BRUSSELS – The new Biden government is being kind to the European Union, talking about resuming cooperation and suspending retaliatory charges stemming from an old dispute between Airbus and Boeing.
But despite warm words and efforts to rebuild confidence, the American willingness to punish its European allies and impose sanctions on them in pursuit of foreign policy goals continues to irritate.
It is an underlying tension, an immediate reminder of the asymmetric power of the United States. This is especially true when it comes to so-called secondary sanctions. While Iran and Russia, for example, may be the primary target of sanctions, secondary sanctions punish other countries and companies – often European – that also do business with them.
Increasingly popular in Congress, secondary sanctions have been put in place to coerce allies into aligning themselves on any number of issues. In recent years, they have included the Nord Stream 2 gas pipeline, Iran’s nuclear program and the socialist governments of Venezuela and Cuba. The big fear is that the United States will someday be used by the United States against China – or even vice versa – leaving Europe squeezed in the middle.
Secondary sanctions cut access to the American banking system, an effective threat due to the centrality of that system and the global reach of the dollar.
The armament of the US dollar and the Treasury is a marked vulnerability for Europe, which depends on open markets. This has sparked serious discussions about how to defend Europe and the euro from Washington’s whims and has become a central part of the argument about how to create “strategic autonomy” so that Europe can protect its own interests.
Last month, the European Union announced efforts to strengthen an “anti-coercion instrument” against “unfair commercial practices”. Their main sources are China and Europe’s self-proclaimed ally and partner, the United States.
While Europe is in favor of using multilateral institutions in trade disputes, “we cannot afford to be defenseless in the meantime,” said Valdis Dombrovskis, the European Union’s trade commissioner. The European Union must be able to defend itself against “those who try to take advantage of our openness,” he said.
The European Union’s foreign policy chief, Josep Borrell Fontelles, condemned Washington’s use of secondary sanctions against European companies that do “legitimate business”.
“I am deeply concerned about the increasing use of sanctions, or the threat of sanctions, by the United States against European companies and interests,” said Borrell.
“Where foreign and security policy objectives are shared, there is great value in coordinating specific sanctions with partners,” he said. “Where there are political differences, the European Union is always open to dialogue. But that cannot happen against the threat of sanctions. “
Such objections have not prevented US lawmakers from repeatedly resorting to secondary sanctions, most prominently in the case of the nuclear deal with Iran and Nord Stream 2, the nearly completed natural gas pipeline that runs from Russia to Germany.
American senators even wrote directly to a small state port in Chancellor Angela Merkel’s electoral district, Sassnitz, which has been a base for tube-laying ships that build Nord Stream 2, threatening to “crush legal and economic sanctions”.
Denying access to the American market and the dollar is “an immense source of political power,” said Jonathan Hackenbroich of the European Council on Foreign Relations in Berlin, who studied the issue as part of a project with senior German and French officials. who want to reduce European vulnerability.
Almost every company that does business in the United States or uses the US banking system or the dollar will try to preserve that relationship and cut deals with the target of sanctions, he said, to the point of “overcompliance”.
President Trump’s use of secondary sanctions against Iran, which Europe has been unable to contain, “was a real moment of truth for Europeans to realize their weakness,” said Daniela Schwarzer, director of the German Council on Foreign Relations.
“Do Europeans want to trust Biden? Are they ready to trust the USA again? Nobody knows what will come after Biden, ” Schwarzer added. “And we have to think what to do if China uses secondary sanctions too, so that the debate is alive. ”
European resentment of American secondary sanctions “is linked to awareness of our own internal and economic fragility,” said Nathalie Tocci, director of the Institute of International Affairs in Italy and a consultant to Borrell.
Now that President Trump has used them so lavishly, “the way companies and politicians think will not come back, even if Biden doesn’t use them,” she said.
In December, Borrell wrote that “we need to develop the international role of the euro, to avoid being forced to break our own laws under the weight of secondary sanctions”.
But few believe that the euro will become a rival to the dollar soon, or perhaps never, given Europe’s slow growth, its internal divisions over how to solidify and strengthen the euro, and the growing power of China and the renminbi.
China is starting to learn lessons from the American use of sanctions to punish countries like Australia and Sweden. For Europe and Germany, based on exports, “you see the rule-based order falling apart and you worry about the same type of blackmail coming from China,” said Hackenbroich.
German companies, in particular, are concerned about the growing confrontation between Washington and Beijing. Secondary American sanctions that could be imposed on China would create a major problem for Germany, said Stormy-Annika Mildner, who until recently was head of foreign economic policy at the Federation of German Industries.
Given the small Iranian economy, the impact of sanctions on German companies was minimal. Still, said Mildner, “the prospect of severe and secondary sanctions on China” of “having to choose between the US and Chinese markets will be ugly, and that is what people fear is happening”.
China is already beginning to legislate on export controls, which could end up putting pressure on European companies between American, European and Chinese laws.
“Having to choose between its two largest markets, America and China, represents half of its wealth,” said Hackenbroich. “In 10 years, China will be increasingly central to economic networks – perhaps not as central as the United States, but getting there.”
In Iran alone, the costs of US secondary sanctions were significant. The French energy giant Total abandoned a major investment in Iran as soon as President Trump withdrew from the 2015 deal with Iran and imposed U.S. sanctions on Iran. That cost totaled around $ 2 billion, while Siemens lost a rail contract in the $ 1.5 billion and Airbus lost $ 19 billion.
President Biden has said he will return to the Iran deal, but he will not lift sanctions until Iran returns to compliance. Although most diplomats assume that Washington and Tehran will work on some sort of sequencing, European companies remain hesitant.
The best way to prevent others from using secondary sanctions would be to retaliate in kind, said Guntram Wolff, director of Bruegel, an economic research institution. “To be credible, you need reciprocity, and retaliation is the only way to do that, ” he said.
“But politics is more difficult,” he added, given the asymmetric power of the U.S. Treasury and the global role of the dollar. “The reality is that there is no united European power capable of projecting power on that scale. ”
Even though many Europeans don’t like Nord Stream 2, they are driven to defend it by using secondary sanctions by Washington to punish European companies and even cities, like Sassnitz, Wolff said. “The EU sees this as an attack not only against a city, but against the EU as a whole. ”
“With discreet diplomacy, we could have achieved much more than now,” said Wolff. This is a lesson that Biden seems to have accepted, wanting to resolve the issue and move towards better relations with powerful Germany – if Congress allows it.
But the debate over how Europe can project its own power and protect itself from bigger and more powerful nations, whether allies or competitors, will not end.