Former Ambassador Emerson On German-U.S. Trade & Climate Leadership

Let us begin by asking, on the 139th day of the Trump administration, how our readers should view German Chancellor Merkel’s recent comment that Europe can no longer “fully rely” on the US?

John Emerson: Chancellor Merkel is someone who does not say anything without thoroughly thinking it through. She also is someone that who, even during particularly challenging times in the German-American relationship—the NSA scandal as an example—really bent over backwards to not make any incendiary comments. She reinforced the importance of the German-American relationship. Beyond that, she has shown a great deal of patience throughout the American presidential campaign with much of the rhetoric about her and Germany.

From personal knowledge, I can report that Chancellor Merkel spent a great deal of time learning about our new president. She really prepared for the first meeting with him, which took place back in March at the White House. The fact that she would make this type of statement represents, at a minimum, a high level of frustration.

She is also in the middle of a reelection campaign. The election will take place in the end of September. Her principal opponent Martin Schultz (former President of the European Parliament) has a campaign strategy in which he is effectively running against her by running against Donald Trump. He is betting on the fact that she needs to build a good relationship with President Trump. Accordingly, the fact that this statement was made at a campaign event in Bavaria should not be lost on us. She did walk the statements back a bit afterwards, reaffirming the importance of our relationship.

Finally, what precipitated this was the G7 meeting and the robust discussions that occurred regarding the Paris Climate Accords and climate change in general. President Trump made it very clear to his fellow heads of government where he was coming down on the issue.

Comment on the nature of the Germany, NATO, and the US relationship. What has it been in the past, what is it today, and what will it likely be going forward?

There are three elements of the German-American relationship. First, there is the people-to-people element. 65 million Americans have German heritage—our current president being one of them. There are lots of student and business exchanges that happens on a personal level

Second, there is the business-to-business relationship. There are more than 700,000 Americans who work for German companies. There are several hundred thousand Germans who work for American companies. Germany is our biggest trading partner in Europe and is one of our largest trading partners worldwide. Despite some of the comments about German cars on our streets, BMW actually manufactures more cars in Charleston, South Carolina than it does in Bavaria. The business-to-business relationship is strong, and might even grow under this administration.

The third piece is the government-to-government aspect. Fundamentally, there are certain areas where the US and Germany have gotten along over the past 70 years. But there have been substantial disagreements in the recent past, such as when Chancellor Gerhard Schroeder opposed President Bush’s decision to go into Iraq. During my tenure, there were also the awkward allegations about monitoring the Chancellor’s phone calls. Yet the last couple of years of the Obama administration were amongst the best times for German-American relations since the fall of the Berlin Wall.

Fundamentally, Germany is critical to America’s interests abroad and an indispensible partner for us. I imagine that, in the future, that will continue to be the case.

Now, Germany is an outsized and consequential member of both NATO and the EU. The question of NATO members spending 2 percent of GDP on defense, which President Trump keeps referring to, is nothing new. In every bilateral meeting I was a part of between President Obama and Chancellor Merkel, that issue came up. Germany was very much on board with, and pushed for, that decision at the 2014 NATO Summit in Wales. We were steadily pushing for Germany to increase its defense spending, albeit in a less public fashion than President Trump.

Since World War II, Germany has always been reticent about going out on its own, especially on anything related to international or military affairs. It much prefers to be part of a UN or NATO mission. Interestingly, the Chancellor’s post-G7 comments were that Germany is willing to play a greater leadership role.

Let’s turn to President Trump’s announcement of his intent to withdraw the US from the Paris Climate Accord. Although it will take years to formally withdraw, what is the international significance of that statement today?

First, it is significant because it impacts the United States, in terms of hitting our own targets for emissions reductions. However, the targets were always going to be achieved because of steps that business and industry are taking to lower their carbon footprint, and because of steps that cities and states are taking to adopt progressive policies.

In the aftermath of the President’s decision, major companies like Exxon have reaffirmed their commitment to pushing forward on their climate change goals. We see Governor Brown and Mayor Garcetti pushing hard to lead states and cities, and that is where the rubber meets the road. From a practical perspective, I think we have hit the tipping point. Businesses are acting, public opinion strongly supports climate action, and many states and local jurisdictions (including the city of Pittsburgh, which was mentioned in the President’s remarks) are acting.

