In this episode of the Trade War Podcast by the Information Technology and Innovation Foundation, host Stan McCoy delves into the current state of US-EU trade tensions with esteemed European trade experts Ignacio Garcia Becerro and Aslak Berg. The podcast offers timely insights into the aggressive trade policies of the Trump administration towards Europe, including threats of tariffs and criticisms of EU regulatory practices.

Mentioned

• Dominic Rushe. “Trump vows to slap 25% tariffs on EU and claims bloc was ‘formed to screw US’,” (The Guardian, February 2025).
• Jesus Mesa. “What Countries Have VAT? Map Shows Impact of Trump Reciprocal Tariffs,” (Newsweek, February 2025).
• Stephen Ezell, Trelysa Long and Robert D. Atkinson. “The Trade Imbalance Index: Where the Trump Administration Should Take Action to Address Trade Distortions,” (ITIF, March 2025).
• Aslak Berg. “Trump's tariffs – how should the EU react?,” (Centre for European Reform, February 2025).
• Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the European Union, (Office of the United States Trade Representative, January 14, 2020)
• Sander Tordoir. “How German industry can survive the second China shock,” (Centre for European Reform, January 2025).

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Stan McCoy: Welcome to another episode of the Trade War Podcast from the Information Technology and Innovation Foundation. I'm your host Stan McCoy and this is the series where we explore the roots and realities of today's global trade conflict. We're recording this on the 10th of March so bear in mind that some things may have changed by the time you hear this,or given the way things are going these days, everything might have changed by the time you're hearing this.

The ITIF is proud to welcome two distinguished European trade experts to today's episode of Trading Blows: Is Europe Prepared? Ignacio Garcia Becerro is a non-resident fellow at Bruegel, the European Economic Policy Think Tank and a former trade official for the European Commission who was responsible for leading many areas of EU trade policy in a career that started as a negotiator in the Uruguay Round and continued through the ensuing decades. Relevant to today's discussion particularly are his roles as The EU's chief negotiator for the Transatlantic Trade and Investment Partnership, negotiations with the United States, and his oversight of U.S.-EU trade relations at the commission during President Trump's first term in office.

I think over that career Ignacio's earned a reputation as a highly respected champion of the EU trade agenda. So Ignacio, thank you very much for joining us on the podcast.

Ignacio Garcia Becerro: Hi, Stan. Thanks for having me here.

Stan McCoy: We're delighted. Also joining us today is another highly respected expert on European trade policy, Aslak Berg, who is a research fellow at the Center for European Reform, focusing on trade and regulatory policy, and previously worked on trade policy and negotiations at the European Free Trade Association in Geneva, which I think of as the EU BFF club, and in the Norwegian civil service as well including a secondment to the European Commission. So, thank you Aslak for being here with us.

Aslak Berg: Thanks for having me, Stan.

Stan McCoy: The setting for all of this I think is obvious. Since his inauguration on January 20th, President Trump has adopted what I think can only be fairly described as an aggressive trade policy posture towards the EU.

At Davos, he criticized EU trade and regulatory policies He suggested that the bloc was formed to "screw" the United States, a view that he echoed during the February 26th cabinet meeting, where he threatened to impose a 25 percent tariff on a broad range of EU imports, including automobiles.

Vice President Vance also publicly criticized EU regulatory policies at the Paris AI Summit and in Munich at the security conference. Concretely, we're also dealing with tariff actions in play including steel and aluminum tariffs and the looming threat of reciprocal tariffs. And I haven't even mentioned the regional and global security threat related to Ukraine. So, it's quite a context. I want to come back to this question of whether the EU was a bloc formed to screw the United States. I have opinions on that subject. But before we go there regardless of the history, Ignacio, Europe today faces a US President who clearly thinks Europe is treating the US unfairly and has been for a long time, and the concerns that he cites are ones that I'm pretty sure widely shared on the US side, and that are not unfamiliar to you either. Can you talk me through, for those of us who haven't worked inside of the EU institutions, what are the conversations happening now, and how are they contemplating dealing with President Trump's threats?

