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Tuesday, January 30, 2018

EU-US Relations: Donald Trump's America First backlash: How Europe could be the unexpected beneficiary of America’s fall from global grace

US president Donald Trump has promised to put America first. His protectionist stance on trade, his implicit threats to pull military protection from countries that do not contribute sufficiently to NATO, and his decision to pull the US out of the Paris agreement on climate change are all designed to rebalance what Trump sees as a drain on American resources. But the net result may be to put America last, as allies in every part of the world seek out new relationships to shore up an international system on which they depend.

As the US loses influence, however, other countries will find opportunity. While Russia and China have aggressively courted influence, Europe, too, could be a beneficiary of America’s fall from global grace—if it plays its cards right.

Washington’s dirty secret is that America’s lead over the rest of the world—economic, military and political—has been in steep decline for decades. After World War II, the US constituted half of the global economy. Today, that share is closer to 25%, according to an analysis of the IMF’s World Economic Outlook Database. Meanwhile, challenger nations such as China have gone from having a GDP equal to less than one-fifth of the US economy in 1990 to exceeding it today (at least if GDP is adjusted for differences in purchasing power).

The miracle of American foreign policy has been the ability of successive administrations to maintain influence in the face of their country’s relative decline. US governments have attempted to ensure that every region of the world maintains a balance of power that ultimately favors American interests. This means that Washington could afford to lose weight in relative terms so long as smaller players in each region allied with America against the rising regional power—whether that regional power was China, Russia, or Iran.

The secret sauce of this strategy was the way Washington allowed its allies to share in the benefits of American hegemony. Europeans, for example, were allowed to benefit from US military spending and the security is provided without having to come up with equivalent spending on their own. Today, however, under the slogan “America First,” Trump is ripping up that playbook—and the net result could be that many American allies are forced to develop relations with regional challengers to hedge against their abandonment by Washington.

As a result, the US might well end up poorer, less influential, and less secure. The risk is not so much that the US incurs losses in individual diplomatic conflicts or isolated trade disputes. However, if America’s allies are forced into new alliances with America’s foes, the new system that emerges will be less conducive to America’s interests.

Trump’s proposals on trade policy and his Republicans tax plan has set the US on a collision course. Were Trump to implement a tariff on cars produced in Mexico, it would not only attract the wrath of Mexico—the German government could also be forced to act, given its car producers’ reliance on plants in Mexico.

Congressman Paul Ryan’s plan for a corporate tax with border tax adjustment would have effectively put a tariff on imports into the US from everywhere in the world, and would have created the equivalent of an export subsidy for everything produced in the US.

Read more: Donald Trump's America First backlash: How Europe could be the unexpected beneficiary of America’s fall from global grace — Quartz