The biggest negative impact of stepping out of the accord is the risk of creating a leadership vacuum that other nations, particularly China, are only going to be too eager to fill. Part of that will be reflected in lost opportunity, and part will be reflected in new rules of engagement in areas such as climate change, economic development, or international trade. If we don’t have the leadership to help drive the conversation, over time, it gets harder and harder to recover.

An additional negative is the risk that other countries will follow the US in stepping out of the accord, but I don't think that will happen.

You participated with Mickey Kantor and Vilma Martinez, among others, on an LA World Trade Center panel at our VerdeXchange Conference. You noted that Germany has successfully transitioned to a clean energy economy, and could be a model for the US and the world on renewable energy. Speak to Europe’s leadership on energy in light of the US’s decision to withdraw from the Paris Accord.

In the aftermath of the Fukushima nuclear meltdown, Chancellor Merkel made the decision to phase out nuclear and move towards an “energiewende.” This transition makes Germany more reliant on renewables like wind and solar. You cannot fly across Germany, as I did multiple times a week as Ambassador, without seeing wind and solar farms covering the land. Farms are using fallow fields to install massive amounts of renewables. There is no question that Germany has moved quickly and aggressively, and the renewable energy market is a huge economic opportunity globally.

In the wake of the decision for the US to withdraw, I am confident that businesses and utilities are going to transition to clean energy because it makes economic sense. In Germany, the irony is that they may have moved too soon in the decommissioning of nuclear, because we are not quite there on energy storage. Intermittency has been a big issue for Germany, which has cloudy days and days without wind, so they have had to supplant renewable load with burning coal (some of which is ironically bought from the US) or burning wood chips from Brazil.

Therefore, Germany’s carbon footprint actually has increased and is moving in a different trajectory than the United States. This is not to be critical of the efforts to move away from nuclear, but I say this rather to show the complexity in energy policy in a dynamic world.

Better technologies for energy storage will be a significant deal to Germany. Like the US, Germany needs a great deal of infrastructure investment for building a smart energy grid to utilize and store energy generated by renewables.

You also remarked at VX2017 that international trade had become “radioactive” in the US and Germany, in part because of anti-American sentiment following the NSA leaks and the election.  Please elaborate.

The issue is the politics of trade deals.

There have been some trade deals where constituencies had grievances about the topics themselves, such as the battles over genetically modified foods and agricultural protectionism.

However, trade deals—whether TPP, TTIP, or NAFTA—have become politically radioactive in large part because there are a lot of people who have been left behind and are incredibly frustrated. These people have been left behind, not so much by trade deals, but the rapid pace of globalization and automation. You cannot register political opposition to robotics or machinery, but you sure can register political opposition to a trade deal.

While I believe a well negotiated trade deal can mitigate the negative consequences of globalization, the reality is that there are always going to be winners and losers. As a matter of politics, we need to spend a lot more time focusing on those who are going to be left behind. If we do not work with those people, it is going to be very difficult to get the political support needed to get the ratification of an important trade deal like TPP or TTIP.

At VX2017, Mickey Kantor spoke about the need to update all of the US’s trade deals given what all that has happened in technological development and geopolitics over the last few decades. Are you in alignment with his views?

What is really significant is the digitalization of trade. Much of trade is still about moving goods back and forth, but an increasing dollar amount of trade involves the movement of services and data. The current trade deals that govern our international commerce, such as NAFTA and the Uruguayan Round of the GATT, were all negotiated before the widespread deployment of the Internet. The Internet was in its infancy when we were working on these issues. Today, it is an engine of commerce.

Mickey is right that these deals need to be updated to reflect the reality of what drives commerce and what constitutes commerce. One of the points he also made was that TPP would effectively constitute an upgrading of NAFTA, concerning everything from environmental standards to labor standards.

