Assault on Europe Donald Trump and the New World Order
Part 2: Europe's Last Toast?
It has been conceived as a huge birthday celebration this March in Rome, replete with an anniversary summit and a celebratory statement. The EU intends to celebrate the 60th anniversary of its founding treaties with the pathos we have come to expect from the bloc. But the ceremony is also seen as a message to Trump.
After the in-coming president made clear this week that he believes the EU has outlived its usefulness, it wasn't long before European leaders closed ranks. Europe must "stand together," intoned German Foreign Minister Frank-Walter Steinmeier. Europe, French President François Hollande groused earlier this week, "does not need outside advice to tell it what to do." Meanwhile, European Commission President Jean-Claude Juncker admonished Trump not to abandon the trans-Atlantic alliance. "Together, we need to tackle climate change and migration together, fight terrorism with united forces and conquer globalization and its social consequences," he said. But he expects "that it will take a few months until the American president discovers the abundant finer points of Europe."
There are many, though, who believe that the toasts given in Rome this March could be among the last ones for the EU. The number of skeptics has grown even larger since it became clear that Trump would be moving into the White House.
The incoming U.S. president has always viewed the EU as an alliance aimed at weakening America's economy. Now he sees an opportunity to get rid of an unwanted competitor. Officials in Brussels are concerned that one of Trump's foreign policy goals may be that of dividing the EU -- in areas like the environment and energy policy, for example, but particularly in its relationship with Russia.
Trump has made clear that he plans to scrap the hardline taken against the Kremlin by his predecessor. He has also placed a question mark over the future of sanctions against Russia imposed by the West in the course of the Ukraine crisis. In his interview with Bild and the Times this week, Trump said of Merkel and Putin: "I start off trusting both, but let's see how long that lasts. It may not last long at all."
It is a horrifying statement: Merkel needs Washington's support in order to maintain her clear position toward Moscow. A number of EU countries would already prefer to lift most of the sanctions. Hungarian Prime Minister Viktor Orbán has outed himself on several occasions as a friend of Russia -- and as an admirer of the new U.S. president, as well. "What a wonderful world," he said following Trump's election. "This also shows that democracy is creative and innovative."
A unanimous vote is required to extend the sanctions. So far, Merkel has been able to achieve consensus in large part because she enjoyed the full support of the American government. "If Trump opposes the sanctions, then Europe will no longer hold together on the issue," says one member of Merkel's cabinet.
European capitals, led by Italy, Hungary and Austria, are already calling for a loosening of some of the punitive measures. Austrian Foreign Minister Sebastian Kurz recently told SPIEGEL in an interview that we need to move away from a punitive system and towards one of "incentive."
A Great Threat to Europe
If Trump sticks with his positions, it is the chancellor's view that Europe could be facing a great threat. Putin could even see himself emboldened to the point he might try to destabilize the Baltic states, without fear of any resistance from the Americans. "Trump's messages about NATO could lead to a situation in which Putin says to himself, 'Let's give it a shot!'" warns Elmar Brok, a confidant of Merkel's. Brok is also a member of the Foreign Affairs Committee in the European Parliament.
Moscow is the first trump card Trump has at his disposal to place Brussels under pressure. The second is London. Barack Obama tried to make it clear to the British that they would be placed at the back of the line when it came to any free trade agreement with the United States if they voted in favor of Brexit. Trump, however, has said he wants to expedite negotiations of a trade treaty with Britain.
That has been a boost to London's self-confidence as it seeks to establish its Brexit negotiating positions. In her speech on Tuesday laying out her roadmap for Brexit, British Prime Minister Theresa May said her government wouldn't even strive to remain part of the EU's single market. The new tune coming from the other side of the English Channel these days is no longer "Brexit means Brexit," but "Brexit means exit." "Trump has strengthened the Brits' negotiating hand," says Markus Ferber, a member of the conservative Christian Social Union, the Bavarian sister party to Merkel's CDU, and of the Economic and Monetary Affairs Committee in European Parliament. "If Clinton had become president, at least we might have got a soft Brexit in the best-case scenario," says Jo Leinen, a member of the center-left Social Democrats who has long been involved in foreign policy affairs in the European Parliament.
