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November 19, 2020

Europe

EU/US: New hopes, but also new political realities

BY Antonio Barroso, Carsten Nickel

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( 6 mins)
  • While a Biden presidency will likely entail an end to new trade hostilities, any further progress on trade will be constrained by the new political realities on both sides of the Atlantic.
  • The EU’s more assertive approach towards Big Tech could become a source of transatlantic frictions.
  • Both sides face common challenges regarding China, but whether they will agree on common solutions remains unclear.

The victory of former Vice President Joe Biden in the recent US presidential election has been received with significant relief in most European capitals. European Union (EU) leaders see the new administration as a clear opportunity for a “restart” of transatlantic relations after the tumultuous Trump years. However, European policymakers are under no illusion that a Biden presidency will mean a return to the pre-Trump era. Below we examine the politics underpinning three policy areas: trade, technology, and China.

Trade: Ambition vs. reality

While the logical expectation in Europe is that Biden’s victory will reduce trade tensions, the EU’s recent decision to impose retaliatory measures in the aircraft subsidies case reveals how the Trump years have changed Brussels’ approach to trade. Tariffs are not politically popular in Europe, but the EU wants to restart the transatlantic trade relationship from a position of strength. On the US side, Biden is expected to roll-back a number of tariffs that were imposed during the Trump era, such as those on steel and aluminum. But some deal making on the EU’s part will likely be required to address Biden’s domestic constituencies, namely the labor movement. The US could for instance request export quotas or an agreement to coordinate on other multilateral trade and dumping issues.

Beyond the thorny issue of tariffs, both sides appear interested in reaching agreements on a broader agenda of trade issues. However, any potential achievement on this front would inevitably have to be limited in its ambition. Comprehensive initiatives such as reviving the Transatlantic Trade and Investment Partnership (TTIP) are off the table, given both sides are contending with new political realities. References to “Buy American” provisions by the Biden campaign have not been lost on EU policymakers, who seem to be aware that the new domestic political economy of trade in the US sets limits on what can realistically be achieved.

But politics have also moved on the EU side. Just like in the US, concerns about the impact of free trade on the lower middle classes is one factor. At the same time, the bloc’s push for “green” and “digital” transitions – which has accelerated as a result of the pandemic – are expected to lead to proposals (e.g., carbon border tax, digital tax) that will probably create additional frictions with the US.

Technology: EU regulation (and possibly taxation) coming of age

On the technological front, the EU is gradually becoming much more assertive vis-à-vis Big Tech, especially in recent months. For instance, French Finance Minister Bruno Le Maire recently labeled the Big Four as “adversaries” of the state. It is no surprise that France is one of the member states pushing the hardest for the adoption of an EU-wide digital tax. As many as seven EU member states have adopted proposals for digital taxes, although several have delayed their implementation in the hope of reaching an OECD-wide compromise that would defuse the Trump administration’s threat of additional tariffs.

After an inconclusive year of talks in which the US withdrew from the negotiations, OECD countries aim to reach an agreement by next summer. Absent a deal in June 2021, the European Commission has said it would move to propose an EU-wide digital tax. However, whether EU countries can agree on such a levy remains to be seen, given some of the northern states’ reluctance. Regardless, the debate about digital taxation is set to heat up in the first half of the year, providing a renewed point of potential transatlantic frictions.

Beyond the push for digital taxation, the EU is also set to regulate tech companies more tightly. The recent lawsuit launched by the Commission against Amazon for its use of data of third-party merchants reflects how competition woes concerning platforms have gained pace in recent months. The Commission is also expected to propose in December a “Digital Markets Act” that will probably include a New Competition Tool (NCT) allowing Brussels to act more swiftly, as well as a “Digital Services Act” which among other things will preemptively regulate the behavior of “digital gatekeepers” (online platforms). In sum, the Biden administration will have to contend with a Europe that appears much more willing to make decisions that will crucially affect the interests of large American technological companies even as the US seeks its own competition and liability reforms in this space.

China: Common problems, common solutions?

Following Biden’s victory, EU policymakers have been quick to highlight China as one of the main areas where Europe and the new administration can work together. After all, both sides share the diagnosis that China is a “systemic rival” that has taken advantage of the global trade system on a wide range of issues (e.g., subsidizing companies or being lenient on intellectual property breaches). In opposition to Trump’s “bilateral” approach, the EU hopes to reach common solutions through the World Trade Organization (WTO).

However, a reform of global trade rules will take considerable time, something the Biden administration might lack, given that China has been labeled as the US’ most urgent foreign policy challenge. Additionally, Biden’s early agenda is expected to focus largely on domestic issues, which may limit his administration’s bandwidth for bold international moves early on. In any case, the EU is already moving to develop a whole host of tools to counter unfair trade practices in the context of its push for “strategic autonomy.” At the same time, there has been an EU-China deal on geographical indications recently, and there are still hopes for progress on an investment agreement with Beijing.

Beyond trade, another key question is whether, despite Biden’s avowed pragmatism, the next US administration might pressure the EU to be more forceful with China on human rights issues (e.g., through adopting sanctions) or on decoupling technologically from the Asian giant. The truth is that despite recent progress, EU member states still struggle to develop a common position towards China, which might ultimately complicate transatlantic cooperation on this issue.

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