Holding Europe Together in the Age of Trump

9 MINS READJan 21, 2017 | 14:18 GMT
Holding Europe Together in the Age of Trump
Chancellor Angela Merkel and other German officials will try to build ties with the administration of President Donald Trump to assuage concerns over changes to U.S. trade policy that could harm Germany's export-dependent economy.

Germany, like many of its European neighbors, fears that the policies of the incoming U.S. government could change the global order — and not for the better, from where Berlin sits. Chief among Germany's concerns are that U.S. President Donald Trump's administration will make good on his campaign promises to improve relations with Russia, undermine the future of NATO, end Iran's nuclear deal with the West and ignore climate change. But the source of Berlin's biggest anxiety hits a little closer to home: German exports. After all, the Trump administration has already threatened to impose protectionist trade measures (including a 35 percent tariff on U.S. automobile imports) that would deal a heavy blow to Germany's export-based economy. 

Either way, the prospect of a colder relationship with Washington is making Berlin nervous, particularly at a time when the European Union is mired in deep political crisis. In the coming months, Germany will doubtless try to strengthen its ties with the new U.S. president, making diplomatic gestures on defense and security issues while trying to dissuade the White House from declaring a trade war against Berlin. But protecting its economy and holding Europe together will not be easy, especially as nationalist rhetoric on the Continent and across the pond gets louder.

Though Trump's policies have yet to take shape, Germany's strategy for reacting to them has already been made clear. First and foremost, Berlin will try to forge a closer friendship with the new U.S. government. So far German officials have had only limited contact with Trump's team, and they have gained little insight into its plans. But Germany has long considered a strong alliance with the United States to be a cornerstone of its foreign policy, and it will do everything it can to protect that partnership. German Chancellor Angela Merkel has sent several high-ranking emissaries to Washington. In mid-December, chief foreign policy and security adviser Christoph Heusgen met with some of Trump's advisers, and in mid-January, Deputy Finance Minister Jens Spahn spoke with members of Trump's transition team about Germany's trade surplus.

Such meetings will become much more frequent in the months ahead. For instance, top U.S. officials may participate in the Munich Security Conference from Feb. 17-19; if they do, their German counterparts will certainly take the opportunity to try to build better relationships with them. Germany will also leverage its current G-20 presidency to get more face time with U.S. leaders during a conference of foreign affairs ministers in Bonn from Feb. 16-17 and a larger summit for heads of state in Hamburg on July 7-8. In fact, Merkel will likely visit the United States this spring in preparation for the Hamburg summit, holding her first meeting with Trump on the trip.

Meanwhile, Germany will also make moves on the military front. Trump is not the first U.S. president to demand more defense spending from NATO's European members. He is, however, the first to openly label the alliance "obsolete" and to hint that the United States might refuse to protect members that fail to meet the NATO defense spending target of 2 percent of GDP. On Jan. 18, Germany's defense minister announced that Berlin would boost its military budget this year by nearly 2 billion euros ($2.1 billion) to reach 37 billion euros. At only 1.2 percent of its GDP, this figure is still far short of the NATO target, but Germany has vowed to continue increasing defense expenditures over the next three years. It also hopes to preserve its close cooperation with the United States on counterterrorism.

Berlin will be looking to make changes to Europe's defenses as a whole, too. In recent months, Germany has advocated greater military cooperation throughout the European Union, and it has been working with the European Commission on proposals toward that end that will be presented in the first half of the year. Though these proposals will probably fall short of creating the "EU army" that some countries, including Italy, have called for, they will likely pool resources and better coordinate military spending and research on the Continent. Given the European Union's deep divisions, greater financial and economic integration is probably out of the question. But joint defense and security are two of the few areas left in which the bloc could reach some degree of consensus. Even then, however, EU members' conflicting interests will ensure that they make only modest progress in boosting cooperation on military matters.

Avoiding a Trade War

Germany will take steps to protect its massive current account surplus — now the largest in the world — from becoming the target of punitive trade measures as well. Over the past five years, Germany's current account surplus (a figure that includes the country's trade balance) has almost doubled, reaching 256.1 billion euros in 2015. Trump has accused Germany of not doing enough to increase its imports while having such a sizable trade surplus, and in October, the U.S. Treasury Department listed Germany as a country to watch because of its current account surplus. According to the report, Berlin has "substantial fiscal policy space to provide additional support to demand," and Germany's own eurozone peers have accused it of encouraging saving over consumption, slowing the currency area's recovery in the process.

