A New Agenda for Transatlantic Relations

Times Square, New York City © timdavidcollection/Fotolia

The United States and Germany are strong partners – despite the political tensions with the administration of U.S. President Donald Trump. In order to improve this partnership, Brussels and Washington should intensify their dialogue and advance talks on a transatlantic trade agreement. They also need to strengthen their cooperation within the World Trade Organisation (WTO) and join forces in dealing with China. 

Since 2015, the United States has been the biggest market for German exports in goods. German and U.S. companies are also among the most important foreign investors in their respective market. Thus, relations with the United States are one of the cornerstones of job creation and prosperity in Germany. Likewise, the U.S. economy benefits from strong economic ties with Germany and the European Union.

Transatlantic Trade: Facts and Figures

  • In 2018, the total value of German goods exports to the United States amounted to 113.3 billion Euro, accounting for 8.6 percent of all German exports (Federal Statistics Office of Germany).
  • In 2018, Germany imported goods worth 64.5 billion Euro from the United States. The United States was Germany’s fourth most important partner regarding goods imports, after China, the Netherlands, and France. For the United States, Germany is the seventh largest market for its exports.
  • German investors have invested a total of 474 billion U.S. dollars in the United States (U.S. data on investment as of 2018, Bureau of Economic Analysis). German companies employ some 773,800 people in the United States (numbers as of 2017, Bureau of Economic Analysis).
  • In 2018, U.S. investors held 140 billion U.S. dollars of investment in Germany. Associated with these investments were 1,858 companies with 701,000 employees in 2017 (Bureau of Economic Analysis).
  • In 2018, the EU and the United States combined generated 45.8 percent of global GDP (World Bank) and accounted for almost 60 percent of global outward stock (outward stock; UNCTAD).

Transatlantic Relations in Choppy Waters

Since U.S. President Donald Trump took office, the transatlantic partnership has entered choppy waters. The President has repeatedly criticized Germany for its export surplus. Initially, the EU had been exempted from tariffs on steel and aluminum. Since June 2018, however, the tariffs – based on national security considerations (Section 232 of the Trade Expansion Act of 1962) – have been enforced also for U.S. imports from the EU, to which the EU has responded with rebalancing duties. Since October 2019, the United States has also imposed retaliatory duties on numerous goods from the EU. This is based on a WTO dispute settlement ruling on European subsidies for Airbus. Although the tariffs are in line with WTO rules, they place a significant burden on the transatlantic relationship and hurt consumers and producers on both sides of the Atlantic.

In addition, President Trump ordered the U.S. Department of Commerce (DOC) to assess whether imports of cars and their parts endanger the national security of the United States. Mid-May 2019, the White House released a proclamation by the President announcing that car imports posed a security threat while at the same time postponing the decision on import restrictions for another 180 days. President Trump also commissioned the U.S. Trade Representative Robert Lighthizer to negotiate with Japan and the EU in order to avert the threat to national security. The White House let the deadline expire without comment.

Towards a Transatlantic Trade Agreement?

The best way to avert an escalation of the trade conflict between the EU and the United States is a free trade agreement. First steps in this direction have already been taken. At their meeting in July 2018, President Trump and Commission President Juncker agreed to negotiate the removal of industrial tariffs and non-tariff barriers to trade.

In January 2019, the Office of the USTR published the U.S. negotiating objectives for a trade agreement with the EU. The United States strives for a comprehensive agreement including the agriculture sector. The Council of the European Union also adopted two negotiation mandates in mid-April 2019, which allow the European Commission to start negotiations. The mandates relate to the reduction of industrial goods tariffs and the mutual recognition of conformity assessments in order to eliminate non-tariff barriers to trade.

The negotiation mandates of the EU are much narrower compared to the negotiation goals of the United States. The EU rejects, in particular, the inclusion of trade in agriculture. The EU has also underlined that it would only sign an agreement if the tariffs on steel and aluminum have been lifted. Should the United States impose new tariffs such as on cars, the EU pronounced to break off the negotiations. Initial discussions on the mutual recognition of conformity assessments took place in early May 2019 in Washington, D.C.

Upholding the Dialogue

German industry supports the efforts to defuse the trade conflict and to achieve a normalization of relations with the United States. In view of the political tensions, it is understandable that the European Commission intends to enter into negotiations for a lean trade agreement. The broader U.S. negotiation goals and the narrower EU negotiation mandates can be reconciled by a consecutive negotiation approach, starting with easier topics and moving to more difficult ones at a later stage.

German industry expressly welcomes that regulatory cooperation is part of the transatlantic liberalization agenda. It is reassuring that the EU Commission presented a proposal at the end of November 2019 for the mutual recognition of conformity assessment tests for industrial goods. In the future, the conformity of a product could be tested in the United States in accordance to the legal basis of the EU and vice versa. This would save considerable trading costs.

It would also be in the interest of German industry to negotiate other areas such as public procurement. If the United States continues to insist on opening up the European agricultural market, the European Commission should, in turn, call for the inclusion of U.S. public procurement into the negotiations (including the “buy American rules”).

The tariffs on steel and aluminum are unfounded and must be withdrawn so that the EU can also lift its rebalancing duties. In addition, the United States should refrain from introducing tariffs on cars and car parts.