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* The EU is a relatively open economy and has benefited from the multilateral system. We argue that the EU should defend its strategic interests.
The EU is a relatively open economy and has benefited from the multilateral system. We argue that the EU should respond to the US changing from its previous course with a three-pronged strategy to defend its interests.
First, it should collaborate with partners around the world in defence of the World Trade Organisation (WTO).
Second, it should establish deeper economic relations with emerging economies, including China, who support the rules-based multilateral system. As far as China is concerned, the EU should continue its negotiations toward a bilateral investment treaty while insisting on reciprocity and the use of public courts for dispute settlement.
Collaboration in support of the Paris agreement is also essential. Third, the EU must be reformed to increase its external credibility. This concerns trade governance and addressing internal imbalances. Moreover, strengthening Europe’s social model would provide a counter-model to protectionist temptations.
Trends and breaks since 2017
From Europe’s perspective, the world since 2017 looks very different from how it looked before. But despite significant upsets resulting from elections and/or referendums, not all of the changes that are taking place are breaks from previously trodden paths. Some are continuations of previous trends that have now become more visible or more entrenched.
One major trend, which started some 20 years ago, is the diminishing relative economic importance of advanced countries. This trend became evident around 2010, when advanced countries started to account for less than half of global GDP in purchasing power terms. This reduction in economic importance is associated with what is known as “diminished giant syndrome».
This syndrome is otherwise known as the curse of declinism: previous world hegemons pursue “myopic and self-indulgent …’what’s in it for us’ economic policies in the world arena”, that end up undermining their roles as world leaders.
In the case of the United States, this trend emerged during the Clinton administration (1993-2001), when the question of “what’s in it for us?” first arose in terms of “regaining competitiveness”. Donald Trump’s victory in November 2016 seems to have made this principle into the underpinning of all of the new administration’s policies.
Other advanced economies have also seen their shares in global trade and income decline, leading to calls for protectionism. The European Union remains unsure about its role in the world, not least in terms of its security and its ability to do new trade deals. Brexit will diminish the EU’s size, and possibly influence, in both trade and security.
By contrast, China’s position in the world has strengthened during the last 20 to 25 years. President Xi Jinping’s Davos speech in January 20173 was more like that of a “growing giant”, and reminiscent of presidents’ speeches calling for an open global economic system during the heyday of US hegemony. But China has also been criticised, rightly in our view, for the gap between rhetoric in Davos and action on the ground, with insufficient or even backtracking on the opening of its own economy.
Trump’s election also marks a trend break in terms of the US’s global role with regard to defence, trade and the spreading of cultural values. Importantly, the current administration does not only aim to reduce the US’s role as an anchor of the global multilateral system; it may be on course to openly challenge it, either by threatening to withdraw from it unilaterally or by imposing protectionist measures such as high tariffs. Culturally, the US may draw back from liberal values.
Meanwhile, the US’s military commitment to NATO is being questioned. The underlying rationale of “what’s in it for us?” is well captured by President Trump’s “America first” rhetoric.
In this paper, we consider what the EU’s strategic reaction should be to the diminishing giant policies of the US, and the EU’s role in a world of declining hegemons and shifting balances, in particular the rise of China. We start by exploring the geopolitical reasons for the new US administration’s “America first” orientation. We then discuss the central elements of the emerging US policies and possible consequences for Europe. Lastly, we discuss how Europe should respond, how it could sustain a multilateral system and what partnerships it could build. Our focus is on the economic aspects, although cultural and security aspects also play central roles in the broader picture.
Reasons behind Trump’s “America first”
Since the Second World War, the US has played a clear leadership role in building, supporting and policing the global system. This sense of responsibility for maintaining the world order was supported by a view that it was beneficial to the US. This view is not shared by the new US president. On the contrary, President Trump argues that the rules-based multilateral system has not benefitted US citizens, and in fact has hurt them.
While this view was not necessarily shared by the majority of Americans in the election, it was shared by a sufficient number to make a difference.
There are two versions of this argument.
The first is that the open multilateral system has benefitted foreign countries at the expense of America.
The second is that the possible benefits that the US might have enjoyed, deriving for instance from the US dollar’s exorbitant privilege, accrue to Wall Street at the expense of Main Street. The multilateral system is seen as having favoured the financial sector at the expense of the manufacturing jobs that “ordinary folk” lost.
* The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at: wirtschaftsdienst.eu
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