Foreign direct investment is the theme at this week’s Select LA conference, hosted by the LA Economic Development Corporation and the World Trade Center-Los Angeles. As ambassador to Germany, you facilitated a meeting at Hannover-Messe among the Los Angeles delegation, President Obama, and Chancellor Merkel. Speak to the value of both events in promoting opportunities to grow trade with Europe.

Los Angeles is one of the top two or three regions in the country that benefits from international trade, not just from the goods that are manufactured here and sold overseas, or the goods and services exported by the Los Angeles region. Rather, it is from the activity of trade that comes through the ports of Long Beach and Los Angeles.

An invention of President Obama that was initially headed by Steve Olson, Select USA focuses on getting European, Asian, and Latin American firms to select the US for their business investment. To recruit their investment and manufacturing, the President wanted to make it seamless to come and participate here. In the case of Germany, I believe we were successful. It is one reason why President Obama came to the Hannover-Messe in 2016.

With 700,000 Americans working for German firms, it is not just one car-making plant in Charleston; it is Bosch, Siemens, Daimler, VW, BMW, and many more. They all have a manufacturing presence in the United States. Airbus, the European consortium built to compete against Boeing, is building a huge new facility in Mobile, Alabama, where they will be manufacturing their flagship A320 plane.

One reason we have been successful is the drop in domestic energy prices thanks to natural gas. The Chairman and CEO of BMW told me that he can manufacture a car in the US for one-seventh the energy cost of manufacturing the same vehicle in Germany. Select USA has worked with various localities to help companies cut through red tape and address regulations.

There are three issues that make German companies reluctant to invest in the US. First, our tort laws, and the potential for unlimited liability if something goes wrong, make people in Germany very nervous. Especially knowing that we are a litigious society, many employers do not want to take that risk.

The second is the overregulation in some sectors. Many places in the EU have overregulation, and we hear stories of their bureaucracy regularly, but in parts of Asia it is much simpler to get things through.

The last is the ability to bring over highly skilled workers or people from their country to work in the US. Our immigration and visa rules are complicated, and dissuade more companies from coming over. I completely agree that we should try to get Americans hired. However, when a company is just beginning to invest in the US, it is fair that they want a couple of their own nationals to come from the home office. Any business needs leadership when starting up. From the overall trade negotiations perspective, the biggest issue we had when negotiating TTIP was Buy America for local, state, and the federal government.

Buy American can negatively impact our ability to attract companies. These companies may be willing to invest in the United States, but if they cannot sell to the City of Los Angeles, County of Los Angeles, or State of California, they might run into problems. I support Buy America, but these policies also have consequences that may well come up at Select USA.

Let’s close with your views on Europe’s governance challenges. Between France, Brexit, and Britain’s snap elections, the year has been a whirlwind. You mentioned the upcoming German election; there also may be one in Italy. Elaborate on Europe’s elections, and what about them should concern the US. 

The concern with European politics is the rise of both right- and left-wing nationalism. You saw the left rise in places like Greece, certain places in Italy, and in Spain with Podemos. We’ve seen the right’s rise with Le Pen in France, victories in Poland, Hungary, and Austria, and of course Brexit.

I believe we are starting to see a cresting of this dynamic. The election in the Netherlands where Geert Wilders failed to prevail, and the stunning success of Macron and his party, as well as the weakening of AfD (Alternative for Deutschland) in Germany all represent a strengthening against nationalism. Some people have observed that it is partially a backlash to the new administration in the US. In Chancellor Merkel’s case, many Germans are positive about her reelection because they are looking at an uncertain world, and see her as a rock of stability.

Before popping the champagne corks, however, it is important to note that in the French election, neither of the two major parties made it to the runoff, for the first time in the history of the Fifth Republic of France. There are external factors, such as the refugee and immigration crisis, as well as terrorism, which could have a significant impact on these elections.

Germany has a natural speed break built into its society when it comes to right win nationalism, however. The speed break is the history of National Socialism. When you see a party like AfD, it seems to bump its head after about 12 percent nationally. Currently, they are down to about 6 or 7 percent nationally. There is a sense that German civil society differs from other European neighbors in actively saying, “No, we do not want to go down that road again.”