German Chancellor Angela Merkel, who meets with Donald Trump next Friday, hopes to improve on their inaugural tête-à-tête in March 2017 when the U.S. president appeared to withhold shaking her hand during an Oval Office press availability.
The absence of that gesture was symbolic of the gap that separates Trump, who regales in his role as disruptor-in-chief, and Merkel, who embodies the established liberal international order.
The awkwardness that characterized their first encounter could return, however. Since their meeting last year, Trump has called her country “very bad on trade” because of the deficit the U.S. runs with Germany, has threatened to slap tariffs on German car exports to the U.S. to help bring down that trade imbalance and has criticized Germany’s failure to spend 2 percent of its GDP on defense, a NATO goal.
The timing for the visit is understandable, but still problematic for the chancellor. On May 1, the White House will decide whether to make permanent the exemptions it has granted the European Union and a few other U.S. allies from steel and aluminum tariffs imposed last month for national security reasons.
Although it should be clear that metals exports from EU countries pose no strategic threat to the U.S., the Germans and other Europeans are now looking for ways to convince the White House that they should stay off the tariffs list.
Merkel can get past the bilateral rancor and win the permanent tariff exemption the EU deserves, but she will need to make Trump the kind of offer that even he will find hard to refuse. There should be two parts to that offer.
First, the chancellor should propose launching talks on a U.S.-EU zero-tariff agreement.
Under the Obama administration, the U.S. and the EU were negotiating a comprehensive free-trade deal, the Transatlantic Trade and Investment Partnership (TTIP), that would have eliminated tariffs, aligned regulations and created new, high-standard rules. But TTIP stalled in the fall of 2016, and it has not been revived by the Trump administration.
Since then, instead of working on the common interests that bind the U.S., Germany and the other 27 EU members — not just deepening transatlantic commerce but also combatting Chinese unfair trading practices — the focus has been on who’s up and who’s down: the German trade surplus with the U.S., the value of the euro compared to the dollar and mostly recently, higher EU car tariffs vs. higher U.S. truck tariffs.
These tariff levels, which affect all countries and not just the U.S. and the EU, were agreed upon in global trade talks more than 25 years ago. World Trade Organization rules are clear: Only countries that already have some kind of free-trade agreement can lower tariffs just with each other.
Germany and the EU (which negotiates trade and tariffs on behalf of its 28 member states) will not violate global trade rules, even for the sake of better transatlantic relations.
A zero-tariffs deal would accomplish the goal of eliminating the differences in U.S. and European car tariffs, while respecting global trade principles. By bringing down these tariffs, the chancellor would placate the U.S. president, but such a step would also take away most of the basis for the president’s claim that the EU is unfair on trade.
Second, Merkel should tell Trump she supports French President Emmanuel Macron’s call for a more integrated European economy. The eurozone’s current halfway house situation — a single currency without common institutions to govern it — makes it vulnerable to another financial crisis like the one after 2008.
But more important for relations with the U.S., the eurozone’s weak governance means that it underperforms in terms of economic growth.
The single-currency area needs a banking union and a capital markets union to spur investment. With such stronger institutions would come higher economic growth and consumer spending, and more imports from the United States.
That would help bring down the German surplus with the U.S. that President Trump complains about (as would raising the U.S. national savings rate).
Neither of these steps will be easy: Merkel will need to rally the other 27 members of the EU behind the zero-tariffs idea, and she will have to overcome resistance within Germany and even parts of her own political party to deepening cooperation inside the eurozone.
But that effort would be worth it if it means avoiding a second missed opportunity to help set a mutually advantageous course for U.S.-German economic relations in the Trump era.
Peter S. Rashish is director of the Geoeconomics Program at the American Institute for Contemporary German Studies at Johns Hopkins University.