So far, the 27 other EU member states have managed to maintain a unified position over their break-away member. Indeed, one diplomat with Britain's Foreign Office says that May's announcement she would not seek a model based on single market memberships like those enjoyed in Switzerland and Norway is a reaction to the tough position taken by the EU. At the same time, it also means that Britain will be removing itself even further from Europe. This coming Monday, EU foreign ministers wanted to back a new Middle East initiative proposed by the French, but British Foreign Secretary Boris Johnson blocked the text, secure in the knowledge that Trump wasn't a fan of the proposal either.
There is little doubt that some European politicians will use Trump's inauguration as an occasion to further drive discord within the EU. Should the bloc continue to pursue an ever-closer union? What are the correct fiscal policies? Right now, there are few policies over which Europe isn't divided. Speaking in Davos this week, Dutch Prime Minister Mark Rutte said, "too many countries are not doing what was promised -- implementing reforms -- particularly in the south of Europe they are not doing that. That is creating a fundamental distrust within Europe and particularly between the north and the south." Fellow panelist Martin Schulz of Germany, who recently left his post as president of the European Parliament, retorted that individual countries needed to stop "giving lessons to other nations" and that pressure should come from the community institutions rather than a handful of countries like Germany or the Netherlands.
'Too Much Time with Nigel Farage'
People in Brussels are plenty familiar with the tones being struck by the new U.S. president, but they are used to hearing them from a much different person. "Trump has spent too much time drinking coffee with Nigel Farage," says Alexander Graf Lambsdorff, a foreign policy expert with the business-friendly Free Democratic Party in the European Parliament. Farage, the former leader of UKIP, the party that gave birth to the Brexit movement, accompanied Trump at times during the presidential election campaign and the president-elect has repeatedly expressed his admiration for the British politician ("he's a great guy, very good guy, very supportive. He was one of the earliest people that said Trump was gonna win.").
As with other European right-wing populists, Farage is rejoicing in Trump's victory. In March, the Islamophobic Party for Freedom, led by EU-opponent Geert Wilders, could become the biggest force in parliament in the Netherlands. In May, Front National head Marine Le Pen is likely to make it into the second round of voting in the French presidential election. Will Trump jump in to promote the populists with the help of the Russian intelligence agencies' trolls? "Russia is very stealthily undermining the EU," says Arne Lietz, an SPD member of the European Parliament who is also on the Foreign Affairs Committee. "But Trump is doing it on Twitter."
Targeting Europe's Economy
The campaign against Brussels being waged by the incoming U.S. president is not just focused on politics. Trump's actual target is Europe's economy. "I'd throw a tax on every Mercedes-Benz rolling into this country and on all Japanese products," he told Playboy magazine 25 years ago. "And we'd have wonderful allies again."
Hansa Studios, where David Bowie and U2 recorded legendary albums, is one of the most glamorous event locations in Berlin. A week ago, it was packed with entrepreneurs, executives and industry officials attending the new year's reception of the Committee on Eastern European Economic Relations (comprised of leading German business and industry organizations). The hosts served finger foods and sparkling wine and the event featured Markus Kerber, the director-general of the powerful Federation of German Industries (BDI), as its keynote speaker.
Kerber could have dedicated his speech to successes in the German economy, about record exports, full order books or the high level of employment. But instead he bleakly warned of "changing times in international economic policies." Kerber didn't mention anybody by name, but everyone knew who he was referring to: Trump and all the anti-globalization politicians who, with their "nationalist industrial policies," are threatening to trigger a trade war between the U.S. and China. If that were to happen, "considerable declines in economic value creation and employment within a very short period of time" could be expected, particularly in export-driven countries like Germany. "Our prosperity is at risk," Kerber warned, "more than at any other time in the past 60 years."
