Analysis and Publications

Coming up on the anniversary of the July 2018 “trade truce” between European Commission President Jean-Claude Juncker and US President Donald J. Trump, little progress has been made in trade negotiations between the United States and the European Union (EU). This article is the fourth in a series that will take stock of the opportunities in and challenges to the deepest trading relationship in the world and focuses on opportunities for further deepening and the potential impact on jobs and investment due to the current stalemate.

US consumers and importers are already paying a price for trade tensions between the United States and China. They are bearing almost entirely the tariff revenue collected at the US border. Escalation is also likely to affect business sentiment and investment.

The recently concluded European parliamentary elections have fractured longstanding political alliances. From the Liberal and Green parties to the populists and Euroskeptics, voters have delivered a more fragmented European Parliament. Challenges abound as the European Union (EU) needs to among other things address climate change, rekindle sustainable economic growth, and address foreign policy issues. All of these are pan-European issues, which will require looking beyond national borders and setting up new coalitions to craft policy directions. The European Parliament can serve as a forum to reconcile Europe and its citizens, provided it becomes a public square for transnational debate.

The European parliamentary elections—held this year from May 23 to 26—are one of the largest democratic displays in the world. Many observers, however, often view them as a “strange beast” and consequently ignore the consequences. The European Parliament shares responsibility with the European Council in crafting European legislation and the budget of the European Union (EU). As it appoints the president and members of the European Commission, the policy priorities it defends matter a great deal.

Undecided voters hold the key

Spaniards will vote on April 28 to renew parliament for the third time in four years. Spanish Prime Minister Pedro Sánchez’s center-left Socialist Workers' Party (PSOE) leads in the polls, but with just 30 percent of support. The latest surveys show only a grand coalition of both left and right parties, or a left bloc supported by some regional parties that support Catalan independence, can reach the majority needed to form a government, but much will depend on the 40 percent of still undecided voters.

The elections follow eleven months of Sánchez’s PSOE minority government, which came to power after Mariano Rajoy’s center-right People’s Party government lost a vote of no confidence on June 1, 2018. Rajoy’s government had been supported by Ciudadanos, a center-right party founded in 2006 with a focus on addressing corruption, market liberalization, and a robust anti-secessionist stance.

By agreeing to extend the deadline for the United Kingdom’s withdrawal from the European Union (EU) to October 31, EU leaders and British Prime Minister Theresa May “managed to avoid the most disruptive [potential] scenario, which would have been no-deal Brexit,” top European Commission official Valdis Dombrovskis said at the Atlantic Council in Washington on April 12.

The extension, which would first be reviewed by the EU on June 30 but could last as long as October 31, would give the UK Parliament time to “reflect and work on what is really their preferred scenario,” Dombrovskis said.

The next week matters for European policy makers. EU finance ministers are meeting in Brussels on April 5 and 6. This will be followed by an emergency European Council summit on April 10 at which EU leaders will not only discuss Brexit, but also discuss the European Union’s position on negotiating a narrow free trade agreement with the United States. On April 12, European finance ministers and central bank governors will take part in important Group of Twenty (G-20) side discussions alongside the International Monetary Fund (IMF) and World Bank spring meetings in Washington. These leaders would have been focused on worrying signs of slumping global growth and trade tensions with the United States, but leaks to Reuters on April 3 suggest that policy makers are returning to another Brexit sore point: non-bank financial regulation. 

The leaks show European policy makers are beginning to raise concerns regarding capital markets and non-bank financial institutions, most of which are located in the United Kingdom and the United States. They are also reviving a focus on euro-denominated securities, most of which are traded and settled in London.  It seems that Euro area policymakers have turned a corner and are preparing to create a framework for “future European financial sovereignty” as described in this speech today in Bucharest by the French central bank governor who is also a board member of the European Central Bank.   

On January 16, a US Senate resolution to maintain US sanctions on the Russian aluminum giant RUSAL and its holding company EN+ failed to garner the necessary 60 votes to pass. As a result, the Trump administration lifted its economic sanctions on RUSAL and EN+ on January 27.

EU Commissioner for Trade Cecilia Malmström says task at hand is ‘quite urgent’

A multilateral effort needs to be made to save the World Trade Organization (WTO), the European Union’s Commissioner for Trade Cecilia Malmström said at the Atlantic Council in Washington on January 10, noting that the twenty-four-year-old intergovernmental body to regulate international trade is “under increasing pressure.”

“So we need to save it,” Malmström said, warning “it is quite urgent.”

Transatlantic trade negotiators are kicking off 2019 with positive momentum toward avoiding a trade war and implementing last year’s joint statement between the White House and the European Commission. On January 7, the European Commission made key announcements on agricultural trade and steel tariffs that set the stage for ministerial-level talks held in Washington on January 8.

US President Donald J. Trump has cast doubt on the possibility of completing a US-UK free trade agreement under the terms of the Brexit deal British Prime Minister Theresa May has negotiated with the European Union.

“I think we have to take a look at, seriously, whether or not the UK is allowed to trade, because, you know, right now, if you look at the deal, they [the UK] may not be able to trade with us,” Trump told reporters on November 26.

May rejected Trump’s characterization, saying: “We will have the ability, outside the European Union, to make those decisions on trade policy for ourselves. It will no longer be a decision being taken by Brussels.”

Brexit supporters had touted the ability to conduct an independent trade policy with non-EU countries as one of the main advantages of the UK leaving the EU.
At an extraordinary summit on November 25, European Union leaders approved a draft agreement with British Prime Minister Theresa May setting out the terms of the United Kingdom’s withdrawal from the EU.

It is hard to understate the importance of this milestone in the Brexit process. The 585-page draft agreement comprehensively dictates the terms of the UK’s exit from the EU on a broad range of issues, from the UK’s financial obligations toward the EU, the Northern Ireland border regime, citizens’ rights, jurisdiction delimitation, and financial services regulation among others.