What is the Current State of Transatlantic Relations?

After difficult years characterized by trade conflicts under President Trump, transatlantic relations have generally recovered since President Biden took office in January 2021. In summer 2021, the EU and the US founded the EU-US Trade and Technology Council (TTC). In May 2024, the sixth and last meeting of the TTC took place at ministerial level before the elections in the EU and the US. Even though the TTC fell short of businesses’ expectations, it has been an important forum for transatlantic economic cooperation in recent years. Against the backdrop of the war in Ukraine, the transatlantic partners managed to coordinate closely on the sanctions against Russia, with the TTC playing a crucial role. In the view of German industry, the TTC should definitely be continued after the US elections in November 2024. At the same time, some changes, such as better stakeholder involvement, would be desirable.

Old Trade Disputes Not Yet Fully Resolved

It is regrettable that the trade conflicts from the Trump era have not yet been fully resolved. These include the conflict over U.S. tariffs on steel and aluminum imports, which were introduced in 2018 and to which the EU responded with its own tariffs (“rebalancing measures”). The EU reached a temporary agreement with the Biden administration on duty-free country-specific quotas: Only imports from the EU above these quotas will be subject to tariffs, while the EU in turn will waive countervailing duties. In addition, the EU and the United States agreed to negotiate a “Global Arrangement on Sustainable Steel and Aluminum” (GSA / GASSA). In these negotiations, the EU is calling for the definitive abolition of U.S. tariffs and quotas. However, the GSA / GASSA has not yet been concluded. Instead, the United States extended its quota system until the end of December 2025 and the EU extended the suspension of its countervailing measures until the end of March 2025.

Under Trump, the conflict over subsidies for aircraft manufacturers Airbus and Boeing also escalated. Both sides imposed tariffs based on the respective WTO dispute settlement rulings - the United States from October 2019 and the EU from November 2020 onwards. Both sides have currently suspended their tariffs until summer 2026. In the meantime, they want to find a permanent solution. So far, however, no such permanent agreement has been announced.

Transatlantic Disgruntlement in the Wake of the IRA

Transatlantic disagreements were not entirely absent under the Biden administration either. For example, the Inflation Reduction Act (IRA) passed in the United States in August 2022 caused some irritation on the part of the EU, even though the EU generally very much supported the United States taking climate protection measures. However, some of the subsidies for green technologies contained in the IRA are linked to discriminatory and non-WTO-compliant “local content” requirement, putting foreign manufacturers at a disadvantage. A “Critical Minerals Agreement” (CMA) between the EU and the United States was intended to alleviate the disadvantages faced by European manufacturers when it comes to the allocation of tax credits for electric vehicles. However, these negotiations also came to a standstill and have not yet been concluded.

Scenario Trump 2.0

It is unlikely that these negotiations – on the GSA, CMA, and aircraft subsidies – will be concluded before the U.S. presidential elections in November 2024. The chance of continuing these talks, at least after the elections, is significantly higher if the Kamala Harris wins. The same applies to the continuation of the TTC. If Donald Trump wins the election, however, there is a risk that the conflicts from his second term in office will flare up again. He could also fall back on instruments that he already used in his first term of office – for example, Section 232 of the Trade Expansion Act of 1962, which provided the legal basis for tariffs on steel and aluminum. In addition, Trump has already announced his intention to significantly increase U.S. tariffs across the board if he is re-elected and is toying with the idea of “reciprocal” tariffs, for example.

... And If the Democrats Win?

Under a U.S. President Harris, on the other hand, her administration would be expected to largely continue the trade policy course of the Biden administration, in which the U.S. worker is at the center (“worker-centered trade policy”) and trade policy is seen as an instrument to promote climate protection, among other things. The negotiation of new free trade agreements (FTAs) with the EU or other partners is unlikely no matter who wins the elections. Instead of FTAs, the Biden administration is negotiating “partnerships”, “initiatives”, and “frameworks” with a number of countries and regions. A general paradigm shift has taken place in the United States. Trade liberalization, as promoted by the United States over many decades in the WTO and also through the conclusion of numerous FTAs, is now viewed critically by many representatives of both major parties. Trade liberalization is blamed to have led to the relocation of industrial jobs to China and other countries, which are now to be brought back into the country through industrial policy measures, among other things. This general shift in how international trade is viewed also explains why the Biden administration has largely continued the trade policy of the previous administration, albeit with a more diplomatic tone. The Biden administration has maintained the country’s tough approach towards China and its criticism of the World Trade Organization (WTO) and continues to block the reappointment of judges to the Appellate Body of the WTO Dispute Settlement Body.

Trade and Investment: An Important Foundation of Transatlantic Relations

Overall, these trade disputes and developments have not had a negative impact on transatlantic trade and investment. Despite high interest rates, the U.S. market has been extremely stable in recent years and therefore attractive for German companies.

The United States has been the number one destination for German merchandise exports since 2015. German and U.S. companies are among the most important foreign investors and employers in each other’s markets. Relations with the United States are an important pillar for jobs and prosperity in Germany. The U.S. economy also benefits from smooth economic relations with Germany and the EU. A look at the data on the transatlantic economy shows this:

• In 2023, the value of German merchandise exports to the United States amounted to 158 billion euros, accounting for 9.9% of Germany’s total exports (Federal Statistical Office of Germany).
• Germany imported goods worth 95 billion euros from the United States in 2023. The United States was Germany’s third most important partner regarding merchandise imports after China and the Netherlands (Federal Statistical Office of Germany).
• In the first half of 2024, the United States was Germany’s most important trading partner for goods overall, replacing China (Federal Statistical Office of Germany).
• Germany is the seventh-most important export market for the United States in merchandise trade, the fourth-most important import market and the fourth-most important trading partner overall (after Mexico, Canada, and China; U.S. Census Bureau).
• German investors have invested a total of 658 billion U.S. dollars (foreign direct investment (FDI) stock, figures for 2023, Bureau of Economic Analysis). German companies employ some 923,600 people in the United States (figures for 2021 – more recent figures are not yet available; “Majority-Owned Bank and Nonbank U.S. Affiliates”, “By Country of UBO”, Bureau of Economic Analysis).
• In 2023, U.S. investors held almost 193 billion U.S. dollars of FDI in Germany. Associated with these investments were 1,837 companies with 637,500 employees in 2022 (“Majority-Owned Foreign Affiliates”, Bureau of Economic Analysis). Looking at the location of the head office rather than the direct investor country, the United States was the most important foreign investor in Germany in 2022 (Bundesbank).
• In 2023, the EU and the United States together generated 43 percent of global gross domestic product (GDP; World Bank) and accounted for 54 percent of global FDI stocks (outward stock; UNCTAD).

Even though the transatlantic market is closely intertwined, the dismantling of barriers in transatlantic trade should continue to be driven forward, for example through regulatory cooperation. The EU and the United States should also work on finally resolving their bilateral conflicts. The BDI will continue to closely monitor transatlantic trade policy, including through the Transatlantic Business Initiative (TBI) founded in summer 2021.