The Deal Has Not Solved a Single Problem

The agreement with Donald Trump is a symbolic victory. But it would be foolish of the EU to rest on its laurels, warns Marcel Fratzscher, head of the German Institute for Economic Research. The bilateral deal could further weaken the global trading system.

The ostensible agreement between European Commission President Jean-Claude Juncker and President Donald Trump has prompted a collective sigh of relief. Escalation has been stopped for now, which is positive. And it is a nice symbolic victory for the European Commission, which emphasizes Europe’s power to act and also Germany’s need for a unified Europe.

But the meeting has not solved any of the conflict’s underlying problems. It would be foolish of Europe and Germany to rest on this small partial success. The next confrontationss are inevitable and they will become more dangerous than before. They can only be solved by a multilateral trade deal that includes weaker developing and emerging countries, and by strengthening the World Trade Organization. Europe must insist on this – and take global responsibility.

That is because a free trade deal that eliminates tariffs between Europe and the U.S. is a good step, but the economic impact for both parties will be relatively limited. Tariffs in this area are very low anyway.

The central problems remain unsolved.

• For one thing, the Trump-Juncker “deal” does not solve any of the core conflicts with the U.S. The U.S will continue to generate huge trade deficits and there will be no change to Germany’s enormous surpluses. Quite the contrary; German trade surpluses could even increase further, as German companies, in particular, could focus more strongly on the U.S. market. Then it would arguably only be a question of time until Trump tried to start a trade war again. The automotive sector is explicitly excluded from the current agreement, which Trump will probably misuse as leverage against Germany.

• The deal does not solve the problem of protectionism either. Even if many people do not want to hear it, Trump is right that China, in particular, but also Germany, to a certain extent, are protectionist. There are wholesale violations of intellectual property rights in China and many sectors are completely inaccessible to foreign investors. Germany’s problem is that many service sectors are overregulated and competition is restricted. As long as private and public investments in Germany are not improved and as long as Germany continues to generate large trade surpluses, the trade conflict will not be solved.

• A further weakness of the agreement is that bilateral deals are often good for the two parties, but detrimental to most other countries. Bilateral deals have shown time and time again that they are polarizing and can exclude important partners. Thus, they do not serve to pacify global conflicts and can even exacerbate them.

The World Needs a Multilateral Trade Deal

What the world needs is not more bilateral trade deals, but a true multilateral deal that opens up opportunities for all countries. In Germany, we are surprised that more and more people are coming to Europe and Germany due to poverty and hopelessness. German politics argues too much about how to stop these people at the border and get rid of them again. It thinks too little about how to tackle the causes of migration.

A billion people live in Africa, often in poverty and in failed states. The same number of people live in similar circumstances in the Middle East and Asia. It is time not just to placate an American president, but to find common global solutions for all these conflicts.

This includes a fair, multilateral trade deal which opens up economic opportunities for developing and emerging countries above all. Only when all these people have opportunities and prospects at home will they stay there and not do what all of us would do — emigrate to a place where our children have a future. Furthermore, EU countries, and especially German firms, would benefit economically from stronger global trade and more access to additional markets.

Europe Should Finally Take More Global Responsibility

Many countries in Asia and South America, such as Indonesia or Brazil, have already demonstrated that access to global markets can help millions of people out of poverty as well as help reform countries and make them more democratic. A multilateral trade deal would certainly not solve every problem. But it is an absolutely essential element in addressing them.

Trump and Juncker may have announced that they want to reform the WTO but the U.S. will try to manipulate the WTO and thereby further weaken the multilateralism that is so important.

It is high time for Europe to take more global responsibility. The EU must fill the vacuum that the U.S. and President Trump are leaving behind them. A multilateral trade deal and strengthening the WTO would be a truly powerful response to the protectionism and nationalism of Donald Trump.

Bilateral agreements between Juncker and Trump are not.