Ignacio Garcia Becerro: No, thanks a lot, Stan. And before I actually get into the trade picture, let me make a more general comment. Because I think some of the statements and some of the actions coming from this administration, in my view, raise a broader question on the EU side about whether the United States still sees the European Union as an ally. And of course, it's not just a question relating to trade. It is a question relating to a much broader set of issues having to do with the security situation in Europe. So, I think that's a little bit the fundamental question, which is being raised when you hear from President Trump, these statements about the European Union having been created to screw the United States.

Let me perhaps push back a little bit on something you said, because you said that the concerns which are being articulated by this administration are widely shared. But I hope that not all of the concerns which are actually being formulated are concerns which are widely shared. I hope there's not a general perception in the United States that the trade goods deficit between the United States and the European Union is a consequence of unfair trading practices because I think it's very clear that there's no evidence to support such a statement. There is a deficit if you look into trading goods. If you look into trading services or if you look into investment flows the picture is quite a different one.

So, I don't really think that this idea that the deficit is a parameter to determine unfair practices from the European Union is something which is justified. Then when you actually are talking about reciprocity in tariffs, in quite frankly, there's not a big difference between the tariff levels between the European Union and the United States.

The average tariffs are very similar. Depending on how you count it, you could even argue that the average weighted tariff of the European Union is lower than that of the United States.

If you are looking into difference in tariff levels, I was very interested that reading the latest USTR report, they mentioned India and Brazil as two countries of concern. They do not mention the European Union. Of course, if you then decide that VAT is a barrier, it is something which is like a tariff, then the situation becomes different, but then you have 170 countries in the world which are applying a VAT. A lot of these countries applying discriminatory tariffs vis a vis the European Union.

I'm not saying that there are not issues on trade, there have always been issues on trade between the United States and the European Union. But the fundamental question is whether this administration is ready to deal with those issues in good faith or whether they were just facing a justification for applying a quite arbitrary 25 percent tariff on imports from the European Union.

So, I think that's the issue that my colleagues in Brussels will need to try to evaluate. Obviously there are going to be some tariff announcements later this week on steel and aluminum. And then we expect that there will be more announcements after the 1st of April. And depending on those announcements, I think, those will need to take decisions in Brussels will need to evaluate what is the right response.

But let me start by saying that if this is a trade war against the European Union, cross strike is a war of choice. I don't think that there have been actions by the European Union that would justify the kind of measures which are currently being considered by the Trump administration.

Stan McCoy: I should have said at the top that some of the concerns are widely shared. I think you're quite right to point out that probably not all of them are widely shared. But Aslak, can you step in here and help us game this out? What options are on the table in terms of a European response and how does the Commission decide among them?

Aslak Berg: Sure. We know that tariffs are coming. We know that they're probably coming first this week and then maybe later on in April. And the EU does not want a trade war. So we have to keep in mind the goal here is to avoid a trade war. The way to avoid it is you can make a deal, you can search for some kind of compromise, and I know that the EU is actively engaged, trying to find a compromise. But to be frank, it does not look very promising. If you look at the kind of demands that the US is making, these touch on regulatory autonomy, sovereignty, the very core of the EU functions. So I think the prospects for our deal are frankly very low. So then you're looking at how do you dissuade the US otherwise. That means retaliation. I think it's important to keep in mind that when you retaliate, you want to maximize the political impact while minimizing the impact on yourself. And there's a few ways you can do that. We're having these tariffs on steel and aluminum or aluminum, if you prefer, coming this week, that is a classical protectionist move. And the EU will probably respond in kind. So you will respond to tariffs with tariffs. We know that they will target products that are produced in Republican leading states that are replaceable. There are substitutes from elsewhere. We're talking jeans, motorcycles, that kind of thing. Bourbon, not least, is a very important one. The more concerning one for me is actually these reciprocal tariffs. We don't know what they will look like. But we know that this, it will probably be big. Trump mentioned 25%. I think that's plausible. I think that might be what's coming. And that'll be on everything. That means 500 billion worth of annual EU exports. So that is a massive, massive measure.

And the problem with that for the EU is one, if you do a proportionate response, you're actually doing a lot of damage to yourself as well. So you may not actually want to do that. And the second is that the EU exports a lot more goods to the US than they import.

So there's difference. There's 500 billions of exports, 350 billion of imports, more or less, and that means that you're at a disadvantage.

Stan McCoy: It's interesting now you're talking about whether there's room to negotiate or whether you go straight to retaliation and Canada and Mexico took slightly different paths on that where Canada announced the retaliation immediately, Mexico created a little negotiating window before announcing retaliation.

