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: Date: March 16, 2017 Topic: Global Economics & Governance

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 communication@bruegel.org.

View comments
Read article More on this topic More by this author

Opinion

China’s view of the trade war has changed—and so has its strategy

The truce agreed on by China and the United States at the sidelines of the recent G-20 meeting in Buenos Aires doesn’t really change the picture of the U.S.’s ultimate goal of containing China. The reason is straightforward: The U.S. and China have become strategic competitors and will continue to be so for the foreseeable future, which leaves little room for any long-term settlement of disputes.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 19, 2018
Read article More on this topic More by this author

Blog Post

Brexit: Now for something completely different?

The life of Brexit. After a week of ECJ rulings, delayed votes, Theresa May’s errands across Europe and the vote of no confidence, we review the latest economists’ opinions to try to make sense of what has changed and what hasn’t.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: December 17, 2018
Read article Download PDF More on this topic More by this author

Policy Contribution

Forecast errors and monetary policy normalisation in the euro area

What did we learn from the recent monetary policy normalisation experiences of Sweden, the United States and the United Kingdom? Zsolt Darvas consider the lessons and analyse the European Central Bank’s forecasting track record and possible factors that might explain the forecast errors.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 13, 2018
Read article More on this topic More by this author

Opinion

Immigration: The doors of perception

Surveys show that people systematically overestimate the share of foreign-born citizens among resident populations. Aligning people's perceptions with reality is vital to the betterment of public debate and proposed policies.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: December 12, 2018
Read article More on this topic More by this author

Opinion

The great macro divergence

Global growth is expected to continue in 2019 and 2020, albeit at a slower pace. Forecasters are notoriously bad, however, at spotting macroeconomic turning points and the road ahead is hard to read. Potential obstacles abound.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: December 5, 2018
Read article More by this author

Opinion

The world deserves a more effective G20

As the presidency shifts from Argentina to Japan at Buenos Aires (and then to Saudi Arabia) it is worth asking why the G20 has endured this long and what it needs to remain relevant in a dramatically changed world.

By: Suman Bery Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 29, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Shared prosperity for the EU and north Africa

Bruegel's director Guntram Wolff looks at north Africa's economic growth in the light of the region's trade agreements with the EU, welcoming Karim El Aynaoui and Uri Dadush to the Backstage series on 'The Sound of Economics'.

By: The Sound of Economics Topic: Global Economics & Governance Date: November 27, 2018
Read article Download PDF More on this topic

Policy Contribution

Assessing the European Union’s North Africa trade agreements

In this Policy Contribution, the authors provide an economic assessment of the trade agreements between the EU and North Africa. They argue that the common view of the agreements is overly negative, and point to policy conclusions that could increase regional integration.

By: Uri Dadush and Yana Myachenkova Topic: Global Economics & Governance Date: November 26, 2018
Read article More on this topic More by this author

Blog Post

Is this time different? Reflections on recent emerging-market turbulence

Since the beginning of 2018, currencies of two large emerging-market economies – Argentina and Turkey – suffered from substantial depreciation. Other currencies also recorded losses. Which factors are determining macroeconomic and financial stability in emerging-market economies? And what can be done to prevent a crisis and avoid its economic, social and political costs?

By: Marek Dabrowski Topic: Global Economics & Governance Date: November 14, 2018
Read article More on this topic More by this author

Blog Post

US mid-term elections and the global economy

Democrats won control of the House and Republicans held onto the Senate in the most consequential US mid-term elections in decades. Bowen Call reviews economists’ and scholars’ analyses of the impact this might have on the world economy.

By: Bowen Call Topic: Global Economics & Governance Date: November 12, 2018
Read article More on this topic More by this author

Opinion

The global economy’s three games

In this column, Jean Pisani-Ferry portrays the current international economic and geopolitical order as increasingly reminiscent of chess. Three key players: the US, China and a loose coalition of the other G7 members play three games simultaneously, and no one knows which game will take precedence.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: October 29, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Japan’s inflation problem and monetary policy options

Bruegel senior fellow Zsolt Darvas welcomes Sayuri Shirai, professor at Keio University, visiting scholar at the Asian Development Bank Institute and former Member of the Policy Board of the Bank of Japan (BOJ), for a discussion of the Japanese monetary policy outlook. 

By: The Sound of Economics Topic: Global Economics & Governance Date: October 26, 2018
Load more posts