostilities, the US declared readiness to return to the principles of transatlantic cooperation. This is a significant development since Trump’s four years in office put into a question the system of international relations built by the US after WWII. Since 2016 Trump’s administration undermined every major global foreign policy initiative taken by its predecessors: it abandoned the Transatlantic Trade and Investment Partnership (TTIP) negotiations, withdrew from the Trans-Pacific Partnership Agreement, the Paris Agreement on climate change, and The Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear program, started a trade war with the EU and China and questioned the need for the NATO alliance. What was unthinkable under every US president since Harry S. Truman, became a reality under Donald Trump to the degree that his term in office became a perpetual political Black Swan event of a sort.

The June 2021 summit was meant to heal the rift and demonstrate American commitment to its allies. The summit’s final seven-page document outlined the areas of cooperation and set the framework for any future negotiations. Key areas of cooperation between the EU and the U.S. include response to the COVID-19 pandemic, environmental protection and development of "green energy", strengthening trade relations, investment and technology cooperation, promoting democracy and peace.

The issues of key importance to both parties (although not necessarily in the same order of importance) are the EU-US trade, technology, security, environmental policies, Russia and China.

EU-US Тrade

In terms of international trade, the two most serious points of contention between the U.S. and the EU are:

1. transatlantic trade rules pushed forward by Trump;
   
2. the use of U.S. sanctions against EU companies that cooperate with regimes unfriendly to the United States.

When Trump's administration abandoned the idea of TTIP, the main reason for it was the U.S. trade deficit that reached $736 billion in December 2016, 20% of which ($147 billion) was accounted for by the European Union, the main U.S. trade partner for value-added goods.

On March 8, 2018, the U.S. announced a 25% customs duty on steel imports and a 10% duty on aluminum imports. The exception was made only for Mexico and Canada, but not for Europe. In response, the EU imposed an additional €2.8 billion duty on imports of U.S. goods. Although, Biden himself called the recent history of economic relations "an artificial trade war with Europe," the duties on steel and aluminum have not been abolished and their application is to be discussed.

Another serious point of divergence is U.S. unilateral sanctions against European business entities that have relations with the states blacklisted by the US. During the last decade (2009-2019), the U.S. Department of the Treasury imposed fines on 191 companies and dozens of individual fines for violations of the U.S. sanctions regime. The total amount of fines was $5.6 billion. At the same time in 68 cases (34%) penalties were imposed on European companies. More importantly, Europeans paid the largest share of these fines ($4.6 billion). In 2014, France's BNP Paribas was forced to pay $914 million to the U.S. Treasury Department for its cooperation with Iran, and Britain's Standard Chartered Bank was fined $650 million. The Dutch ING Bank paid $619 million in 2012 and the Italian and Austrian branches of UniCredit Bank paid $611 million in 2019. Fear of such "punishments" led French companies Total, Renault, and Pegeot to cancel lucrative contracts in Iran after the U.S. unilaterally withdrew from the JCPOA in 2018. So far, no solution to this issue was found.

Technology

The summit brought some good news: US and EU agreed to form a joint EU-US Trade and Technology Council. They also agreed to create a joint body for cooperation in the field of aircraft engineering and change the global balance of supply chains for semiconductors. The latter is extremely relevant, since 70% of semiconductor parts (chips) are currently manufactured in China and this share is growing. The parties also agreed on the need for WTO reform.

The U.S. intends to convene a conference on WTO reform to solve the existing contradictions. There they intend to propose a global tax on large corporations. However, this does not change the fact that the Biden administration, like its predecessor Trump, will gravitate toward protectionism.

Biden has signaled that he will pay more attention to the transatlantic digital partnership. His administration's priorities include regulating online platforms and antitrust legislation for Big Tech companies. The EU has already expressed interest in cooperating with the U.S. on digital and technology issues. EU High Representative Josep Borrell has advocated a "technological alliance" with the U.S., and European Commission President Ursula von der Leyen has called for a transatlantic "rulebook" to limit the power of tech companies and combat the spread of misinformation. At the same time, the U.S. has no intention of sacrificing the profits of its Big Tech companies. The Biden administration is preparing to impose offsetting tariffs against Austria, Italy and Spain for their digital service taxes. Another EU fear is that a new framework for transatlantic data sharing could destroy privacy policies and lead to information leaks.

Environmental Policies

The creation of a new, clean energy industry is certainly the main issue that brings the EU and the new U.S. administration together. However, even here there are differences, if not disagreements. As for the environment, the task was set to bring carbon emissions to zero by 2050, to stop using coal in thermal power plants in the near future, and to preserve the natural diversity of at least 30% of the Earth's surface and oceans by 2030. Two sides have decided to create a Transatlantic Green Alliance.

