How the Trump Administration is using trade threats to force the EU to comply with its foreign policy demands

The Joint Comprehensive Plan of Action (JCPOA) that blocked Iran from developing nuclear weapons was signed in 2015. The parties included the United States and Iran, along with Britain, China, France, Germany, and Russia.

In return, Iran got sanctions dropped that the US had imposed on them and had frozen Iranian funds held by the US released. As BBC News reports (Iran nuclear deal: Key details 06/11/2019):

Under the deal, Iran gained access to more than $100bn in assets frozen overseas, and was able to resume selling oil on international markets and using the global financial system for trade.

However, in May 2018, US President Donald Trump abandoned the landmark deal and in November that year, he reinstated sanctions targeting both Iran and states that trade with it.

Just before the Trump Administration announced it was unilaterally leaving the agreement, France's Emmanuel Macron, Germany's Angela Merkel, and Britain's then-Prime Minister Theresa May tried to persuade Trump to reconsider. Stephen Walt related at the time what happened (Europe Has No Clue How to Handle an American Bully Foreign Policy 05/02/2018):

But instead of getting tough with Trump and warning him that Europe would both stick to the deal and defy any subsequent U.S. effort to impose secondary sanctions on them, all three leaders chose to mollify and flatter Trump instead. Macron tried to persuade Trump to let him “mediate” some sort of a new deal between the various parties, only to say at the end of his visit that he believed Trump would nix the deal for “domestic reasons.” Next up was Merkel, who held a three-hour meeting with Trump and then told reporters that the current nuclear agreement was “not sufficient.” May reportedly then conferred with Macron and Merkel after their trips to Washington, and the three leaders sought to present a united front that was crafted to support the deal without alienating Trump.

The practical result of all this sucking up was disastrous. The top European powers had effectively caved in to the Trump administration’s view that the Iran deal is inadequate and has to be either replaced or supplemented by additional agreements. [my emphasis]

Walt counted the potential threat of tariffs on European steel and aluminum as one reason for the European failure in that instance. Another reason:

... the European response to Trump shows how successfully the United States has tamed and subordinated the former great powers that once dominated world politics. After 70-plus years of letting Uncle Sam run the show, European leaders can barely think in strategic terms, let alone act in a tough-minded fashion when they are dealing with the United States. It doesn’t help that Germany, the world’s fourth largest economy, is in a state of self-inflicted disarmament and incapable of influencing events beyond the eurozone itself.

In other words, European division, the lack of a common EU foreign policy, was showing itself once again. "When Europe’s leaders cannot summon the will to stand up to a tin-pot autocrat like Viktor Orban, expecting them to show some spine when dealing with Trump is a bridge too far."

Wolfgang Münchau's Eurointelligence this month points out how the German-led EU focus on exports has become another vulnerability that the Trump Administration is exploiting, also through the threat of tariffs. In How the US blackmails the EU 01/16/2020, he relates:

Donald Trump’s ambassador in Berlin denied the story furiously, but we have reason to believe that it is correct. The Trump administration issued a direct but private threat that it would slap a 25% tariff on EU cars unless the EU took action against Iran under the provisions of the 2015 nuclear agreement. This is exactly what happened this week.

We pay not [sic] credence to claims that the Germany, France and the UK wanted to trigger the dispute mechanism anyway, and that the threat by the Trump administration, if anything, complicated the decision. The whole notion of the EU triggering the mechanism in order to save the deal is a face-saving exercise. The EU acted the way it did because it had no choice.

He claims a similar US threat that was successful in the matter of suppliers to NordSstream 2 project. And he links this to the vulnerability in the eurozone that was so dramatically on display during the euro crisis:

It is the consequence of the EU’s incomplete model of integration. This was also the story of the eurozone crisis, when EU leaders persistently failed to act together in the interest of the eurozone. Back then the EU was lucky because the ECB was willing to take a supranational perspective and able to act on it. There is nothing like it in foreign and security policy. The European Commission has limited powers, for example in trade and competition policy, but the EU will need to employ different tools to defend itself from Trump or Xi.

