[Marcel Fratzscher] EU must revive multilateralism

Korea Herald

27-04-2025

US President Donald Trump's misguided trade war against the rest of the world could mark the beginning of the end for both his political dominance and his 'Make America Great Again' movement -- but only if Germany and Europe can coordinate a powerful international response.
The European Commission and the outgoing German government's biggest mistake was to signal a willingness to concede to Trump's demands, potentially turning his economic blunder into a political victory. It should be clear by now that appeasing Trump will only hasten the collapse of the multilateral trading system and further undermine democratic governance worldwide.
The European Union's response will be pivotal in determining whether the Trump administration (which is intent on dismantling the multilateral trading order) or China (which seeks to preserve it) will prevail. European leaders face a clear choice: stand for multilateralism and align with China or side with Trump's MAGA-fied United States. There is no third option.
Germany and Europe cannot remain neutral in this conflict. Giving in to Trump's demands by pursuing a bilateral trade agreement would be tantamount to endorsing the end of multilateralism.
The EU's ongoing failure to push back against Trump's policies reflects shocking shortsightedness and political naivete. While the direct economic impact of Trump's tariffs on Europe will likely be limited, the long-term consequences -- especially for Germany's export-driven economic model -- could be dire. Yielding to Trump would threaten the very foundation of German prosperity, which depends more than that of any other European country on open global trade grounded in non-discrimination, fairness, and competition.
So, how should Germany and the EU respond to Trump's tariffs? The incoming German government -- together with France, the United Kingdom and other European partners -- must defend multilateralism by aligning with China and imposing reciprocal tariffs on American goods.
In future negotiations with the US, European leaders must also insist on two key conditions. First, they should call for a renewed commitment to multilateralism as the foundation of the global trade system. That includes not only rolling back tariffs and other trade barriers to pre-crisis levels, but also revitalizing multilateral institutions like the World Trade Organization, which the US has systematically undermined by blocking the appointment of new judges to its appellate body.
Importantly, the focus should not be limited to the WTO. Other multilateral institutions such as the United Nations, the International Monetary Fund, and the World Bank must also be empowered to play a more active role, particularly in representing and protecting the interests of the weakest economies in the Global South.
Second, Europe should push for fair competition and common rules, especially when it comes to regulating US-based tech giants. These companies pay little to no tax and routinely violate EU laws and regulations concerning data protection, ethical standards and market competition.
The recent US court ruling that Google has indeed built an illegal monopoly in search underscores the urgency of the issue. As German Finance Minister Jorg Kukies recently observed, European countries are increasingly reliant on services provided by US tech giants. If the EU fails to act now, this harmful dependence will continue to deepen, making Europe even more vulnerable to Trump-style political and commercial blackmail.
Reviving multilateralism will also require meaningful concessions and reforms from China, the EU and Germany to help correct global imbalances. Through massive subsidies and other forms of support for domestic firms, China has repeatedly undermined multilateral rules to gain unfair advantages. But Germany also must reduce its own gigantic current account surpluses, which are largely driven by domestic regulations and other structural barriers that make it harder for foreign companies to enter its market.
Given that addressing these distortions could offer considerable benefits to American companies, there is good reason to believe that such a balanced trade agreement might appeal to Trump and encourage him to change course.
Despite its economic costs, Trump's global tariff war offers Europe a chance to establish itself as a mediator and defender of multilateralism in an increasingly multipolar world. It is high time that Europe stood up for its values and coordinated a unified response with partners like China, Canada, Mexico, the UK and Japan.
By provoking a confrontation with all the world's major economies at once, Trump has made a serious strategic miscalculation. Pushing back may cost Europe in the short term, but allowing Trump to prevail and dismantle the multilateral trading system would be far more damaging -- both to the EU economy and to democracy itself.
Marcel Fratzscher, a former senior manager at the European Central Bank, is President of the think tank DIW Berlin and Professor of Macroeconomics and Finance at Humboldt University of Berlin. The views expressed here are the writer's own. -- Ed.