And yet, the markets have been celebrating a Trump-fueled boom for weeks now. After all, international trade is currently in full blossom, not least between Germany and the U.S. American companies are investing more heavily than ever before in Germany, with that volume climbing by a rapid 113 percent in 2015 compared to the previous year. Some of the biggest companies in America are expanding their presences in Germany, including General Electric, Facebook and IBM. Information technology equipment supplier Cisco wants to invest a half-billion dollars in Germany.
German companies, for their part, are even more active in the U.S. German companies conduct more trade with the United States than with any other country. In 2015, the U.S. surpassed France as Germany's biggest export market. It's a development that has been fueled by the robust U.S. economy and a euro that has recently been relatively weak to the dollar, making German goods less expensive.
Gaping Trade Imbalance
What frustrates Trump about this state of affairs is that Germany profits far more from this positive development in trans-Atlantic trade than the U.S. does. In 2015, German companies delivered goods valuing close to 114 billion euro across the Atlantic, whereas the Americans only exported goods worth around 60 billion euros to Germany. Even the successes of America's digital economy are failing to offset this huge imbalance.
The Obama administration had already been eyeing the deficit in trans-Atlantic trade with suspicion, and Trump is likely to actually do something about it. Washington's new economic policy mantra is that those who want to sell in America also have to manufacture there -- otherwise they will face punitive tariffs or special taxes. "Donald Trump is a risk for the German business model," warns Michael Hüther, head of the influential Cologne Institute for Economic Research (IWK).
In a 2014 report, the consulting giant McKinsey found that no other national economy is as globally interconnected as Germany's - but also that few others were as dependent on exports. In 2015, German industry exported goods valuing 1.194 trillion euros all around the world. But the country only imported 949 billion euros worth of goods.
Germany has had a surplus in its trade balance for decades now. This is the product of German industrial giants, but even more so of the large number of highly specialized, high-tech small- and medium-sized businesses that are dependent on open markets. They now fear that Trump won't just be talk when it comes to protectionism and that he will set the country on a new course. They say he has the legal means for doing so.
The U.S. Congress has granted the president trade promotion authority until at least 2018, when it comes up for renewal. That means that Trump has broad freedoms to negotiate free trade agreements. Or to put an end to them. And that end could come quickly: The U.S. must provide only six months advance notice, for example, to back out of the North American Free Trade Agreement (NAFTA), which regulates the free trade of good between the U.S., Mexico and Canada.
High on the List
The Trade Act of 1974 is another tool at his disposal. It allows the president to impose tariffs of up to 15 percent for as long as 150 days on countries that accumulate large current account surpluses.
Germany is high on that list, with the country's over-dependency on exports long having been a source of repeated criticism. And it's not just that Germany exports more than it imports, it also owns more foreign debt than it borrows from abroad. That money is then used for consumption and investment outside of Germany rather than inside the country.
Many international politicians and academics have called on Germany to reduce these surpluses -- and some industries, such as carmakers, have even heeded these calls. Instead of exporting vehicles, they now make them on-site. The industry has been building more vehicles abroad than inside Germany since 2010. Mercedes-Benz, BMW and Volkswagen have built several factories in the biggest markets of the world, including in China and the U.S. They didn't want to become dependent on exporting from Germany because of the hurdles presented by potential tariffs or disadvantageous currency fluctuations.
BMW expanded its production facility in Spartanburg, South Carolina while Mercedes-Benz did the same in Tuscaloosa and Volkswagen in Chattanooga. In doing so, the German companies created thousands of jobs in the structurally weak southeastern United States and earned praise from American politicians, including many from the Republican Party.
But then Daimler and the rest fell into the Mexico trap. The country lured them south with low wages and free access to the U.S. market by way of NAFTA. Late last year, Audi moved the production of its Q5 SUV to a newly constructed factory in San José Chiapa. BMW and Daimler have just begun construction of a factory in Mexico and Volkswagen produces more than 450,000 vehicles in Puebla.
An import duty would hit different German manufacturers in different ways. The losses would be especially steep for Volkswagen. The brand exports its Jetta, Beetle and Golf models from its Mexican factory into the U.S. A tariff of 35 percent would make those cars hard to sell.