He expands on the theme in The world has discovered how to blackmail Germany 01/17/2020: "This is what happens when trade surpluses are not merely occurring but they are an essential part of your overall economic strategy."

Signs of a weakening economy in Germany

Chris Bryant reported a week and a half ago about the downturn in industrial production in Germany. (An Industrial Crisis Is Brewing in Germany Bloomberg Opinion 09/30/2019):

Germany’s industrial sector contributes more than one-fifth of GDP and is usually a huge asset. Right now this export engine is pulling the economy down. Signs of distress are everywhere. German manufacturing activity is at a decade low, according to IHS Markit’s purchasing manager’s index. The Ifo Institute estimates that more than 5% of manufacturing companies have cut working hours and about 12% expect to do so during the next three months. German machinery orders declined 9% in the first six months of the year, according to the VDMA association, which represents the country’s engineers. In chemicals and pharmaceuticals, domestic production fell 6.5% in the first half of the year, while domestic car output has fallen 12% this year. Auto exports have dropped 14%.

I recently heard an estimate that one in nine jobs in Austria are dependent on the auto industry, and a huge part of that is from the German auto industry.

This article also illustrates how dysfunctional Germany's obsession with budget-balancing has become:

With luck these grim warnings will compel the government to reconsider its demand-sapping commitment to a balanced budget. Last week the head of the BDI industry lobby group urged Berlin to consider additional borrowing to fund public investment — a once unthinkable heresy but one that’s common sense when even 30-year German debt yields nothing.

When real interests rates on public debt are not just zero but negative, it's almost by definition economic policy malpractice not to borrow money for public investments that will depreciate over decades. The fact that normal public investment had become an "unthikable heresy" is a sign of how much even center-left German parties like the Social Democrats and the Greens embraced stone-conservative economic dogmas over the last two decades.

One of the ways that this longtime neglect is in the German passenger rail system, which is experiencing service problems because of inadequate maintenance and old train cars. And this at a time when climate change is making it more urgent all the time to shift traffic from private cars to public transportation.

The German Left Party and Russia

Stefan Liebich, the foreign policy speaker for the Left Party (DIE LINKE) in the German national Bundestag, the lower House of Parliament, provided a summary this week of his party's current position on relations with Russia. (Nicht mit zweierlei Maß messen Neues Deutschland 09.01.2019)

The Left Party was officially founded in 2007 in a merger of the Party of Democratic Socialism (PDS) and the party Labor and Social Justice – The Electoral Alternative (WASG). The PDS was the "post-communist" successor party to the former ruling party of East Germany, the Socialist Unity Party (SED). The Left Party has been skeptical of military intervention and in favor of peaceful and friendly relations to Russia.

But the Left Party has a, well, left political perspective. So it is not sympathetic to the oligarchic/authoritarian style of rule that is the current system in Putin's Russia. Putin's ideological soulmates in Germany and the rest of the EU are generally the far-right populist parties like the Alternative for Germany (AfD), the Austrian Freedom Party (FPÖ), and the Lega in Italy. But generalizations on this can be tricky. Poland's ruling Law and Justice (PiS) party is a similar far-right formation, but its version of Polish nationalism includes, not surprisingly, a suspicious-to-hostile view of Russia. Hungary's President Viktor Orbán is the closest in its authoritarian ruling style to Putin's, but his Fidesz party is formally affilited to the conservative party bloc in the EU Parliament, not to the far-right blac.

Liebich reviews his party's view of the development of the West's relations with Russia since 1989. In their view, the 1990 arrangement between the US, Canada, and Western European countries with Russia (then still the dominant country in the Soviet Union) known as the Paris Charter, which aimed at improving East-West integration under the auspices of what is now the Organization for Security and Co-operation in Europe (OSCE). Lieblich argues that with the dissolving of the Warsaw Pact, NATO should also have been abolished.

