National

As G7 leaders gather in Quebec, the U.S. is on a collision course with the 6 other members over it the Trump administration’s decision to impose tariffs on steel and aluminum producers in Europe, Canada and Japan.

Why it matters: The prospect of growing U.S. isolation has not deterred President Trump, who will likely use the summit to push his unilateral, economic nationalist trade agenda even harder. The optics of doing so while simultaneously cutting a deal with ZTE, the Chinese technology giant suspected of posing a national security threat to the U.S., add to allies’ sense of victimhood.

At the core of Trump’s trade policy is the notion that the global economy is unfairly rigged against the United States. Trump harbors particular scorn for America’s friends and neighbors, whom he views as cheaters and free-riders. Trump is convinced he can lower the trade deficit by eschewing multilateral negotiations in favor of a transactional deal-by-deal approach. This strategy is rending the fabric that has for decades knit together the multilateral economic system.

But Trump’s polarizing and divisive approach has yet to generate sizable concessions. He may have underestimated EU unity and the importance that export-dependent European nations place on multilateral trade. Rather than caving in to Trump’s demands and offering appeasement, Germany, France, Britain and Italy — along with Canada and Japan — have stuck to their guns. Their leaders expressed “unanimous concern and disappointment” and pledged “decisive action” in the form of counter-tariffs and challenges to the U.S. at the WTO. Both Justin Trudeau and Emmanuel Macron seem to have concluded their efforts to sway Trump have failed, opting instead now for a more direct confrontational approach.

What’s next: How the current dispute over steel and aluminum tariffs will be resolved is still uncertain. Germany wants to cut a deal with Trump that would eliminate transatlantic tariffs entirely. But France opposes entering into such negotiations under the barrel of a gun. And even if Trump eventually softens up, he will already have done irreparable damage to U.S. credibility and leadership.

The bottom line: Trump has managed to unite America’s friends against itself. And while they duke it out, China and Russia are emerging as the real winners.

Erik Brattberg is director of the Europe Program and a fellow at the Carnegie Endowment for International Peace in Washington.

U.S. allies uniting in opposition to Trump trade policies

Trump has managed to line up America's allies against it.

European leaders around a table at the G7 summit

European leaders at the G7 summit: EC president Donald Tusk, German Chancellor Angela Merkel, French President Emmanuel Macron, British Prime Minister Theresa May, Italian Prime Minister Giuseppe Conte, and the President of the European Commission Jean-Claude Juncker. Photo: Ludivic Marin/AFP/Getty Images

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Deep Dive - Trade Wars

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Politics

As G7 leaders gather in Quebec, the U.S. is on a collision course with the 6 other members over it the Trump administration’s <a class="gtmContentClick" data-vars-link-text="decision to impose tariffs" data-vars-click-url="https://www.axios.com/trump-europe-canada-and-mexico-steel-aluminum-tariffs-4c923898-7b9c-4f77-adbe-b317f3f2c02c.html" data-vars-content-id="041a45bb-6aaf-45f7-9bd1-86a30eb5889f" data-vars-headline="U.S. allies uniting in opposition to Trump trade policies" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/trump-europe-canada-and-mexico-steel-aluminum-tariffs-4c923898-7b9c-4f77-adbe-b317f3f2c02c.html" target="_self">decision to impose tariffs</a> on steel and aluminum producers in Europe, Canada and Japan.Why it matters: The prospect of growing U.S. isolation has not deterred President Trump, who will likely use the summit to push his unilateral, economic nationalist trade agenda even harder. The optics of doing so while simultaneously cutting a <a class="gtmContentClick" data-vars-link-text="deal with ZTE" data-vars-click-url="https://www.axios.com/trump-officially-resurrects-zte-6eea81ef-d466-4053-b02a-c662fd302fd7.html" data-vars-content-id="041a45bb-6aaf-45f7-9bd1-86a30eb5889f" data-vars-headline="U.S. allies uniting in opposition to Trump trade policies" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/trump-officially-resurrects-zte-6eea81ef-d466-4053-b02a-c662fd302fd7.html" target="_self">deal with ZTE</a>, the Chinese technology giant suspected of posing a national security threat to the U.S., add to allies’ sense of victimhood.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

President Trump’s tariffs on steel and aluminum, authorized last Thursday, will likely come with costs to the global economic and diplomatic order that exceed their domestic benefits.