· China

Significant differences between the U.S. and European allies remain on the Chinese dossier. Brussels, like Washington, is concerned about China's growing expansion. But while the U.S. is concerned about China's military and political rise and the deficit in U.S.-Chinese trade, the Europeans are concerned about such economic factors as the Chinese purchase of large assets in Europe, industrial espionage, copyright violations and technology "theft," monopoly of Chinese companies in the supply chain of some key products, Chinese government subsidies to a number of companies that improve their competitiveness.

At the same time, Europeans do not want to take sides in the U.S.-China standoff. As an indication of this divergence, in December 2020 the EU concluded the Comprehensive Agreement on Investment (CAI) with China, which president of the European Commission Ursula von der Leyen hailed as “an important landmark” that will provide “unprecedented access to the Chinese market for European investors.” Another important indication of US-EU compromise on China is the omission of the term genocide from the EU-US Summit 2021 Statement when mentioning the situation in Xinjiang. (The annual State Department human rights report presented in March 2021 by Anthony Blinken accused China of “genocide and crimes against humanity” in the region.)

· Russia

Russia is one of two "revisionist" states (together with China) that the United States views as a potential threat to its interests. There are serious nuances however in the way US and EU perceive Russia.

Like US-Russia relations, relations between Russia and the EU have deteriorated significantly over the past seven years after the annexation of Crimea. The EU leadership is unlikely to recognize the annexation of Crimea in any near future, considering it a violation of international law. The EU is also concerned about Russia’s curtailing independent press and cracking down on opposition groups. At the same time, many leading European powers, like Germany and France, do not want to be drawn into an open confrontation between the United States and Russia, and are ready to develop limited cooperation with Moscow.

The EU diffused diplomatic style reflects the divergence of security concerns and economic interests among its member states. Poland and the Baltic states, take a vigilant approach to dealing with Russia, while Germany and France are eager to improve economic exchanges with Russia while deterring it geopolitically. The attitude of the German government to the Nord Stream-2 pipeline is but one example.

Window of opportunity and the future scenarios

The years of tension in US-EU relations seem to come to an end. Four years of Trump’s presidency demonstrated that transatlantic relations, developed since the end of WWII, can be easily disrupted by a single individual’s ideological tunnel vision and the lack of foreign policy expertise. EU continued over-reliance on transatlantic cooperation mechanisms may one day play a bad trick on its member states in their pursuit of building a union capable of defending its strategic interests. Tracing the future EU-US relations, one must view EU as a key global actor capable of defining its own agenda and securing its political reputation world-wide. Given the challenges facing current transatlantic relations, what are the short- and medium-term possible scenarios for the EU-US relations? ⁽¹⁾

· The first scenario

Biden administration manages to end the COVID-19 pandemic, relaunch the US economy that rapidly reach the pre-pandemic rate of growth. Democrats secure the second presidential term in 2024. At the same time, Russia erratic behavior undermines stability and/or security of its post-Soviet neighbors (Ukraine, the Baltics, and Moldova.) In such a case, Washington takes further steps to isolate Russia. Washington wields enough influence to encourage Turkey to abandon its unilateral actions in the Eastern Mediterranean. Given that one of Turkey's main antagonists in the region is France, this would increase French confidence in the US. The Transatlantic Trade and Investment Partnership will be finalized, signed and ratified. Green economy become reality; US and EU develop new sources of energy and further marginalize Russia as fossil fuels supplier. NATO become more robust as military expenditures of European members of NATO increase.

· The second scenario

Slow economic growth in the United States would makes it impossible to talk about American economic leadership. At the same time, US may partially normalize its relations with Russia. There is no question of their complete normalization in the foreseeable future. However, the U.S. leadership can reduce the conflict in relations with Russia to focus on confronting China. US and EU cooperate in certain areas beneficial to both sides, like combatting the COVID-19 pandemic, developing “green economy," cooperating on cybersecurity and conflict resolution in some parts of the world. European companies will gravitate towards ‘bypassing’ the sanctions regime when cooperating with Russia. A new payment mechanism might also be implemented, as an alternative to SWIFT. The INSTEX payment system developed in 2019 for trade with Iran, but never fully implemented, might be considered as such. On the security front, cooperation with the US may increase, but allies would continue to shift financial burden to Washington. At the same time, Russia will do everything to undermine NATO politically.

· The third scenario

Election of Donald Trump or someone like him to the White House leads US to return to policy of isolationism. The COVID-19 pandemic is contained but not eradicated. As a result of economic uncertainty, the EU enters the period of recession followed by political instability. Anti-EU forces may push Greece, Hungry or some other country to leave the EU. Turkey continue to pursue aggressive policy in the eastern Mediterranean and enters into a military confrontation with Greece. NATO is paralyzed. EU economic policy becomes more protectionist, which in turn restarts the tariff war with the US. The Paris-Berlin-Moscow axis becomes once again the topic of discussion.  

⁽¹⁾ These scenarios incorporate some variables within the framework of recent political trends. The variables in these scenarios are numerous, there are also some “unknown unknowns“ (to use the Donald Rumsfeld’s expression), so not all of them can be taken into account in this brief presentation.