European complaints about the trade agreement they just signed with the United States are almost universal. But will the tariffs America has imposed on half the world be effective? The issue is highly controversial, and the consensus is that they possibly won’t be.
Clearly, they are a US gamble to fix its economy and signal both domestically and internationally its determination to do so. Once that decision was made, what can a weak and divided EU practically do?
Perhaps the real point of the US-EU trade deal is that it came immediately after China and the EU failed to reach a similar agreement. Despite decades of different rhetoric, transatlantic ties are stronger than those linking Eurasia.
However, the true twist may be different. The deal is being presented as a US victory and an EU loss. This narrative alone can sour and weaken a bond that has been the anchor of international stability for over a century.
France’s Prime Minister, François Bayrou, called the European Union’s trade deal with America a “dark day” for the bloc. Germany’s Chancellor, Friedrich Merz, said the accord would “substantially damage” his country’s economy.
At the FT, Martin Wolf argued: “The economic paradigm has been fundamentally altered. Is this new arrangement stable? Or is much more craziness ahead? When it becomes obvious that US trade deficits are not shrinking, what will US President Donald Trump do? How will this affect global relations?”
Yet, several other countries and most European pundits have acknowledged that the deal—under which the EU will face a 15% tariff on most goods, including cars—is better than a full-scale trade war.
There are two sets of problems here. One concerns US economic struggles, and the other involves communication.
The US’s struggle: how to fix US re-industrialization, trade deficits and thus its enormous debt. The world depends on the US. Without a thriving US, there is no world as we know it. In this context, the US (right or wrong) can claim a kind of victory.
The other issue is communication, and here it is a disaster. Perhaps never in transatlantic history has there been so much European annoyance with America, amplified by the EU’s feeling of powerlessness.
Some go to the extreme of imagining a global shift toward greater EU reliance on China and less on the US—that, in the long run, could reshape the world. Yet, this would only be possible if China opened its markets and currency, which now seems highly unlikely.
Moreover, China’s support for Russia in Ukraine cuts deeply into European interests, and no amount of trade sweet deals can fix such a vital and complex issue for many European countries.
But the lack of alternatives doesn’t solve the transatlantic rift; it simply makes it more frustrating and may even deepen it. A colossal mistake in politics is to think that frustration—without practical solutions—can be ignored. But frustration always spills over into something else, most likely into issues we can’t see at the moment.
The US cannot afford to be cavalier about this. The European frustration is part of a broader phenomenon: Germany is coordinating more with the UK, which is talking more with Japan, Canada, Australia, South Korea and New Zealand.
These countries, once just spokes of the US wheel, are increasingly coordinating and preparing to confront the US indirectly. America may think it can use the old “divide et impera” (divide and conquer). But everybody knows the old maxims and the ways around them. The US might need to think more comprehensively.
Unintentionally, the US has built a new, tighter coalition of allies—many with grudges against America—something unprecedented in history. Of course, nobody is interested in breaking a wheel that has worked so well for so many years, but things won’t just sort themselves out; all parties need to work together to fix the troubles.
Whatever the economic results, the communication must be fixed; it must be a win-win proposition for everybody, not a win-lose one. Otherwise, the US could win a deal and lose the world.
If it’s not fixed, there’s no reason to think these countries will turn toward China; they make a world in themselves, and numerous “non-aligned” nations like India, Indonesia, Mexico, Nigeria and Brazil could be eager to coordinate independently of the US.
This could lead to a new world order where the US is no longer the central power, with the balance shifting between London, Berlin and Tokyo. In theory, these three could coordinate a currency peg or introduce a new stable currency to bolster the system.
Whatever deal has been struck between the US and EU now could then be forfeited in a few years. It hasn’t happened yet, but multiple signs suggest that this could be the future movement.
If America doesn’t fix this problem soon, it may face greater trouble than it bargained for—not from China, but from these shifting alliances. And, if China plays its cards well, it could seize a new opportunity.
This article first appeared on Appia Institute and is republished with permission. Read the original here.
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