I'm curious Ignacio, is there room to negotiate? How do you play that if you're calling the shots on European trade policy?

Ignacio Garcia Becerro: There has already been contacts between Commission and such colleagues as Mr. Lutnick and Jamieson Greer, Commissioner Šefčovič was in Washington. And I'm sure that in those contacts, there have been some change of ideas about what could be possible in terms of a negotiation. My sense is that it is unlikely that you would actually have a negotiated outcome before the 1st of April. I don't think that the door for negotiations are necessarily closed, but we really need to understand exactly what it is that we are going to be facing. In any event, what is already very clear is that the steel and aluminum measures will come in place this week, the 12th, and the impact is much bigger than the old measures.

They have a much broader impact on trade.

Stan McCoy: Because they're hitting downstream products.

Ignacio Garcia Becerro: Yeah, exactly. They are hitting downstream products. And also the tariff on aluminum is not 10%. It is 25%. My sense is that the impact is about double that of the previous measures. So, I guess that on those issues, my expectation would be that there will be a rather rapid, I don't know about immediate, but a rather rapid retaliation through tariffs.

Now, when it comes to whatever is announced the 1st of April, I guess that the Commission and the Member States will need to analyze very carefully what it is that is announced, how broad it is going to be. Is it already immediately applicable or is not going to be immediately applied? It's more a scope of time to discuss the issues and depending on that there would be a reaction, but I would expect that reaction would also include some indication about readiness to retaliate I suspect this would not be a retaliation which is just limited to tariffs. This being said, in my view, there's always a scope to negotiate provided that the signals are given that there's a willingness to negotiate on something which is realistic. And of course, negotiating about VAT, negotiating about our regulatory autonomy, that's not something which is realistic.

There are different areas from which I think there's a scope for doing things. Both on trade-related issues and on issues which are broader than trade. For instance, if there is going to be an interest to having a conversation about macroeconomic imbalances, from my point of view, it would be much more productive if this conversation takes place within the framework of the IMF. And in that context, I think there's a lot of things happening in Europe that probably would be useful to discuss in terms of Europe being more ready to relaunch its economy. And I think that decent decisions taken in Germany about the debt break are very important from the macroeconomic point of view. And quite frankly, I still hope that the perception in the United States is that the big problem in terms of imbalances is not the European Union, but it is China. And in that issue, my sense is that there is a lot of scope for the United States and the European Union to work in a manner which is mutually supportive. But it really comes down to the question. Does the United States see the European Union as an ally, which may have differences on certain issues, or does the United States at this point in time, see the European Union as a competitor, a driver, however you want to refine it.

That's the more fundamental question I think.

Aslak Berg: Just to elaborate on that, what's important here is also the motivation for these reciprocal tariffs. The motivation is to cause change in the EU, conditioning US market access to regulatory changes in the EU. That is from the European point of view, economic coercion. And the EU has put in place this anti coercion instrument that would allow the EU to target not only goods, but services, whether tech or finance. It could be intellectual property rights. It could be investment. So, if you're listening to this podcast and you're in tech and you think that, oh, this will only affect goods. That is not something you can take for granted. So, I had a paper out recently where I suggested instead of targeting these sort-of essential services, you target these high-visibility targets with a lot of political ramifications.

You can target, for instance, Elon Musk's company. You can target Twitter or X. You can target Tesla. You can target SpaceX. So that's the kind of measures that the EU might be looking at.

Stan McCoy: So those CEOs who chose to sit on the rostrum behind Trump for the inauguration might have been marking themselves as targets for retaliation in a trade war.

Aslak Berg: They very well might have. And I think that's open to broader questions of if big tech aligns itself with American state power, you might get some tactical wins in the short term, but what kind of environment are you creating for yourself in the long run, if you are perceived as hostile, as aligning yourself with a foreign power. I'm not sure that's a net win in the long run for tech companies.

Stan McCoy: Yeah. I think the tech companies, some of them may feel like they didn't have much to lose with the EU regulatory and tax environment that they faced between paying digital services taxes and the regulatory environment created by the digital markets act and the digital services act.

I think there's been a lot of criticism. I think Ignacio, that probably would be one of the concerns that would be widely shared on the US side.

