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July 16, 2017

Bye-Bye America, Konnichiwa Japan

Chancellor Merkel: The leading defender against Trump’s mercantilist trade

Given Donald Trump's insistence on "America First," Germany and Europe must deepen other trading relationships, from Asia to Latin America and down under, write Axel Berger and Claudia Schmucker in Handelsblatt Global.


If there was still any doubt, the G20 summit in Hamburg removed it: Angela Merkel, chancellor of Germany and the summit’s host, is now the main defender against Donald Trump’s mercantilist trade policy. To prevent a diplomatic disaster, she got all twenty world leaders to sign the communiqué in general support of trade – but only by indulging the American president’s protectionist instincts with vague phrases about “unfair” trade practices and “legitimate” trade defense instruments. The president who puts “America first” disdains the World Trade Organization (WTO) and has hinted that he will no longer abide by its dispute-settlement decisions.

With this abdication by America, it is time for the European Union (EU) and Germany to seek out new partners. The EU is taking the lead. Despite the Brexit shock, the European Commission ratified the Comprehensive Economic and Trade Agreement (CETA), a free-trade agreement with Canada, and started free-trade negotiations with Japan, Mexico and Mercosur. Negotiations with Australia and New Zealand are imminent. The EU is also supporting a fruitful WTO Ministerial Conference in Argentina in December.

While the EU trade agenda is ambitious, China is trying to establish itself as the EU’s new ally in advocating for the liberal trading system. At the World Economic Forum in Davos in January, President Xi Jinping stressed that China was ready to take over the role of America as the champion for free trade and open markets. While this liberal rhetoric should be welcome in light of the mercantilist saber-rattling in Washington, it remains to be seen whether Beijing can be a reliable partner for Europe. Beyond talking the talk, China needs to open markets and remove discrimination against foreign companies. It still has a long way to go.

A more natural partner for the EU and Germany is Japan. When Chancellor Merkel and Prime Minister Shinzo Abe met in Hanover in March to open the CeBIT trade show together, they both emphasized that Germany and Japan are no longer arguing about free trade, open borders and democratic values (an oblique reference to the US and China). Instead, they are trying to increase free trade through the ambitious EU-Japan free trade agreement. This agreement could fill the gap that was left by the US abandonment of the Trans-Pacific Partnership (TPP) and the deep freeze of the Transatlantic Trade and Investment Partnership (TTIP) between America and the EU. It comes as no surprise that the EU and Japan signed a symbolic framework agreement prior to the G20 summit that will pave the way for a comprehensive accord between the two trading giants later in 2017.

Negotiating and signing a comprehensive trade deal is one thing, selling it at home is quite another. The EU and Germany must avoid another TTIP and CETA disaster. It should be easier this time around. The protests regarding TTIP led to a new European trade strategy, “Trade for All”, and new European approaches to investment protection in trade agreements. It is also more difficult to portray Japan as the vanguard of a cold capitalism (as America came to be seen) that many Europeans fear. A recent decision by the European Court of Justice also clarified which segments of modern trade agreements can be ratified by EU institutions alone and where member states need to be involved.

However, many Europeans remain deeply skeptical about comprehensive free-trade agreements. Now that TTIP and CETA are off the agenda, the European Commission and the German government must communicate the benefits of trade agreements to the public. They must explain why these agreements shape globalization for the better and how they preserve, rather than undermine, consumer standards. One key argument should be that a rules-based trading system, founded on bilateral deals and the WTO, is the best solution Europe can offer against the mercantilism espoused by Washington.

Axel Berger is a senior researcher and head of the G20 Policy Research Group at the German Development Institute. He is a co-chair of the task force on trade and investment of the Think20 network of think tanks from G20 countries.

Claudia Schmucker  is head of the globalization and world economy program at the German Council on Foreign Relations (DGAP) in Berlin. She has published extensively on European and transatlantic trade policy as well as on the role of informal global forums such as the G7 and the G20.

Republished with kind permission.  Read the article on Handelsblatt Global here.

Bibliographic data

Handelsblatt Global, July 13, 2015 (posted with kind permission.)

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