The Ripon Forum

Volume 55, No. 2

May 2021

Getting the U.S.-EU Trade Relationship Back on Track

By on May 20, 2021

by CLETE WILLEMS

President Biden’s decision to include Europe in his first Presidential trip overseas in June has raised hopes about a breakthrough in trade relations between the United States and European Union. The President consistently touts the importance of working with allies to address global challenges – including the economic and national security threat posed by China – and the scheduling of a summit in Brussels that seeks to “enhance digital and trade cooperation” suggests that a new era in U.S.-EU relations could be upon us.

U.S.-EU trade rapprochement is now more important than ever. China’s attempts to remake the international order under President Xi Jinping threaten long-held Trans-Atlantic values on democracy, human rights, and free speech – as well as our mutual promotion of free markets – through institutions like the World Trade Organization (WTO). And for the last few years, the U.S. and EU have spent too much time and energy fighting each other that is better spent on coordinating on action against China.

For the last few years, the U.S. and EU have spent too much time and energy fighting each other that is better spent on coordinating on action against China.

But U.S. and EU leaders should not underestimate the challenges of building a productive working relationship on trade. Disputes over aircraft subsidies and agricultural policy have lingered for years, American and European bureaucrats follow very different models of regulation, and the Biden Administration’s fixation on Buy America irks Europeans almost as much as the von der Leyen Commission’s views on digital sovereignty trouble Americans. Further, it is important to recall that many past Administrations had high hopes for U.S.-EU cooperation on trade issues, including the ill-fated Trans-Atlantic Trade and Investment Partnership (T-TIP) negotiations during the Obama Administration, only to see things fall apart once details got in the way.

Leadership on both sides must learn from these past mistakes.

First, the U.S. and EU must be realistic about what can be achieved. They should focus their immediate energy on resolving specific and manageable trade irritants instead of seeking a more comprehensive free trade deal. In particular, the two sides should prioritize outcomes on the longstanding Airbus-Boeing dispute, U.S. steel and aluminum tariffs and the corresponding EU retaliation, and digital services taxes.

Second, both sides will have to show flexibility to resolve these issues. With respect to the steel issue, for example, the United States should completely remove its tariffs on the EU despite grumbling from the U.S. steel industry. However, Europe must also commit to measures that will actually target China’s excess capacity, prevent transshipment through the EU market, and prevent import surges into the United States. Likewise, on digital services taxes, the EU should reciprocate the flexibility that the United States has shown in OECD negotiations on international taxation in recent months and agree to apply new tax rules to all companies, not just American ones.

Third, the Biden Administration and von der Leyen Commission must also show restraint on key priorities and recognize the impact that ill-designed policies may have on their key ally. This means that the Biden Administration’s new Buy American rules should not be designed to discriminate against European companies, but should only exclude companies from countries like China that do not open their procurement markets up to the U.S. Likewise, the EU’s digital sovereignty agenda, including the new Digital Marketing Act, should not single out U.S. companies or incorporate tech transfer policies that resemble those in China. There are better and more even-handed ways to regulate large technology companies.

Both [the U.S. and EU] must be willing to take tough action against China to encourage it to follow international rules and norms and not back down in the face of attempted coercion from China.

Fourth, a U.S.-EU agenda should expedite work that sets broad standards for both old and new technologies through multilateral bodies. This includes finally tabling a proposal at the WTO that would address Chinese industrial subsidies, state-owned enterprises (SOEs), and forced technology transfer as well as finding ways to coordinate on export controls through the Wassenaar Arrangement and other similar configurations. The proposed EU-U.S. Trade and Technology Council could also be used for this purpose.

Fifth, the U.S. and EU must fully support each other when it comes to China. Both sides must be willing to take tough action against China to encourage it to follow international rules and norms and not back down in the face of attempted coercion from China. To give a recent example, Europe should be commended for its willingness to impose joint sanctions with the U.S. to address human rights abuses in Xinjiang and it should be willing to walk away from the EU-China Comprehensive Agreement on Investment (CAI) if China does not drop its misguided retaliation against members of the European Parliament and European companies. Better market opportunities in the U.S. can help soften the blow.

Make no mistake — none of this will be easy. But the June summit in Brussels appears to offer the best opportunity in many years to finally put the U.S.-EU trade relationship on a better track.

Clete Willems is a partner at Akin Gump Strauss Hauer & Feld, where he advises multinational companies, investors, and trade associations on international economic law and policy matters. He previously served as Deputy Assistant to the President for International Economics and Deputy Director of the National Economic Council.

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