Politicians, Business Not Always on Same Page on Resiliency, Experts Say
A think tank representative and an official from the Federation of German Industries disagreed about how to judge the success of the U.S.-EU Trade and Technology Council, but participants at a think tank discussion of the TTC and friend-shoring agreed that deciding who is a friend, how to compensate businesses for the costs of supply chain resiliency and values-based sourcing and how to balance domestic politics and friend-shoring are all complicated questions.
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The American German Institute hosted the forum May 15. Kai Whittaker, a member of the German parliament, said deepening trade relationships between allies is critical toward the goal of advancing democracy over authoritarianism.
"Free trade will only be possible if there's safe trade," Whittaker said, referencing the Russian invasion of Ukraine. "And therefore, it's our responsibility to work together to ensure that the principles of freedom and democracy are held and that we can create a world where all countries can thrive."
Several panelists, including Whittaker, noted the collapse of trade talks years ago towards a comprehensive free trade agreement between the U.S. and the EU, the Transatlantic Trade and Investment Partnership, or TTIP. He said that between friends, there "can be different opinions on any matter. And we have to deal with that in that way. That doesn't mean that we question our foundation on which the friendship is based, but we have to get rid of that thinking -- which is, if you're not with us, you're against us."
Atlantic Council Fellow Frances Burwell also brought up the failure of TTIP, saying one thing she learned from its failure was that some countries in Europe didn't want an FTA with the U.S. As a result, she said, the TTC has never been about market access. "And even in TTIP market access wasn't a huge element. It was much more focused on the regulatory issues, conformity assessment, etc.," she said.
"One of the key elements that we will have to struggle with is what needs to be friend-shored. What are the sectors of the economy that actually qualify for this? Is it medical masks or is it critical minerals? There's a big range between those things, so how do we establish which areas we're going to work on in conformity assessment?"
Burwell argued for a relatively narrow basket of goods that should be prioritized for friend-shoring.
"Are you talking about consumer goods? Are you talking about strategic materials? I would say that the first, consumer goods, you could continue to have trade in the normal everyday way, with price still as the lead determinant of where you trade.
"But with strategic sectors of the economy, you're going to see more looking at security and diversity as components above price, or in league with price. And I think we have yet to work out who pays for that premium? Is that something that the state supports? You can't really expect that companies will over the long term support a security premium unless they're legislated to do so in some way."
However, she said she didn't expect a return to the kind of globalization that prioritized imports at the lowest price.
Whittaker said that for the last year, "there has been a widening gap between politicians and business managers, how to think [in] geopolitical terms through their business models."
Matthias Kraemer, head of external economy at the Federation of German Industries, said there has to be a balance between efficiency and resilience in supply chains. He noted if you weight resilience more heavily, not only will companies have to find new sourcing partners, "it becomes more costly."
The panelists analyzed the progress so far at the TTC, and said they believed it had been very helpful in coordinating export controls against Russia, and had helped dampen European complaints about the Inflation Reduction Act, but had not made a difference on several EU initiatives in digital regulation.
Burwell said policymakers should think about the TTC as a relationship-building tool. "I think that although deliverables remain important, we have to stop judging the TTC simply by how many deliverables there are and how specific they are," she said.
Kraemer disagreed. "The TTC is now standing at a crossroads. I mean, the last ministerial meeting fell short of expectations that delivered only limited progress," he said. He said he's concerned the TTC might disappear if Biden does not win reelection, so the group needs to produce "outcomes that are both commercially relevant and designed to outlast any potential change of leadership on both sides of the Atlantic."