Ignacio Garcia Becerro: There's certainly differences relating to regulation, but different ways of tackling those differences. And it's the certain companies in the United States are going to try to weaponize state power to try to prevent the European Union from implementing its rules. I think that's not going to be a very productive way to see how differences can be tackled. And of course there is a recognition within the European Union that on certain issues like artificial intelligence, there may be a need to establish a better balance on regulation. And I think there will be a lot of interest to explore how to better cooperate between with United States on issues relating to artificial intelligence.

The concerns about abuse of market power and about content moderation is not something that has been invented by the European Union. At least the previous US administration also shared quite a lot of those concerns. I think the situation is going to be that the United States is going to be using coercive action to Section 301 or maybe even IEEPA to basically telling the European Union, unless you do not apply your rules, we would apply a tariff. I think inevitably politically there is no way that is not going to generate a reaction that might lead to the need for us to look also into retaliation in those areas. I hope we can avoid that. I think there's a recognition in the European Union that from the economic point of view, It would make a lot of sense for the United States and the European Union also to cooperate in digital, particularly when it comes to AI and I think there's a new context with the value report, but if this becomes the front line of a trade war there's always going to be a lot of collateral damage.

Aslak Berg: This in a way is a golden opportunity for tech companies, not because of anything the US does, but because as Ignacio mentioned, there is this realization in the EU that on some areas the regulation went too far, it's too costly, it's very difficult to implement, it's contradictory. Right now, with some good industry input, maybe some astute US diplomacy, there might be some room for improvements. But we're not seeing astute US diplomacy, we're seeing this sort of bull-in-the-china-shop approach that might risk actually wasting the opportunity and making it worse.

Stan McCoy: The Draghi report has come up a couple of times already on this podcast. I think it's something that has gotten a lot of attention in the US and I take your point on there's a constructive approach and a less constructive approach. And we seem to be veering towards the less constructive approach.

Full disclosure, the ITIF has published a considerable amount of work that's critical of EU tech regulation and the EU approach to applying antitrust type principles to the tech sector. So, we're not without a track record on all of this as well, but one of the complications here is that politically some of this regulation has been wrapped in a cloak of targeting of American firms, specific criticisms of American tech dominance. The former commissioner Thierry Breton was fond of putting things in these kinds of terms.

And that has maybe created the context for some of the desire for a more. Aggressive and statist approach. I don't know if you would disagree with that Ignacio.

Ignacio Garcia Becerro: Yes, I understand that there's a certain context, but let me very much emphasize that the point which has also been made by Aslak, there's a certain opportunity to find a different way to tackle these issues. And I think the more that there's going to be the perception that the United States is basically trying to prevent the European Union from applying its regulations, the more that I think it's going to be very difficult to find any way which is constructive in terms of moving forward.

I would just advise the companies, which probably have a certain influence in terms of how this is going to be played eventually by the administration, the USTR or others, that they bear that consideration in mind. if this is really being perceived as a coercive action from the United States, I don't think that there's any other option to react we have now an anti coercion instrument that could be deployed under those circumstances.

Stan McCoy: can we dig down on that a little bit? If you are in an environment where your trading partners have abandoned the MFN principle and are applying universal reciprocal tariffs Query exactly what that means in the implementation. But yeah, if that's the world you live in, is the eu as things stand today, legally authorized to also abandon its international legal commitments.

And go ahead with reciprocal actions that would be punitive against the aggressor, so to speak.

Ignacio Garcia Becerro: Let me put it this way, at this point in time, the European Union has two types of legal instruments that can be a basis to take countermeasures vis a vis other countries.

One is the enforcement regulation that would allow us to react after the WTO dispute settlement procedure, or in the case that there has been an appeal into the void, then we can retaliate from the moment that there has been an appeal into the void or also when the measure can be characterized as being a safeguard measure. Now, that's what was already used in the past to retaliate against the US Section 232 tariffs on steel and aluminum. And it is my expectation that this would actually be the instrument that will continue to be applied this week if we have actually a doubling down of those steel and aluminum tariffs.

What is new is an instrument that was developed during the first Bondar Lyant administration, which is this anti-coercion instrument that in certain defined circumstances allows for the adoption of countermeasures without having to go first to a WTO dispute settlement procedure. And the reason is because this is a response to what is prohibited under public international law, which is coercive action, trying to use trade or investment threats in order to seek to influence the decisions of a sovereign third party.

