Is there going to be a trade war?
2017’s prologue was a dreadful crisis for the world’s largest economic group. The European Union (EU) today the EU consists of 28 member states, 27 if the UK doesn’t count. Quite often, it is stressful for them to think about their role in the world’s business, especially the relationship with a long neither-friend-nor-foe powerful nation such the U.S..
Unfortunately, it’s looking more likely for a trade war in the era of the new US president, Donald Trump, rather than a peaceful transatlantic relationship like during the Obama Administration. This trade war can happen.
Besides, the EU must confront Brexit, a referendum by UK citizens to quit the EU. The negotiation was expected to begin in early 2017 and might take up to two years, causing a loss of confidence with the investors and businesses associated with the global trade.
If we look back, two years ago, the EU had just been through the Greek government-debt crisis. In the years 2016-2017, the EU economy was being cured. The GDP of the Eurozone members had risen up from 1.6 percent in 2015 to 1.7 percent in 2016, according to the European Commision. However, it was still lower than expected.
The EU’s economy was getting better and it’s still going in a positive way. According to the European Economic Forecast, the GDP is expected to rise up to 1.9 percent according to the Wall Street Journal, but the relationship with America during Trump’s era might give the EU a headache.
Many Europeans were shocked when America’s new president won the election. It wasn’t just his slogan of “America First,” but also his new policies and the potential new role of America in global trade.
For sure it will lean towards being protectionist rather than the free trade in which America has been a leader for decades. To bring “justification” back to the citizens like Trump promised, he has also adjusted free trade agreements (FTA), which means other members within the agreement are being affected as well.
Recently, in an interview with members of the European press, the new president said, “I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the US without a 35 percent tax then you can forget that.” With just one sentence, the stock price of BMW fell by 1.5 percent, VW by 1.8 percent and Mercedes by 1.6 percent, according to Bloomberg News and Reuters.
Analysts didn’t view at it as a surprise because Trump was just doing what he had promised to Americans. Some Europeans view it as “the prologue of the trade war,” which is bound to happen sooner or later.
In addition to the trade war, policies of the Secretary of Foreign Affairs and Secretary of Defense are being changed. Trump has said that NATO, an organization including the U.S. and Europe, is “obsolete” and that Europe must participate in the organization more. He bet the integration among European countries wouldn’t succeed; and he said that he views the UK’s Brexit as a good sign.
Trump also wanted to maintain the relationship with Russian President Putin as if he is trying to kick EU over the edge. These policies have worried a lot of the EU’s leaders, because it looks like a nightmare that is becoming real. Since Trump viewed the EU as useless, it doesn’t look likely they can stay allies.
However, the EU must remain “cool” to attract and bring back the confidence of investors both in America and Europe. As long as it goes on, they must move forward, forward in a way with the least of Trump’s “populism” effects.