Obviously, that didn't happen. But the diplomatic position of the West was that NATO could be broadened to include even Russia. It seems unlikely that anyone could have ever taken that position very seriously, however convenient it may have been to pretend that they did. NATO was formed as an alliance to defend Western Europe against the Soviet Union and it also brought the NATO allies under the American nuclear umbrella. Liebach notes that instead of the NATO alliance being ended, "NATO expanded and the desire of [Russian Presidents]Yeltsin, Putin and Medvedev for the inclusion of Russia was ignored by the 'victors'." Nearly 30 years after the fall of the [Berlin] Wall, we find ourselves in a new ice age." (All translations from the German are mine.)

Lutz Schrader notes in this article on the OSCE from the Bundeszentrale für politische Bildung (BPB), Die OSZE – ein Erfolgsmodell muss sich neu erfinden 22.02.2017, that the Clinton Administration used the formal prospect of NATO ascension for Russia to make the actual expansion of NATO to former Warsaw Pact countries more acceptable. And that they informed the Russians formally in March 1995 that they had no intention of expanding NATO to include Russia.

It might be an exaggeration to say that the notion of expanding NATO to included Russia was always a joke. But not by much. And it doesn't seem to realistic that Putin in his first Presidency (2000-2008) or Medvedev during his (2008-2012) might have still been expecting that inclusion in NATO was a realistic option. Because essentially the Western countries quit pretending by 1995.

Liebach's states the Left Party's position on Russian expansionism as follows:

The LINKE criticize the incorporation of the Crimea into the territory of Russia as a violation of international law, just as the removal of Kosovo from Serbia was. The proposal of the Russian President [Putin] before the Federation Council to send soldiers into the Ukraine on the grounds that there was allegedly a threat to Russian citizens living there was as much a violation of the ban written into the UN Charter on the threat of violence as the military intervention in Grenada in 1983 was under US President Ronald Reagan, who in any case chose the same justification. It is occasionally argued that Russia could act in that way because the USA also did, and that [Russia] had to defend itself against a strategy of encirclement. But we [the Left Party] aren't making geopolitics from Russia's point of view but rather left peace policy. We stand for international law and against violations of it. If we are blind in one eye [i.e., one-sided in such criticism], we damage our credibility and weaken ourselves even when we oppose unjustified attacks against Russia. If we criticize the national government for using two different standards, we shouldn't also do that ourselves.

Liebich states the Left Party's position as opposing the current sanctions against Russia. And he holds out the 1990 goal of a pan-European OSCE instead of NATO.

Keeping longterm goals in mind is important in foreign policy. But it's safe to say that a pan-European OSCE that replaces NATO is a more distant goal now than it was in 1990. And, in practice, ending the current sanctions is part of a larger package of international issues with Russia.

I've thought for a long time that the post-1990 expansion of NATO - "NATO enlargement" in the standard jargon - was a reckless action done with too little consideration of how Russia as a nation would see itself required to respond, no matter what kind of government it had. That process played out pretty obviously the way that the foreign policy "realist" school predicted. The US found itself as the world's "hyperpower" in a "unipolar world." In the realist scheme, the US would look for ways to maintain its dominance and prevent the rise of "peer comptetitors" in the world. Preserving NATO and expanding it eastward was an obvious way to pursue that goal. That's not to say that those were the only choices that could have been made, of course.

Having united Germany as part of NATO was one level of risk. That arrangement was negotiated in the "Two Plus Four" process in 1990 to unify Germany. The 1999 inclusion of the Czech Republic, Hungary, and Poland was another level of risk, the first incorporation of former Warsaw Pact countries. The next round of expansion took place in 2004, adding former Warsaw Pact members Bulgaria, Romania, and Slovakia; the oncetime Yugoslav republic of Slovenia; and three countries previously part of the Soviet Union itself, the Baltic nations of Estonia, Latvia, and Lithuania. And that was even a higher level of risk.

Russia subsequently created a situation in the former Soviet republics of Georgia (2008) and Ukraine (2014) in which Russian forces controlled parts of their territory secessionist entities in ethnic-Russian dominated areas and with the incorpration of the Ukrainian Crimea formally into Russia itself. That greatly complicates any move by NATO to incorporate either of those nations in a further expansion, since neither country currently controls all of its own territory and therefore explicit agreements with Russia would be required to achieve that.