Why it matters:  The tariffs were intended to address Chinese economic practices that harm American workers. But in order to truly mitigate that harm, the U.S. would need to collaborate with Europe through institutions such as the World Trade Organization. Instead, Trump's tariffs will create tensions with our trading partners and undermine global stability.

EU–U.S. relations: The Europeans will not accept a tariff hike without responding. As the world's largest trading bloc and importer of U.S. goods, the EU has plenty of leverage. EU retaliation could result in higher prices for Americans, a slower U.S. economy and, most important for the president, layoffs in key American labor sectors. What’s more: Trump’s decision will further reinforce already negative European views of the U.S. administration.  

Managing China: Rather than checking China’s ambitions, Trump’s tariff move will allow Beijing to claim the moral high ground as a supporter of multilateral and open trade. It will also make it harder for U.S. and EU leaders to forge a joint strategy to address concerns about Chinese subsidies and dumping practices.

An already-fraying global economic order: The Trump tariffs circumvent the World Trade Organization, the global referee underpinning a stable, multilateral trading system. Trump, an international institution skeptic, is already stalling the appointment of U.S. judges to the WTO Dispute Settlement Body. His invocation of a rarely used national-security clause to justify the tariffs will further undermine the WTO and set a dangerous precedent for other countries to act unilaterally in self-interest.

The bottom line: Rather than checking China’s ambitions as intended, the tariffs will likely create a vacuum of economic and diplomatic leadership for Beijing to fill.

Erik Brattberg is director of the Europe Program and a fellow at the Carnegie Endowment for International Peace in Washington. 

Trump’s tariffs risk harm to allies, cede leadership to China

Beijing is likely to fill the new vacuum of economic and moral leadership.

Trade union members protest President Trump's steel tariffs in Sao Paulo, Brazil. Photo: Cris Faga / NurPhoto via Getty Images

Tariffs

Business

Trade war

President Trump’s tariffs on steel and aluminum, authorized last Thursday, will likely come with costs to the global economic and diplomatic order that exceed their domestic benefits.Why it matters: The tariffs were intended to address Chinese economic practices that harm American workers. But in order to truly mitigate that harm, the U.S. would need to collaborate with Europe through institutions such as the World Trade Organization. Instead, Trump&#x27;s tariffs will create tensions with our trading partners and undermine global stability.

EU leaders agreed last week on proposals for its ongoing migration challenges, including questions around migrant processing centers both on the continent and in North Africa and policies for moving migrants among EU countries. On top of this, German Chancellor Angela Merkel also managed to stitch together a number of bilateral agreements with individual EU countries on returning migrants in exchange for assistance.

Why it matters: While not a comprehensive solution, the agreements will restore a degree of stability to Berlin and give Merkel breathing room. Yet they prompted pushback, including a resignation threat from Interior Minister Horst Seehofer that was later revoked.

Seehofer's Christian Social Union is a coalition partner of Merkel's Christian Democratic Union likely concluded that had had overplayed his hand this time. While German views on immigration have hardened somewhat since the 2015-2016 European migrant crisis, Merkel remains a popular leader with an approval rating around 50%. CSU, which only received some 7% of the votes in the 2017 elections, would ultimately have little influence over German politics if it were to abandon the ruling coalition with its “sister party,” Merkel's CDU.

The bottom line: Merkel is a shrewd political operator. Having been chancellor for 13 years, she clearly knows how to navigate complex political crises both at home and at the European level with patience and endurance. At the end of the day, Germans value stability and there is currently no credible alternative to Merkel and a CDU–led German grand coalition. Until this changes, we should expect a high degree continuity — and perhaps even a stronger Merkel in the near term though the relationship between CDU and CSU will also be more fraught going forward. 

What's next: A Central European grouping led by countries such as Hungary, Poland and the new government in Austria is growing stronger in the EU and becoming more influential in Bavaria, where CSU has its roots. President Trump has influenced these developments as well, by emboldening and encouraging European leaders on the right to challenge the political status quo in Europe.

