By Adam Tooze
Mr. Tooze is an economic historian.
When President Trump described the European Union as “a foe” last week, he sent shock waves through the European establishment. European Council President Donald Tusk promptly tweeted that Europe and America were “best of friends” and that anyone suggesting otherwise was spreading “fake news.”
In fairness to Mr. Trump, one should add that he made clear that calling the Europeans a foe did not mean to imply that the Europeans were “bad.” What was on his mind was, he said, “what they do to us in trade.”
On July 25, Jean-Claude Juncker, the European Commission’s president, will be in Washington to discuss just this topic with Mr. Trump. Mr. Juncker is likely to repeat the familiar European line: When it comes to trade, the United States and Europe are not competitors but partners.
To think, as Mr. Trump appears to do, of nations locked in mortal economic rivalry shows a grave misunderstanding of how competition actually works in the global economy. Competition is, of course, an ordering principle. If neoliberalism is about anything, it has been about creating the largest possible economic space for competition. But the protagonists aren’t supposed to be states (or at least not members of the Atlantic club) but businesses, investors and workers.
It is the job of trade and investment treaties to regulate what preference can be shown to national firms, what rights will be extended to foreign investors. The European Union boasts of particularly tough internal regulations in this regard. National preference is outlawed as far as possible.
Over recent decades, these principles of international organization have come to be entrenched in transnational production systems that make nonsense of economic nationalism. Owning a Ford truck is an instantly recognizable statement of Americanism, but barely half of its components are sourced in North America. Buy an icon of Americana, and your money ends up all over the world.
This interconnection cuts both ways. We hang together in sickness as well as in health. It is not just manufacturing but finance too that is integrated across borders. When the real estate bubble burst in 2008, European as well as American banks imploded. To keep them alive, the U.S. Federal Reserve provided liquidity running into the trillions of dollars both to their branches on Wall Street and by way of the liquidity swap lines extended to the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank. The Fed took this extraordinary step because previous decades had built a system of integration so close that it would have been lethal for the United States not to act. Saving the American financial system meant saving Europe’s banks, too.
But for all this integration, globalization has been haunted by a cognitive dissonance, to which Mr. Trump gives crude expression. In the popular imagination and in the words of politicians, the world economy continues to be thought of like the World Cup: cosmopolitan and transnational, yet made up of discrete national teams competing for a single prize. The lingua franca of policy talk is “national competitiveness.”
As Paul Krugman has pointed out, Mr. Trump’s Democratic predecessors were no exceptions: Bill Clinton, the arch globalizer, spoke of each nation as being “like a big corporation competing in the global marketplace.” Two years into his presidency, Barack Obama relaunched his Economic Recovery Advisory Board as the President’s Council on Jobs and Competitiveness, boldly announcing, “We can outcompete any other nation on earth.”
Angela Merkel’s Germany, supposedly the last great anchor of the liberal world order, is hopelessly addicted to national competitiveness talk. Berlin measures the success of its economic policy not in terms of domestic investment or domestic well-being, but above all in the scale of its trade surplus.
Nor is it merely a German obsession. Competitiveness is an endlessly repeated mantra of the European Commission. Mr. Tusk tweets about it all the time.
So what then is so upsetting about Mr. Trump’s latest outburst?
One of the president’s favorite taboo-breaking moves is that he likes to name enemies, especially those hiding in what is supposed to be America’s own camp. In doing so, he not only offends Atlanticist decorum but also violates a more specific injunction, which permits politicians to talk as much as they like about global competition but not about specific competitors. Normal talk about globalization and competitiveness is directed inward, to the nation. It serves as a call to discipline and hard work. Mr. Trump is taking the idea and pointing it outward, calling out his supposed foes. In so doing, he deliberately fosters economic nationalism.
Conventional competitiveness rhetoric treads a fine line. The point is to stir the pot without causing things to bubble over. With Davos types like Ms. Merkel, you know that whatever rhetoric they employ in public, there are people working behind the scenes who respect international law and global treaties, who understand that blatant national favoritism will blow the system up. The same cannot be said for the Trump administration, which has actually imposed tariffs. They are modest so far, but Mr. Trump has a relish for escalation.
And this evokes an even deeper fear. It is one thing to indulge in competitiveness talk in a world fundamentally headed toward integration. But Mr. Trump speaks this way in a world in which the direction of travel is profoundly uncertain.
While the European Union widened and deepened and the United States worked on Nafta, the great gamble of the 1990s was on China. The hope was that its integration would transform it into a Western-style globalized economy. The results have certainly been spectacular: China now accounts for a larger share of global growth than the United States and the European Union put together. But the idea that China’s businesses and investors would become detached from the Communist Party, or that they might even begin to call the shots, has proved illusory. With the rise of President Xi Jinping, there is reason to believe that China is becoming precisely the kind of actor of which national competitiveness language talks: an integrated national economic team, in which public and private interest is blurred. It is a fearsome prospect.
Caught between China and the United States, you can see why the Europeans are feeling nervous. The European Union has little clout with which to sway either Beijing or Washington. Europe’s main options are defensive: It can react to Mr. Trump’s aggression with targeted trade retaliation. The French would like something more vigorous, but Mr. Juncker is hamstrung by German fears about prohibitive tariffs on cars. Brussels can block what look like dangerous Chinese acquisitions and seek to protect property rights of European businesses and European citizens in their Chinese ventures.
But if Europe does care about the liberal order in a broader sense, it must go further. It needs to break its own competitiveness obsession, of which its huge trade surplus is the most glaring expression. It is not a matter of kowtowing to Mr. Trump. To think of redressing the surplus as a concession is to continue the habit of competitiveness talk. For its own sake, Europe needs more domestic demand, above all more investment. One should not kid oneself about the difficulties this entails, both political and economic. But that would be a real answer to the deep crisis of the present of which Mr. Trump and his ugly rhetoric are both symptom and cause.
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Adam Tooze (@adam_tooze) is a professor of history at Columbia University and the author of the forthcoming “Crashed: How a Decade of Financial Crises Changed the World.”
