Merkel’s Twin Mission with Trump: NATO and Trade
When German Chancellor Angela Merkel has her first face-to-face meeting with President Trump in Washington on March 17,* she will have two key tests. Can she take the sting out of the burden sharing debate between the United States and Europe in NATO? And can the U.S. and Germany find common ground on trade policy, an issue that has become an irritant in the bilateral relationship because of the U.S. trade deficit with Germany?
When Vice President Mike Pence and Defense Secretary Jim Mattis attended last month’s Munich Security Conference, they came with a message of support for NATO—but one mixed with a warning. As Mattis put it, Washington would “moderate its commitment” if the European allies do not soon meet their pledge to devote 2 percent of GDP to defense.
While some U.S. frustration is understandable given that the Europeans have made only slow progress toward the 2 percent goal, it is not U.S. exhortation that will lead Germany and other European allies to lift their defense outlays. Instead, they need to find homegrown reasons for doing so, and there are plenty, ranging from terrorism to Russian meddling in eastern Europe to cybersecurity. Merkel needs to find a way to convince Trump that European leaders possess the political commitment and communication skills to build the necessary domestic support to reach the target once and for all.
At the same time, the Chancellor should remind the President that, apart from France and the United Kingdom, the European members of NATO are regional powers. That means that the overwhelming portion of their defense spending goes to defending Europe, NATO’s core focus. While the U.S. spends above 2 percent on defense, much of this goes to worldwide commitments in Asia, the Middle East, and elsewhere. These help Europe, too, but not as much as spending within Europe itself.
Defense and national security, however, were not a major factor in Trump’s victory. What mattered to his working-class supporters were job losses in traditional manufacturing sectors. Although technological change (automation, robots) and not trade has been responsible for the vast majority of this dislocation, Trump was able to exploit it by condemning China’s accession to the World Trade Organization and trade agreements like NAFTA or the Trans-Pacific Partnership (which the U.S. withdrew from shortly after Trump took office).
Given Trump’s campaign rhetoric, there are reasons to be vigilant about the direction of U.S. trade policy, just as there are reasons to welcome European support for the 70-year-old international economic order, which brought peace and prosperity after the self-defeating protectionism of the 1930s.
But the fact is that the administration is still working to define its trade policy. Yes, it has withdrawn from the TPP. But the President’s 2017 Trade Policy Agenda issued earlier this month states that “The Trump Administration is currently evaluating the status” of the Transatlantic Trade and Investment Partnership (TTIP)—an ambitious trade negotiation launched in 2013 between the U.S. and the EU.
One open issue for the administration appears to be whether TTIP should be considered a bilateral negotiation—a framework the White House favors—or rather a multilateral deal like TPP. As the European Commission is the single negotiator on behalf of the 28 members of the EU—a role it has played since its founding in 1957—it is clear a transatlantic trade agreement would be a one-on-one, bilateral affair.
Merkel’s trip to Washington comes as Germany is grappling with the impact of increased Chinese investment, particularly takeovers of local high-tech firms. The challenge from China’s state-owned and state-directed companies is too big for either the U.S. or Germany to manage alone. New rule-making between the U.S. and a unified EU through TTIP would be a far more constructive response to the challenge posed by China’s state-capitalist economic model than Trump’s mooted punitive tariffs, which would end in a self-destructive trade war.
As for the trade balance, Merkel needs to find a way to explain to Trump that it takes two to tango. Yes, Germany is running a high trade surplus, and for the benefit of more balanced growth within the euro zone it would be helpful if it came down. But unless the value of the dollar falls, or the U.S. can raise its domestic savings rate, its trade deficit will simply shift from Germany and the euro zone to other trading partners.
A commitment to greater European defense spending, and some common ground on trade policy—perhaps aided by a bit of White House bonding over Trump’s family roots in Germany’s western wine-growing region—could go a long way toward cementing one of the world’s most consequential political and economic partnerships.
* Due to a winter storm on the East Coast, the visit has been postponed.