Chances are, you have heard of economic sanctions. So, what’s not to like about a new type of global sanctions, that’s more popularly known as economic pressure?
On Aug. 22, the president of Germany, the European Union’s largest economy, announced that the E.U. is planning to respond to U.S. tariffs with “economic measures” of its own. In his meetings with German business leaders on Aug. 21, U.S. President Donald Trump had said that if Germany doesn’t do more to bolster U.S. auto exports to Germany, he would impose tariffs on German cars imported into the U.S.
This directly challenges the E.U.’s own free trade and economic sanctions that have been in place since 2012. Such sanctions have only been effective when E.U. members produce at least one-quarter of their goods within the EU, pursuant to the CETA (Canada-EU free trade agreement) mechanism that E.U. leaders initially championed.
Contrary to the Washington DC press office’s insistence that those sanctions “caused a very significant loss in terms of revenue to the E.U.,” E.U. economic sanctions have in fact suffered an inadequate response from E.U. countries like Germany and France, which now seem poised to start firing on all cylinders to protect their own economy. Such measures are also troubling because even Germany’s far-left members appear to welcome a massive retaliation against the United States.
Theoretically, there’s nothing that prevents the E.U.’s political powers from imposing heavier economic sanctions against the United States.
For one, if these financial measures are included in the E.U.’s broader economic sanctions, then the E.U. could attempt to drag America into litigation in the World Trade Organization. If the E.U. is engaging in these financial sanctions alone, then the U.S. might deem the U.S. to be involved.
That means, then, that the E.U. could attempt to influence the U.S. decision on whether to apply secondary sanctions to E.U. countries that use E.U. institutions. The U.S. might respond by pushing for a WTO dispute resolution hearing, or the U.S. could seize bank accounts held by the E.U. and E.U. officials in the U.S.
On the economic front, such an effort could essentially disrupt the entire E.U. economy, and cripple Europe’s ability to trade with the U.S.
But that’s only one of the ways economic sanctions can cause problems.
The biggest wild card here is the potential for the E.U. to retaliate through measures that are reciprocal in nature. This means that the U.S. could, at times, react against additional economic pressures by targeting the E.U.’s ability to purchase U.S. goods.
It’s possible that, in retaliation, the E.U. could impose E.U. tariffs on U.S. goods. E.U. economic sanctions could immediately affect two American industries which have been both financially and politically important to the U.S. These sectors would likely be automobile manufacturers and financial institutions.
There’s also a risk that the E.U. would simply overlook or attack some countries that are less influential than E.U. ones. For example, the E.U. may feel free to attack the U.S. in the agricultural sector, simply because they can’t attack U.S. car companies or financial institutions.
Whatever the outcome, the future economic collapse of the E.U. is suddenly in the palm of E.U. hands.
E.U. economic sanctions and retaliation are risky business for E.U. member countries, the U.S. and the rest of the global economy. With E.U. nations seeming much more open to issuing their own primary and secondary economic sanctions, the E.U.’s capacity to disrupt the global economy appears to be in the hands of both E.U. nations and the E.U.’s economic policymakers.
Franck Brasillach is President of Brandeis University in Waltham, Mass. He served for two terms as a member of the European Parliament (European Parliament) from 1999 to 2012.