Nevertheless, the United States can take a trade war with Germany only so far. Under U.S. law, Washington can introduce temporary safeguards to protect domestic industries threatened by certain imports. But these safeguards can target only imports, rather than specific countries, and Germany (along with any other countries hurt by such measures) would immediately challenge them in the World Trade Organization. Moreover, the U.S. International Trade Commission — an independent, bipartisan agency that is not under White House control — would be tasked with putting the safeguards in place. Should the Trump administration try to single out Germany, it would have to successfully argue that Berlin is supporting German exporters unfairly, perhaps by counting a cheap euro as an export subsidy, and then slapping countervailing duties on German exports.

If the United States were able to effectively target German exports, Berlin would take its appeal to the American people. In theory, it could argue that higher tariffs on German products would only increase costs for U.S. consumers. Also, Berlin would probably point out that, as part of a 19-member currency area, German officials do not control the euro's value; the European Central Bank (ECB) does. Germany has voiced concerns about the ECB's cheap euro policy before, and it will likely continue pressuring the institution to normalize its monetary policies now that inflation is making a comeback in the eurozone. (Of course, doing so would no doubt stoke tensions between Northern and Southern Europe, the latter of which has used the cheap euro to boost its exports and sees the ECB's programs as a means to keep borrowing costs manageable.) Finally, Berlin will remind American workers that many German companies, including BMW, Volkswagen and Siemens, have U.S. divisions that employ many Americans and use products from U.S. companies in their supply chains.

At the heart of Germany's debates over trade are two deep-seated fears about the effect that Trump's policies might have. The first is Berlin's concern that other parts of the developed world will start to echo the president's nationalist rhetoric, posing an existential threat to an export-based economy like Germany's. Several European political parties have already begun to praise Trump's statements, promising that the next U.S. government will prove that "protectionism works." With some of the European Union's most important members, including France, the Netherlands and possibly Italy, prepared to hold general elections this year, Germany is terrified by the prospect that nationalist forces will gain control of governments in the bloc. Additionally, Germany worries that Trump's attack against the cheap euro could become (or at least be perceived as) an attack against the entire eurozone. Germany's current account surplus is unique within the currency area, but other eurozone members may grow anxious that their participation in the bloc will put them in a protectionist White House's crosshairs.

Leading a Fragmented Continent

Amid all of the political wrangling, Germany will strive to keep European sanctions against Russia in place. The measures are set to expire in July, and they can only be renewed with a unanimous vote in the European Union. But Berlin's say in the matter is weakening, and it will have a hard time persuading the Continent to keep sanctions in place if the United States does not. (Until now, pressure from Washington has been one of the driving forces behind Europe's consensus on sanctions.) Germany is banking on the fact that any attempt Trump makes to lift U.S. sanctions on Russia will meet stiff resistance from members of his government and Congress. But with what could be a more Moscow-friendly government in Washington — and another that might soon emerge in Paris — the chances of at least a partial removal of EU sanctions will rise in the second half of the year.

So far Berlin has stuck to its hawkish stance against Moscow. German security agencies have repeatedly warned that Russia may try to interfere in upcoming elections in Germany and other European states. Berlin has also kept a careful eye on Russia's endorsement of Euroskeptic parties across the Continent. Nevertheless, Berlin will maintain open communication channels with Moscow as Merkel discusses issues such as the Ukrainian and Syrian conflicts with Russian President Vladimir Putin. German media outlets have also said that Berlin wants Russian officials to participate in the approaching G-20 summit, a sign that Germany is keeping its foreign policy options open. Should ties between the United States and Russia improve, Berlin probably will have no choice but to thaw its own relationship with Moscow. Yet if it does, it will have to proceed with caution so as not to alarm EU members in Eastern Europe.

So, in the months ahead, Germany seems ready to continue down the path of multilateralism that it has followed since the end of World War II, relying on international organizations like the European Union and NATO to address problems abroad. But standing by that strategy will get tougher as bilateral and regional cooperation threaten to gradually replace the world's multilateral institutions. Germany will do all it can to keep the European Union together, but at this point the bloc's fragmentation into smaller regional groupings may be difficult to avoid. In much the same way, crafting a coordinated EU response to Washington's foreign policy moves will be a challenge as individual EU members take steps to form their own ties with the new U.S. administration.

Time and again, Germany has tried to reinforce the message that a strong Europe requires a strong Germany and that Washington's relationship with Berlin is too strategic to abandon. But holding that official line will not be easy in the face of a crumbling European Union and a U.S. administration apathetic to the bloc's survival. And at a time when nationalism is carving deep rifts across Europe, similar sentiments from Washington may only speed the Continent's dissolution.

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