That is contrary to public law. And that's why under those circumstances, the European Union considered that it is legitimate to apply the response measure, which is proportionate. You always need to respect the principle of proportionality without having to go first through a WTO dispute settlement procedure.

And that is, I think, the type of instrument that might be in response to the reciprocal tariffs. Apart from that I don't really think that there is a intention from the European Union to deviate from MFN there is obviously going to be Discussions with United States. I suspect any such conversation, whatever it is that the European Union would be ready to offer to the United States would be implemented on an MFN basis.

If we were not going to do it that way, then we would be departing from the basic rules of the WTO, and we would actually be creating an example that other countries might also be ready to follow, like India, China, what have you.

Stan McCoy: Aslak, you have thoughts on this?

Aslak Berg: Europe is very committed to international rules. Europe is dependent on trade. And we have to be clear. It's not our trading partners in general that are deviating from this. It is specifically the US. There are other problems with other partners. We can talk about China… From our point of view, it's a US-specific problem. And it's not so much about tariffs.

I think we have to be clear, this sort of reciprocal tariff plan, the name is a bit of a red herring. What worries me is not so much that they will try to reciprocate the tariff level is that they will treat the VAT as a tariff, for instance, that's 20 percent right there. All this sort of regulatory barriers that they want to address through taxation and that's what's going to add up. It's not the tariff level.

Stan McCoy: Speaking of tariffs, Ignacio, when a US negotiator sits down across from you and says the US has a 2.5 percent tariff on automobiles and the EU has a 10 percent tariff, and that's unfair, as the Trump White House has publicly said, how does a European negotiator respond to that?

Ignacio Garcia Becerro: It's a very interesting question that you raised because of course I was responsible of negotiating with the United States a free trade agreement when we were actually negotiating the TTIP, and I have to say that at that point in time, tariff was never really a big issue between the United States and the European Union.

I think that the industries from both sides were very clear that tariff on passenger cars would go to zero, probably attempting to force the agreement. That it was not really the reason why there were divergences on trade between the United States and the European Union. It was mostly because of the policies of the company's concern. And most of the European cars that you see in United States, they are manufactured in North America. Some have been exported from the European Union, but most of them are manufactured in North America. Whereas US companies, normally if they want to sell in the European Union, they produce in the European Union, not because of the tariff difference, but because of the difference in the regulatory context and the difference in the type of models which actually can be marketed in the EU.

So, at the end of the day, quite frankly, I don't think that the tariff difference is a very significant one. And it is worth recalling that the United States has the 25 percent tariff on pickup trucks, which are the most profitable model for US companies. And that's why if this was really the problem, I'm quite convinced that it would not be so difficult to find a solution. Somehow, we suspect that's not really the objective of the Trump administration.

That's the reason why this whole debate is now being complicated by introducing something which quite frankly has nothing to do like a VAT because if it came just to difference between tariff levels, most areas, our tariffs are very similar, certainly when it comes to industrial products. And therefore finding pragmatic solutions on those areas would not be so difficult. But if that is really the issue, one needs to find some justification for applying a 25 percent tariff vis a vis the European Union, then it's very difficult to see what you can negotiate.

Stan McCoy: Yep. A minute ago you were talking about the premises for EU retaliation, and you mentioned the idea of appeals into the void at the WTO, which reminds me to ask you about the role of the World Trade Organization in a context like the one we face today and its potential future role in a world where Trump is no longer president and a different viewpoint is prevailing on trade policy. What does your crystal ball tell you about the future of the WTO, Ignacio?

Ignacio Garcia Becerro: I'm really happy that you are raising this question because before coming to this program, I read the new USTR report, which has a very interesting section with five or six pages about the US concerns. And I have to say that in my view, quite a few of those concerns are concerns that are probably also shared by the European Union, and that potentially could also be shared by other WTO members in Geneva.