Merkel's coalition agrees to migration terms as pressures across EU persist

She and her interior minister, from a coalition party, struck a last-minute deal.

German Chancellor Angela Merkel speaks to German Interior Minister Horst Seehofer after the arrival for the weekly government cabinet meeting on June 13, 2018 in Berlin, Germany. 

German Chancellor Angela Merkel speaks to Interior Minister Horst Seehofer in a cabinet meeting on June 13, 2018. Photo: Carsten Koall via Getty Images

Germany

EU leaders agreed last week on <a class="gtmContentClick" data-vars-link-text="proposals" data-vars-click-url="http://www.consilium.europa.eu/media/35936/28-euco-final-conclusions-en.pdf" data-vars-content-id="4d3ecbbd-bc91-4262-8bf1-51c0eb25bace" data-vars-headline="Merkel&#x27;s coalition agrees to migration terms as pressures across EU persist" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://www.consilium.europa.eu/media/35936/28-euco-final-conclusions-en.pdf" target="_blank">proposals</a> for its ongoing migration challenges, including questions around migrant processing centers both on the continent and in North Africa and policies for moving migrants among EU countries. On top of this, German Chancellor Angela Merkel also managed to stitch together a number of bilateral agreements with individual EU countries on returning migrants in exchange for assistance.Why it matters: While not a comprehensive solution, the agreements will restore a degree of stability to Berlin and give Merkel breathing room. Yet they prompted pushback, including a <a class="gtmContentClick" data-vars-link-text="resignation threat" data-vars-click-url="https://www.axios.com/angela-merkel-interior-minister-horst-seehofer-germany-eu-migration-deal-272c0540-c150-4277-ba4a-676e3ef7b942.html" data-vars-content-id="4d3ecbbd-bc91-4262-8bf1-51c0eb25bace" data-vars-headline="Merkel&#x27;s coalition agrees to migration terms as pressures across EU persist" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/angela-merkel-interior-minister-horst-seehofer-germany-eu-migration-deal-272c0540-c150-4277-ba4a-676e3ef7b942.html" target="_self">resignation threat</a> from Interior Minister Horst Seehofer that was later revoked.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

State visits by American presidents in the U.K. are typically smooth sailing, but a combination of British political events and bilateral tensions could unsettle President Trump's current trip.

The big picture: Trump arrives in London amid the upheavals of the unresolved Brexit issue, a Conservative Party leadership crisis and the sizable win for far-right leader Nigel Farage’s party in the European parliamentary elections. His commentary on the politics of Brexit has not always been welcome, and disputes over Huawei and other foreign policy issues have added to the strain.

Background: Trump has never cultivated a close working relationship with Prime Minister Theresa May. During his visit in July 2018, he offended May by suggesting publicly that Boris Johnson “would make a great prime minister” and criticized her government's approach to Brexit negotiations with the EU, directly undermining her domestic standing.

Unilateral actions by the Trump administration — sanctions against Iran, threatened military withdrawal from Syria, exit from the Paris climate agreement — have deepened policy rifts between the two countries. Trump's allegations of British spying on his 2016 campaign haven't helped relations either.

What to watch: Little should be expected from Trump's meeting with May, who plans to step down immediately after the visit, but 2 issues will loom large:

Brexit: While Trump is sympathetic to Brexit, viewing it as analogous to his own "America first" populism, pushing too hard for a no-deal Brexit could further complicate Downing Street’s effort to secure House of Commons approval for a withdrawal agreement before the late October deadline. Trump has called both Boris Johnson and Nigel Farage “very good guys,” and a meeting with them could be perceived as interference in Britain's domestic politics at a delicate time.

Huawei and 5G: The Trump administration is lobbying the U.K. and other European allies to drop the Chinese technology company from building out their 5G networks. Secretary of State Mike Pompeo warned Britain that the countries' close intelligence partnership would take a toll should the U.K. go ahead with Huawei and Trump is likely to reiterate that stance, putting further pressure on the British government’s deliberations.

The bottom line: The “special relationship” is fundamentally sound, but it remains unlikely that ties between Washington and London will deepen after Brexit, at least as long as Trump is in the White House.

Trump’s U.K. state visit puts “special relationship” to the test

It comes at a time of upheaval in British politics and recent bilateral tensions.

