America and Europe will lose to China in transatlantic trade war

America and Europe will lose to China in transatlantic trade war
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A transatlantic trade war is looming. After finally concluding a phase one trade agreement with China, President TrumpDonald John TrumpTrump administration eyes proposal to block jet engine sales to China: report Trump takes track to open Daytona 500 Brazile 'extremely dismayed' by Bloomberg record MORE is now turning his sights to Europe and is doubling down on his threat to levy more tariffs. While there was positive talk from both the United States and the European Union at the World Economic Forum, there are major obstacles to any agreement given the trade threats by Trump and all his demands for striking a deal. These threats aim to decrease the trade deficit with Europe, shape policy on Iran, and negotiate a better deal. Trump has claimed that great power competition with China is his top priority. However, effectively competing against China will require help from European allies. If the United States escalates a trade war with Europe, only China will come out as a winner.

The current trade policy with Europe has been turbulent from the start. Since 2018, tariffs have been imposed on European steel and aluminum. Last spring, Trump also called for tariffs on European autos, a threat he has renewed to pressure European allies to initiate a dispute mechanism in the Iran nuclear deal. When France imposed a technology services tax, the administration threatened tariffs on over $2 billion worth of French exports. Trump even asserted that Europe is worse than China on trade issues. Uncertainty about his tariff threats only increases the chances of an intensified ongoing trade war between the United States and Europe.

A trade war with Europe will only further erode the fragile transatlantic relationship. Given its strong economic ties to China, Europe is clearly a necessary asset to compete with China, but levels of transatlantic trust are historically low. Only 26 percent of European allies have confidence in how Trump handles world affairs. There are also signs of how decreased trust between Washington and Brussels have had deleterious impacts on competition with China. The American campaign against Huawei has been mostly unsuccessful in European capitals, even though most Europeans believe their economic interests are more aligned with the United States, and they are deeply concerned with how Chinese companies handle data privacy. Some countries have committed to allowing Huawei equipment in their 5G networks, despite American efforts to convince them otherwise.

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By undermining the important transatlantic relationship, the United States is working against the goals it hopes to achieve. Washington will need to cooperate with European allies on setting new export controls for such critical technologies. Although the United States is already beginning to implement controls on emerging and foundational technologies, it is not the only supplier of many critical technologies. One Dutch company, for instance, is the only supplier of extreme ultraviolet lithography machines in the world, necessary for producing leading edge semiconductors. The Dutch government, following an intense lobbying campaign, withheld an export license for the Dutch company to export to a Chinese chipmaker.

If the United States wants to restrict Chinese ability to acquire advanced technologies, it will need cooperation from European allies. Escalating trade tensions will incentivize further hedging from European countries and push them to sustain or even deepen their economic ties with China, which is ready to accept a close trade partnership with Europe. China is an important trade partner for Europe, where trade in goods with China has increased nearly 35 percent in the last decade. A transatlantic trade war will increase the attractiveness of China as a trade partner and push the Europeans to discount the harmful trade practices by China. While a recent study found a majority of Europeans view China as an economic competitor, this relationship is viewed differently across the continent.

While the usual suspects like Italy and Hungary have cozied up to China, stalwart European allies like Germany are considering the benefits of a closer economic relationship with China. A recent study found more than 40 percent of Germans believe that China is a more reliable partner than the United States. As Europe prepares for a possible slowdown, there is likely to be a greater appetite for preserving the economic relationship with China, even at the high cost of holding China accountable for its harmful trade practices. All this would stand to the benefit of China.

If countering China is, in fact, the top priority for the United States, then a trade war with Europe is at best a distraction and at worst a liability. The escalation with Europe risks distracting the administration from its focus on China and further undermines trust with European allies at the pivotal moment when many European countries are facing critical choices about their future economic relationship with China and whether to ban Huawei from their 5G networks. Countering China will require cooperating with, rather than coercing, European allies. Halting a transatlantic trade war is imperative to ensure China does not win this round in this critical match.

Carisa Nietsche is a research associate and Sam Dorshimer is a research assistant both at the Center for a New American Security in Washington.