'The German Prosperity Model Would Fail'
It is, in short, clear that if Trump does what he indicated he would, Germany and Europe would be especially hard hit. If there are no more "reliable frameworks," BDI manager Kerber says, "the German prosperity model would fail."
During her tenure, Angela Merkel has seen a fair number of crises. About 10 years ago, Lehman Brothers collapsed in the US and the global economy was on the verge of collapse. Seven years later, Greek debt brought the European common currency to the brink of disintegration. Then came the refugee crisis, which threatened to cost the chancellor the support of her own party.
This year, she is once again standing for re-election, if she wins, there is reason to believe that the Trump presidency will be her greatest challenge yet. How should she deal with a man who seems unconcerned about the possibility of the EU disintegrating and who threatened the German export industry with tariffs before he even took office? How should she react when Germany's most important ally questions decades-old relationships?
Merkel being Merkel, her first reaction has been: "Let's wait and see. One Wednesday, she and her cabinet agreed to react to possible Trump provocations with demonstrative restraint. Afterwards, a stone-faced Merkel went before the press and said the task now was to "find a new understanding" with the American government. She sounded like she was announcing disarmament negotiations with North Korea.
At the same time, though, Chancellery staff hasn't yet given up hope that Trump could find his way to a halfway moderate position. Stephen Hadley, former security advisor to ex-President George W. Bush, also believes that is a possibility. Hadley is an advisor to Rex Tillerson, the incoming secretary of state. In a conversation with Heusgen on Wednesday, Hadley said that Merkel should come to Washington as soon as possible, adding that Trump would listen to her.
But will he be prepared to receive her soon? Heusgen told Flynn during his visit that the chancellor was ready to travel to Washington on short notice. But so far there hasn't been an answer from Trump. Chancellery staffers are hoping for a face-to-face between the two leaders in spring at the latest.
Furthermore, hope that the Republican establishment might still rein in the president has not yet entirely disappeared. Many in the Chancellery have reactivated old contacts to Republicans, such as former Secretary of State Condoleezza Rice. Merkel is placing her hopes on the skepticism many Congressional Republicans have for Russia and on the party's free-trade reflexes.
The first opportunity to meet representatives of the new American administration will be in February at the Munich Security Conference. Twenty members of Congress are scheduled to attend, as is James Mattis, Trump's designated defense secretary. The incoming president's pick for secretary of state, Rex Tillerson, is expected to attend the meeting of G-20 foreign ministers in Bonn the day before. He too might come to Munich, as might vice president-elect Mike Pence. Peter Thiel, the only significant Silicon Valley figure to support Trump in the election, has also given a firm yes. Chancellor Merkel has not yet indicated whether she will take part.
"My advice would be to stay calm," says Heusgen. Still, it's clear that Merkel desperately needs a plan for how she should react to the challenge of Trump's presidency. In Europe, the time for merely talking about community has passed: It's time for a plan that combines an unavoidable deepening of foreign and security policies with greater national autonomy in other political areas. The Euro Zone needs a common economic policy, for example, with a budget and finance minister of its own. And Merkel needs to think about what long-term position she should take on trade balance surpluses. Germany's export strength is a trademark of its economy, but it is also a significant nuisance to the country's European partners and a target for Trump's protectionist rhetoric. Demands for Germany to increase domestic demand will only grow.
More than anything, though, Germany needs to try as best it can to stand up for the values that Trump is openly questioning. If Merkel stays strong on those issues, it will become more difficult for the new strongman in the White House to carry out his attacks on the liberal order at home.
Trump is the end of the world as we know it -- that much is clear. Or, as the Economist recently wrote: "Things could get much worse."
By Christian Esch, Martin Hesse, Alexander Jung, Peter Müller, Ralf Neukirch, Britta Sandberg, Michael Sauga, Christoph Schult, Holger Stark and Bernhard Zand
- Part 1: Donald Trump and the New World Order
- Part 2: Europe's Last Toast?