So, the real question to me is why it has not been possible for the US and the European Union to work much better together to promote an agenda on the WTO, on WTO reform. And I have to say, if I can be very frank, that I'm particularly disappointed in that connection with the Biden administration. Because if you actually go back in time, during the first Trump administration, there was a very interesting exercise that started between the United States, the European Union and Japan to look into the issue of international rules on subsidies and other non-market economy practices and to see how far one could actually think of ways in which the current rule book could be strengthened to be better responsive to the type of concern that we both have about non-market economic practices in China. And we've made quite a lot of progress on that. Then the pandemic came. So therefore it was not possible to continue the work when it should have been continuing. And I still have this regret that despite attempts, I know from the European side, it was not possible to get the Biden administration interested in pursuing that work that work in the WTO.

And maybe one can always be optimistic. Maybe one can try some way for the United States and the European Union and others to cooperate on issues relating to WTO reform. I note with interest that the United States apparently continues to support the joint statement initiatives as something that should be a way forward to incorporate into the WTO prelateral agreements. During the last WTO ministerial meeting, we were very strongly supportive to start work in the WTO on the interface between trade and industrial policies, which means talking about subsidies, but not only subsidies of the state-owned enterprises.

Other issues which are at the heart of the questions with China, and maybe it is possible now to get a little bit more of interest and support from the United States about how to bring that agenda forward. I know there is some degree of skepticism in the US about the readiness and capacity of China to engage. But quite frankly, you need to test them if you really need to put this issue on the table and then to see what would be the reaction from China. When it comes to dispute settlement reform, it has been an issue that for such a long time, there have been differences between the United States and the European Union.

But, at this point in time, quite frankly, if I can be very frank, the fundamental question is the US is still interested in working towards those objectives or not. If it is, I think that the scope for working together, if not, I guess that it would have to be a little bit for the European Union to see what can be done with others, even if we solve the participation of the US.

Stan McCoy: What do you think, Aslak, is there scope for cooperation on issues of mutual interest or has the well been poisoned?

Aslak Berg: Problem is, the EU and the US and others have engaged in dialogue on a lot of issues. You mentioned digital services tax and I'm mentioning this as an example because it's also a problem for the WTO. On digital services tax, we found a solution. There was this sort of changes to corporate taxes, and you could have this sort of pillar one instrument.

And even the previous administration agreed that these digital services taxes could go when this pillar one system would be put into place. And then nothing happened and nothing happened because right now the US is not able to pass anything like that through Congress and the US is generally no longer able to make firm commitments and as frankly having a hard time sticking to the commitments is already made so that makes it really hard to Negotiate, because are you negotiating with the US as a country or just the current administration? And right now, everyone, the rest of the world, waits with bated breath every fourth year to see what happens in the US presidential elections. And that really makes it hard to find lasting solutions to all of these problems, whether at the WTO or when it comes to tax.

Stan McCoy: Yeah, and it would be a shame not to find a way to cooperate on the China issues. As we record this we've just released another episode of this podcast the provocative title of which is Has China Already Won?, where I take the premise that the real trade war has already been fought and lost and it is about exactly what French Prime Minister Bayrou recently called China's weaponization of the trading system.

So, we seem to be in a moment where there is a lot of shared concern on that issue. There's always been this concern in the background that Germany was unwilling to compromise its trade relationship with China in the wider interest of resolving some of these problems. But maybe that's changed and maybe there could be that long neglected bilateral cooperation to try to deal with the way China has manipulated the trading system in its favor.

Ignacio Garcia Becerro: I think there's potential for that. And as I said before, my sense is that what happened in Trump's first administration and why it was possible to avoid a big conflict between the United States and the European Union is that at least at that point in time it was very clear the strategic priority for the United States is how to handle the non-market economic practices on China. That's a fundamental issue that the United States wanted to arrest. And opening a second front with the European Union would not really help.

And that's why also at that point in time there was this idea, let's try to see how we can cooperate on certain challenges, including through rules. Because one thing which is always going to be very important from the European Union perspective, I think there's a strong concern about the level playing field in China. There is a strong concern about overcapacity. I think there's a willingness to act and to act toughly as necessary, but to act within the rules. We feel that it is possible to respond to those challenges within the rules. The United States may have come to the conclusion that no, they prefer to act outside of the rules and maybe we need to accept that our responses are not always going to be the same.

Stan McCoy: Go ahead, Aslak.

Aslak Berg: Yeah, I think there has been a change in Europe. I think one of the reasons that the US and the EU responded differently to China in the past was that the EU has a very different geopolitical political posture.