Donald Trump and Theresa May seated next to each other at a conference table

President Trump and British Prime Minister Theresa May at the G20 Summit in Buenos Aires, Argentina, in November 2018. Photo: Mikhail Svetlov/Getty Images

United Kingdom

State visits by American presidents in the U.K. are typically smooth sailing, but a combination of British political events and bilateral tensions could unsettle President Trump&#x27;s current trip.The big picture: Trump arrives in London amid the upheavals of the unresolved Brexit issue, a Conservative Party leadership crisis and the sizable win for far-right leader Nigel Farage’s party in the European parliamentary elections. His commentary on the politics of Brexit has not always been welcome, and disputes over Huawei and other foreign policy issues have added to the strain.

The House of Commons will vote on Jan. 15 on Prime Minister Theresa May’s Brexit withdrawal agreement with the EU. If the agreement fails to gain support — a likely outcome — the specter of a no-deal Brexit will loom as the March 29 deadline approaches.

Why it matters: The prospect of a no-deal Brexit is alarming for both economic and geopolitical reasons. It would propel the U.K. out of the EU’s single market, roiling the U.K.’s economy and causing trade chaos with the EU. The Bank of England predicts an immediate 8% drop in British GDP under this scenario. 

Moreover, Britain would be in complete political turmoil and its international standing would take a heavy toll. A no-deal Brexit would suck up all political and strategic energy and attention in London at a time when Europe is facing rising geopolitical threats from Russia and China. 

Unfortunately for May, Washington is no help here. President Trump has taken the pro-Brexiteers’ side. He believes that a hard Brexit, or even a no-deal Brexit, would be beneficial for U.S. trade with Britain. Trump has on several occasions also undermined May’s efforts. 

Ironically, one of the original motivations for Brexit was to pursue a closer relationship with countries such as the U.S. Under Trump, however, the special relationship is in shambles. 

Yes, but: There might still be some wiggle room for last minute deal-making, though the margin for error is small. The U.K. could, for instance, try to secure an extension of the negotiations from the EU, but this would require unanimity from the 27 EU members. Other possible options include a new last-minute vote in Parliament, new elections or even a second Brexit referendum. 

The bottom line: With so much at stake, the U.K. might decide to pull the plug on the entire Brexit enterprise to avoid the costs of exiting the EU. Barring such an outcome, British politicians could at least pursue the deal that May has reached, since it would limit the damage done by ensuring an orderly Brexit and paving the way for the next phase of discussing the future U.K.–EU relationship. 

A no-deal Brexit would be a geopolitical crisis

It's estimated there would be an immediate 8 % drop in British GDP.

British Prime Minister Theresa May leaves 10 Downing Street to attend the weekly Prime Minister's Questions, London on January 9, 2019. 

British Prime Minister Theresa May leaves 10 Downing Street on Jan. . Photo: Alberto Pezzali/NurPhoto via Getty Images

Brexit

The House of Commons will vote on Jan. 15 on Prime Minister Theresa May’s Brexit withdrawal agreement with the EU. If the agreement fails to gain support — a likely outcome — the specter of a no-deal Brexit will loom as the March 29 deadline approaches.Why it matters: The prospect of a no-deal Brexit is alarming for both economic and geopolitical reasons. It would propel the U.K. out of the EU’s single market, roiling the U.K.’s economy and causing trade chaos with the EU. The Bank of England predicts an immediate <a class="gtmContentClick" data-vars-link-text="8% drop in British GDP" data-vars-click-url="https://www.bbc.com/news/business-46377309" data-vars-content-id="bf0e0bfc-63d5-4949-aeea-acae1e84d176" data-vars-headline="A no-deal Brexit would be a geopolitical crisis" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bbc.com/news/business-46377309" target="_blank">8% drop in British GDP</a> under this scenario.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

Erik Brattberg

Stories

Trump’s U.K. state visit puts “special relationship” to the test

A no-deal Brexit would be a geopolitical crisis

Merkel's coalition agrees to migration terms as pressures across EU persist

U.S. allies uniting in opposition to Trump trade policies

Trump’s tariffs risk harm to allies, cede leadership to China