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The specter of a trade war with the U.S. is spooking European leaders — but officials on both sides of the Atlantic recoiled at one nightmarish solution put forward by Olaf Scholz.
A spokesperson for the German government suggested this week that the EU restart formal trade talks with Washington in an attempt to resolve the rising tensions over President Joe Biden’s so-called Buy American reforms.
But the proposal caused alarm in Brussels and didn’t impress Washington either. The last attempt to strike such a deal — the Transatlantic Trade and Investment Partnership — collapsed after three years of tortured negotiations, amid opposition from within Germany, and finally from Donald Trump.
The talks between 2013 and 2016 triggered concerns that the EU market would be flooded with chlorinated chicken, workers’ rights would be undermined, and state health services opened up to American companies.
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When asked to comment on Germany’s proposal to reopen the stalled talks, a European Commission spokesperson was blunt. “Reviving the TTIP negotiations is not on the agenda,” the spokesperson said.
In Washington, the U.S. Trade Representative’s office also refused to engage with the German idea. A spokesperson said that the focus now is on using the Trade and Technology Council “to strengthen and deepen our trade engagement with our transatlantic allies, including Germany.”
The rejection from both sides of the Atlantic will be a blow to Berlin, which suggested Brussels would swiftly enter into renewed negotiations with Washington. It was a solution German Finance Minister Christian Lindner, from the trade-friendly Free Democratic Party (FDP), had been advocating for months.
The German pitch to reopen trade talks is ironic, as the lack of political support from Berlin, especially from Scholz’s Social Democratic Party (SDP), was a key factor in the breakdown of TTIP trade talks in 2016.
The idea of restarting politically explosive TTIP negotiations would bring back bad memories of massive anti-trade campaigns across Europe. While Lindner and others in Berlin might stress the new trade talks can be done in a different way, they still risk opening a Pandora’s box.
Those fears are exactly why Brussels and Washington chose a different, more flexible format — the Trade and Technology Council — when they tried to repair the transatlantic economic relationship after the tumultuous Trump years.
“A transatlantic free-trade area is a fantastic idea from a geopolitical point of view, and perhaps also from an economic point of view,” said Fredrik Erixon from the European Centre for International Political Economy (ECIPE) think tank. “But of course, it’s totally unrealistic.”
Even businesses, who have become disappointed by the lack of progress in the Trade and Technology Council, are not too keen.
Marjorie Chorlins from the U.S. Chamber of Commerce said there isn’t much enthusiasm for restarting trade talks now. “Folks are interested in whether the TTC can yield meaningful results in the first instance — there is skepticism on that front — rather than launching another platform.”
The question of how to fight back against Washington pouring subsidies into the homegrown electric car industry has been weighing heavily on the minds of European ministers and officials this week. They fear the move risks hurting European businesses at a point when Russia’s war in Ukraine is already putting the EU’s economy under stress.
The European Commission is pushing Washington hard to find a diplomatic solution. But the U.S. tax credits, which are part of a huge tax, climate and health care package, known as the Inflation Reduction Act, already passed Congress in August. Creating new exceptions for the Europeans is politically thorny for the Biden administration.
If the diplomatic path turns out a dead end, Brussels will be forced to consider its next steps. That’s where the EU disagrees.
In theory, Brussels could sue Washington at the World Trade Organization. But tackling an ally at the WTO is bad PR at a time when both sides want to present a united front against Russia, and Geneva could be a dead end anyway.
Paris, which plays its usual role as Europe’s troublemaker on the transatlantic trade front, wants to fight back hard. France’s Finance Minister Bruno Le Maire on Monday pushed for a strong rebuke against the U.S., not ruling out a WTO complaint, or a countersubsidy to help European industry.
For some, the German suggestion of a new transatlantic trade pact should be interpreted as a negotiating position designed as a counterweight to the hard-line approach of the French. “By suggesting the exact opposite of protectionism, Berlin will navigate the EU towards a compromise in the middle,” one EU diplomat said. “They are very well aware that this will lead nowhere.”
Erixon, from the ECIPE, also said he doesn’t expect anyone inside the German government to think formal trade talks are a realistic path, adding: “It’s more street theater.”
The EU’s trade chief Valdis Dombrovskis, who has been able to fix many of the outstanding transatlantic trade spats post-Trump, is still optimistic. He hopes the negotiations can yield some progress ahead of the next meeting of the Trade and Tech Council in Washington early December.
But the “Buy American” approach is not the only bone of contention between allies.
The fact that Europe is increasingly relying on gas imports from the U.S. is also a source of potential tension. Le Maire has already called out Washington for selling liquefied natural gas (LNG) to Europe at high prices.
It’s unclear whether a potential Republican win in this week’s midterm elections, and a weakening of Biden’s political position, will make finding a solution for the spat even harder.
A senior EU official played down the impact of the midterm vote, saying that the difference between Democratic and Republican administration is between “more openness and readiness to discuss” and “shouting and screaming against each other.”
However, the official added that “this [inflation act] is the best example of how they see things. For me, the big question is a geopolitical or geostrategic question: If you want to have a friend and an ally who stands by you, you don’t give him a slap in the face.”
Doug Palmer, Steven Overly, Sarah Anne Aarup, Camille Gijs and Hans von der Burchard contributed reporting from Washington and Brussels.