Most countries have a mostly commercial interest in Asia, so the relationship is predominated by the state of the economic relationship. And until very recently, business was good. Business with China was good for Europe. You had German exports doing well. You had a lot of investment.

That's changing. And I had a colleague of mine publish his paper quite recently about the second China shock because as Chinese industry is climbing up the value chain, it is now directly with the prime sectors of the German industry, electric vehicles, machine tools, and that leaves Europe in a much more vulnerable position vis a vis China than, even five years ago.

Stan McCoy: Yeah, and there’s much more concerted effort in China now that they've climbed the innovation ladder to push aside the European and US companies that have now become more of an inconvenience for them than a source of innovative capacity. Can you help me though, Aslak, with the national security overlay, because Europe faces a very delicate situation from a national security standpoint if you reflect on that Zelenskyy meeting in the Oval Office, the implications for European peace and security are quite clear.

It was almost immediately after that meeting that you had US submarines calling in Norwegian ports and declined the opportunity to refuel there.

I don't know if you call that a trade-related action or not, but it certainly highlights that we're living in this environment where trade and national security are directly adjacent to one another and nowhere more so than in Europe when it comes to Ukraine and Russia. How do you see navigating that?

Does there come a point where the trade negotiation just has to take a backseat to the primacy of the national security concerns?

Aslak Berg: When it comes to national security, you have to distinguish two different things. One is this short-term concern about Ukraine. And that's acute. It's caused an immense amount of consternation and shock in Europe.

And that's something you have to manage very carefully. So that's why you see all these leaders go to Trump, they grin and bear it, they make nice with him and they try to get him on board, because in the short term, we need US support in Ukraine. So that might affect. It will certainly be taken into consideration. Usually these files are separate in Europe, but everyone is aware of the context.

If there is a ceasefire in Ukraine, if there's a peace deal, a lot of that leverage goes away. So, then you're looking at more long-term concerns. What is the future of NATO? Will the US continue to be a security player? Is the US committed to Europe? And that's something you can handle long term and that's easier to perhaps easier to separate from trade.

Stan McCoy: That's a great lead-in to this idea of EU strategic autonomy that has become a buzzword. And I know it's a buzzword that's familiar to you, Ignacio. Can you help us for the non-European audience unpack what is strategic autonomy? How is that different from autarky? What is the thinking behind that?

Ignacio Garcia Becerro: The problem is that this concept of strategic autonomy had its origin much more in the security foreign policy sphere. And at some point in time, it started to be used also in the economic sphere. Although whenever it has been used in the economic sphere, I think that the European institutions have been very careful to talk about open and strategic autonomy.

It is very clear that what is fundamentally different between the situation that we are having now and the situation that we were having in the previous Trump administration is that now we are potentially facing a major change of the relationship between Europe and United States. The type of statement that have been coming from the United States not on trade, but on security, the type of actions that have been undertaken in the context of the current crisis, on Ukraine. I think they have really been a wakeup call about something which, by the way, for a long time, the United States has been pushing Europe to do. We need to be much more able to take care of our own defense, because it is very clear that we cannot count on the United States being the security guarantor from Europe.

At this point in time, the dependency vis a vis the United States on security is a very big one. And that will really call for having as much cooperation, coordination at this moment in time on this really critical moment for peace negotiations on Ukraine. And to be very frank, of course, there's always a risk that the United States decides to link security and trade. I think in my view, it would be a big mistake.

I think that it would be important to deal with the trade issues on their own merits. And also to deal with the security issues on their own merit. Although quite frankly if the United States is concerned about the need for Europe to buy more stuff from the US, probably the two areas where there's more scope for that to happen are less imports of Russian LNG in Europe, that would open the door for more imports of LNG from the United States. And more European rearmament that at least part of this military stuff inevitably going to have to come from the United States.

I think there you have potentially a win type of scenario where we continue to work together towards a fair settlement on Ukraine and we avoid opening a big confrontation on trade that would be very disruptive.

Stan McCoy: You've given the perfect context, Ignacio, for me to come back and rebut the idea that the EU was created to screw the United States, because the truth is almost perfectly the opposite. It was the Truman administration in 1949, Dean Acheson, who was knocking on the door of Robert Schuman, the French foreign minister, and urging him to put aside France's obvious enmity towards Germany in the wake of World War Two and create an alliance and integration between the French and German economies such that war between France and Germany could never happen again.

