Merkel’s visit could salvage some sort of US-EU trade deal

When Chancellor Angela Merkel touches down in Washington today, she will face the new reality of U.S.-EU economic cooperation in the Trump era.

Gone is her relationship with the similarly cerebral, technocratic President Obama, with whom she launched negotiations for a U.S.-EU free trade mega deal, the Transatlantic Trade and Investment Partnership (T-TIP). Days after Trump’s November election victory, the EU’s chief trade official, Cecilia Malmström, was asked whether T-TIP was dead.

{mosads}“TTIP will probably be in the freezer, and then what happens when it is defrosted, we will have to wait and see,” she responded.

With Merkel’s White House visit, could the partners begin to thaw out the T-TIP start? The answer — surprisingly — is maybe. Trump made killing the Trans-Pacific Partnership (TPP) a central element of his campaign.

He signed an executive order withdrawing the U.S. from the Asia Pacific deal on his first day in office, but Trump never once mentioned T-TIP on the trail. The usually decisive White House stated that they are still formulating a “final position” on T-TIP.

There are ideological fault lines here. White House Chief Strategist Steve Bannon’s tribe would prefer to try and pick the EU apart. More establishment conservatives, like Vice President Mike Pence, are less threatened by the EU and would like to see T-TIP salvaged in a new form.

That does not necessarily mean that T-TIP negotiations are alive. In fact, T-TIP is still likely Plan B. The Trump administration could want the EU to prove itself a suitable partner. To do so, it has to withstand two tests.

First, it must survive Europe’s 2017 election gauntlet. The Dutch dealt a resounding blow to anti-EU populists this week, but if France or Italy fall to anti-EU governments, the U.S. — like other powers — will likely see the EU as an unreliable and unnecessary partner.

Talks at the EU level could also be derailed by the election of center-left trade sceptics, particularly in Germany, already ambivalent to T-TIP under Obama who could see a Trump-era T-TIP as a political loser. 

Second, in keeping with Bannon’s conviction, the administration could probe for weaknesses in European unity on trade. This could take the form of reopening investment treaties with Central European countries like Poland and Hungary.

The government could stress test the EU’s competence on trade policy just as previous administrations have successfully done on investment and immigration policy.

One thing is clear: if T-TIP is to be saved, it will bear a Trump brand. That could complicate things for Merkel. Trump’s top demand — other than increased defense spending — is that Germany make efforts to balance its global trade position.

In many ways, this is the same as Obama. If the substance is consistent from Obama to Trump in this regard, the principal difference will be in tone.

The U.S. administration has flagged its top trade priority as reducing trade deficits. The American trade deficit with Germany — its third largest after China and Japan — is $65 billion. Put in perspective, this is an annual wealth transfer from the U.S. to Germany worth more  than the entire GDP of Croatia and Estonia combined.

This has long been a source of frustration and resentment in Washington, but the notion of a border-adjustment tax would be a non-starter for Germany’s export-sensitive economy. 

That said, there are discrete areas where the U.S. and Germany can build the basis of trust for an agreement. Germany can work with the U.S. on energy liberalization — increasing U.S. gas exports to Europe that will support European energy security and competitiveness while, at the same time, helping correct the U.S.-German trade imbalance.

Merkel also should promote the EU as a stronger ally on anti-dumping and World Trade Organization (WTO) enforcement, particularly regarding steel with China — an issue raised by Trump’s chief trade negotiator, Robert Lighthazer, in his confirmation hearings this week. 

Finally, Merkel must find a way to address tech policy, a wild card in Trump’s Washington. Despite accounting for five of the U.S.’s 10 largest companies, the tech sector is noticeably less represented in the administration.

The Trump cabinet draws almost exclusively from three areas — commodities, particularly oil, gas and steel; Wall Street and the military. None of Trump’s cabinet come from the tech world. Silicon Valley is aesthetically anathema to the Trump administration.

Based in California, which Hillary Clinton won by more than 4 million votes, American tech seeks out high-skilled workers globally and was highly-influential in the Obama White House. That poses challenges for both Merkel’s trade and G20 agendas. 

Merkel is famous for going toe-to-toe with macho opponents, from Turkey’s Erdogan to Russia’s Putin to Italy’s Berlusconi and even the good old boys network in her own Christian Democratic party. Reviving T-TIP and regaining U.S. commitment to the European project will take work. But Merkel might just be the one to do it. It wouldn’t be the first time she’s defied the odds.

Tyson Barker is the director and fellow at the Aspen Institute Germany, which promotes values-based leadership, constructive dialog among conflicting parties and Euro-Atlantic cooperation to support and enhance a strong open society.

The views expressed by contributors are their own and not the views of The Hill.