31/12/2020

Geopolitics

The Economic Prospects of Central Europe under the Biden Presidency

Tamás Orbán | Dávid Nagy
President Trump’s policies under the slogan ‘America First’ have propelled major changes not only in US domestic affairs, but also on the global political theatre. The Trump administration effectively distanced itself from allies and foes alike, pursued aggressive trade policies across the globe, favoured immediate solutions over long-term strategies, and put the apparent interests of the United States before anything else.

President-elect, Joe Biden is expected to revert to a more reasonable and peaceful approach to foreign policy, which will have an impact on Central Europe as well. In the following chapters, we take a look at the economic prospects of CE in relation to the foreseeable changes under Biden in terms of multilateralism, trade, energy and climate policies.

I. Returning to multilateralism

After the end of World War II, the international political scene in the West (and gradually elsewhere) has increasingly become an intertwined vast network of multilateral treaties and organizations, which set up the rules that determine most of our interactions. For decades the United States’s participation and commitment to these institutions seemed self-evident, only recently challenged by President Trump. What impact did Trump’s isolationism have on the EU and Central Europe, and what can we expect from President Biden on these matters?

Eroding trust under Trump

The foreign policy of the Trump administration is often characterized as the abandonment of the traditional value-based interaction between the United States and its partners for a more transactional approach, marked by a constant demand for reciprocity and a growing distrust in multilateral organizations. President Trump’s basic argument was that these supranational institutions undermine the sovereignty of the US by forcing it to comply with majority decisions, thus weakening its ability to act on its own accord. During his term, President Trump withdrew (or initiated the withdrawal of) the US from 14 different international organizations, treaties, arrangements and fora. Among the most notable ones, he pulled out from the Joint Comprehensive Plan of Action with the P5+1 and Iran (JCPOA, also known as the Iran Nuclear Deal), the UN Human Rights Council (UNHRC), the World Health Organization (WHO), the Intermediate-Range Nuclear Forces Treaty (INF Treaty) and the Paris Agreement. From the international trade agreements, the president terminated the North American Free Trade Association (NAFTA) and the Trans-Pacific Partnership (TPP), replacing them with bilateral treaties. Numerous times, Trump has also threatened to withdraw from the World Trade Organization (WTO), and even from the North Atlantic Treaty Organization (NATO), but these were only symbolic steps.

With an executive order, President Trump also ended negotiations regarding the ambitious dreams of a US-EU free trade agreement - outlined in the plans of the Transatlantic Trade and Investment Partnership (TTIP) under President Obama. The move was largely welcomed, with relief on both sides, as not only sovereigntist and protectionist governments opposed it (for accelerating the outsourcing of Western jobs and possibly giving large corporations different leverages to overreach national interests), but climate and activist groups as well, hence  TTIP would have either lowered the already existing European environmental and public health protection standards, or allowed US corporations to circumvent them on EU markets. And even if the US had adopted most of the relevant EU laws, the Partnership would still have made the adoption of further regulations significantly harder and more complicated.

From an economic point of view, the most important of the existing institutions mentioned above is the WTO, the only global organization which deals with the rules of trade between countries, regulating the flow of international trade and providing a platform to negotiate and solve any erupting quarrels through its Dispute Settlement Body (DSB). Whenever a government claims that another country has violated the WTO-approved rules of global trade, their case is submitted to be judged by a panel of independent arbiters, but members can still appeal to the Appellate Body for a final verdict. The WTO Appellate Body is comprised of seven judges appointed by the DSB, and its decisions are binding.

United States administrations have been criticizing the DSB ever since it was established in 1995, but no other administration showed as much hostility towards it as Trump’s. Past administrations have been accusing the WTO of engaging in ultra vires actions (acting beyond its powers) and obiter dicta (adding newer and newer obligations unilaterally). President Trump not only shared these concerns, but took the debate even further. As early as 2017, the president argued that the WTO’s Dispute Settlement Body was essentially designed to supress the US’ economic power to benefit other countries, claiming that the US loses almost all lawsuits within the WTO. This was factually incorrect, as the US – similarly to every other country that has used the DSB – won 91% of all cases it submitted, and lost 89% of what others submitted against it. These numbers correspond to the general tendency within the WTO, as countries are not likely to appeal, unless they have a good chance of winning.

Nonetheless, after the WTO ruled in favour of Beijing in September 2020 over the tariffs the US imposed on China back in 2018, the Trump administration decided to protest by stripping the organization from its power to pass judgement simply by vetoing the appointment of the WTO’s next Director-General and a number of new judges to the Appellate Body after the mandate of some of its members expired.  This way, the US did not need to withdraw from the WTO in order to nullify its obligations towards its ruling. Without an Appellate Body to review its appeal – or any future appeals for that matter – no initial rulings come into effect. In this case, the US is free to continue with its $200B worth of tariffs on Chinese goods that the first round of independent arbiters ruled against. This not only means that the US-China trade war has been essentially isolated from the rest of the world (forcing the parties to come up with a compromise themselves), but also that no other countries can use the DSB to avoid trade wars of their own until that compromise happens. Or, until a new administration is willing to lift the US veto, allowing the global trade to become consensual again.

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