That was an American national security priority. And when the Schuman plan of May 1950 came out, John Foster Dulles wrote to Acheson and said it was brilliant. And that it far exceeded his wildest imagination for how far the French would be prepared to go at that moment in history. And so the truth is that the Americans asked for the European project.

They asked for it for national security reasons as a bulwark against Soviet expansion. And. It succeeded beyond Atchison's wildest dreams, and maybe we don't love everything that it produces, but a lot of us on this side of the Atlantic remain big fans of the project and do well to remember that it has a national security implication as well.

That's enough of my diatribe on that point.

Ignacio Garcia Becerro: Yes.

Stan McCoy: Doesn't mean we like EU tech regulation though.

Ignacio Garcia Becerro: Yeah.

Aslak Berg: I have to say the reverse is also true. There are so many Europeans, me included, who have ties to the US, who are fond of America. And one of the reasons these last few months have been so emotional for a lot of people is that we don't know which way America is going. And there is genuine concern about that.

Stan McCoy: Last question. My favorite question on this podcast is who started the war? When did it start? Did it start on January 20th? Did it start before that? And what in your estimation are the root causes of this current economic conflict?

Ignacio Garcia Becerro: I'm not going to answer to the who, but I'm going to answer to the when. And answering to the when may be a little bit more on the who. Now, my sense is that if you really want to see when all the current trade turbulence really started, you basically need to go back to 2008. And that I think for three reasons. I think probably was the impact of the financial crisis, what led to a situation in which in the United States, but not only in the United States, also to a certain extent in Europe, there started to be a significant backlash against globalization. That was a sense about unfairness, about the way that the global economy was actually interacting with the life of the ordinary citizens.

It has been particularly pronounced in the United States, but it has not been only in the United States. You could argue that Brexit, to a certain point of view, was also the consequence of that. So, that was the whole disappointment, disillusioned about globalization in many Western countries originating from that.

It was, of course, also 2008 that led to China deciding that they better develop their own model of growth, much more estate led to a very active industrial policy. So, all the concerns relating to the impact of non-market economy practices in China in a way they start from 2008 and then Xi Jinping coming to power to meet China 2025, et cetera, et cetera.

And of course, also 2008 happened to be the moment when basically the WTO stopped working as a negotiating forum with the demise of the DDA.

So, I think all those three elements, in my view, underline the current turbulence in the trade inter, in the trade inter system. During the first Trump administration, it was fundamentally about China. If you actually look into Trump number one. I don't think there was so much new about trade policy, except for a very direct confrontation with China. And now we need to see whether we are having a much broader trade conflict with the rest of the world, or whether we can try to find some way forward that takes into account these three dimensions. Backlash against globalization, non-market practices in China, and what it is that can be done with the international rule-based trading order as reflected in the WTO.

Stan McCoy: That was a subtle answer to an unsubtle question. Aslak, what are your thoughts? Who started it?

Aslak Berg: It's easy to point fingers, there's plenty of finger pointing you could do. You can point at China, certainly, it's been a big part of that, just the rise of these non-market practices. But to be frank, you can point fingers at others, you can look at the US, which has probably benefited more from globalization than any other countries, this hub of innovation. And so you have all the fruits of globalization, but you have this discontent about globalization and my view is because the US has failed to distribute the fruits of globalization properly. And that obviously leads to discontent. Another point is that, sometimes you build a global structure, it delivers growth.

We've had amazing growth. Just in, if you look at the nine days to now, what's happening for the global economy is amazing. But then, the tectonic plates shift a little and you have to repair the foundation. And we collectively failed to adapt the rules to reality. And I think what you're seeing now is the consequence of that.

Stan McCoy: I think that brings us to the logical conclusion of our discussion.

I thank you both for your provocative and interesting contributions. I've really enjoyed hearing from both of you. I don't envy you the task of having to advise your colleagues working in the institutions these days about how to respond to this, but I hope you'll both continue your public writings on this. You've both been among the most thoughtful writers on the European side on how to deal with this situation. So, I thank you very much for taking the time to join us today.

Ignacio Garcia Becerro: Thanks a lot, Stan. A pleasure to talk to you.

Aslak Berg: It was a pleasure.