Advisory Note: Decrypting the Trump Effect

Behind the official greetings, European capitals are holding their breath about the consequences of the American elections. With Trump, Brexit no longer looks like an isolated event. It is now clear that the entire liberal system is under great pressure.

Anders Fogh Rasmussen, founder and chairman – ‘America first’ and US leadership: the new equation?

Behind the official greetings, European capitals are holding their breath about the consequences of the American elections. With Trump, Brexit no longer looks like an isolated event. It is now clear that the entire liberal system is under great pressure. There is the immediate danger of a populist wave hitting Europe with forthcoming elections or referenda in Austria, Italy, Netherlands, the Czech Republic, France and Germany. 2017 will be a highly political and volatile year for Europe. But hoping that the storm passes is not a sound strategy; a liberal awakening is needed.

First, the ‘political centre’ should reconnect with the people who feel lost, angry or merely inspired by populist movements; they should not give in, but adjust their policies accordingly. For too long populist parties have enjoyed a monopoly on what I would call identity politics. It is quite evident that culture, religion and identity still do matter. So does an international outlook. This is why mainstream politicians across the world are scrambling for ideas on how to bridge the gap and balance both. This battle may go on for decades. It will have a profound impact not only on governments and societies – but on free trade, the EU and business regulation. In order to reduce this risk, mainstream forces should hold populist parties accountable. From my time, as prime minister of Denmark I have experienced that once you invite populist parties to be part of the nitty-gritty work of governing, they will discover the ‘art of the deal’ and their election pledges will become less toxic.

Second, Euro-Atlantic institutions like NATO and the EU, will need to focus on core business. The ongoing discussion about an EU defence union is a wrong solution to a real problem. NATO is perfectly placed to keep Europe safe. What we need is more defence spending. Meanwhile, instead of focusing on political paper tigers, the EU should put its weight behind issues close to people’s hearts and minds: fixing EU’s migration system, boosting Europe’s economic performance and turning the continent into a global innovation hub.

Third, showing that putting ‘America first’ does not mean ‘putting US leadership last’ will be critical. The need to make globalisation deliver for the many, and not just the few, has turned into the key battleground of the 21st century. If we fail to win this battle, our countries will gradually become more inward looking and less prosperous. Europe will need to adjust to this new reality; and President Trump may soon realise that there is no discrepancy between ‘America first’ and US leadership – in fact US global leadership is the most effective catalyst of US influence and interests.

Sir Nigel Sheinwald, senior advisor: Trump’s Brexit effect

In a narrow sense, Trump’s election could help UK’s Brexit strategy. On his trip to London, Obama warned the UK that they would be last in line to make deals with the US. Trump backed Brexit and will have a stake in its success.  In order to contribute to a successful Brexit, Trump appears willing to move quickly to negotiate a UK-US trade deal after the UK leave the EU and he has already pledged to strengthen the UK-US relationship.

But the wider picture is much more mixed. There are significant differences between strongly held UK positions and the President-elect’s campaign statements – on NATO, Russia, Iran, trade policy, China, climate, nuclear non-proliferation, and handling Muslim communities.  Above all, a more isolationist America would not help the UK as it tries to forge a new foreign policy outside the EU.  There is therefore bound to be a period during which British officials and their incoming Trump counterparts discuss whether those differences can be narrowed before the tenor of the relationship becomes clear.  Theresa May’s visit to Washington in early 2017 will set the scene for the new relationship.

The importance of the UK-US relationship has been declining for some time. Thus, those on the pro-Brexit right of British politics risk sounding triumphalist about the presumed closeness of the Trump-administration and the contrast between the prospects for a UK-US trade deal compared with the EU-US TTIP. But the rest of the EU will react badly to any appearance of an anti-EU London-Washington axis. The British Government has to remember that its relationship to EU-27 is an absolute priority in the years ahead over the divorce with the EU and a new UK-EU relationship. Therefore, they should keep in mind the implications for its EU partners of its outreach to President Trump.

Toomas Hendrik Ilves, senior advisor: the first cyber presidential election

The 2016 US Presidential campaign showed a new form of “hybrid” manipulation of elections. Through hacking and public dissemination, foreign interference reached unprecedented levels, breaking implicit but fundamental rules on outside manipulation of the democratic process.

That this could happen to a cyber-superpower like the US, demonstrates how vulnerable elections in the democratic world in the cyber-age are. Already in 2015 the German internal security police BvV announced the Bundestag had been hacked for a 6-month period by Russian hackers. In September this year, German intelligence reported serious attacks against various Bundestag factions, again from Russia, and just recently German security officials warned that Russia my try to interfere in Germany’s parliamentary election next year. From a business perspective, one should keep in mind that, not only do elections determine economic policy, but even with government tenders, outside players can determine outcomes if they manage to hack one company and supply another – say a more pro-Russian company – with details of competitors’ plans.

With elections looming in Germany, hacks portend attempts to influence the outcome, especially to help “anti-establishment” populists. In France with anti-EU, anti-NATO, pro-Russia populist Marine le Pen a leading contender in the 2017 presidential elections, and whose party has been financed to the tune of 9 million Euros by a Russian-owned bank said to be close to Putin, it would be a surprise if there were no attempts to influence the outcome, given what is at stake in a Le Pen victory.

Fabrice Pothier, senior associate: NATO’s Trump card

Undoubtedly, there will be odd handshakes when the 27 NATO leaders greet the new US President at a summit planned sometime in 2017. Discomfort will be mutual. Trump will likely want to double-down on his message to allies: pay more or see fewer US uniforms on European soil. Yet he will quickly realise that the Eastern European allies are doing relatively well on their pledge; the real culprit are the bigger European states, especially Germany, which still hovers at around 1.2% of GDP. Whether Trump will be willing to pick up a fight with the de-facto other leader of the free world would be worth watching.

Trump will also realise that Europe is good business for the US defence industry. The recent decision by Warsaw to drop a French offer and instead award a 1.6-bn USD helicopter contract to a US firm is a reminder that if European allies can be reluctant fighters they are still good customers. US companies are well positioned for the next wave of procurement in Europe, including on crucial missile defence and reconnaissance systems. The decisions by allied capitals to opt for US versus European technology will be even more political than usual. Some capitals might use that to assuage a feared Trump backlash.

One ally in particular is Turkey. Ankara still has to make up its mind on acquiring a missile defence system, after having played with fire by touting the possibility of buying a Chinese system. Trump has rhetorically cozied up to Erdogan. That could not be more at odds with the widely-held view inside NATO that Turkey is increasingly drifting away from the other allies. Yet the strong men dynamic could well help bridge this gap and put Turkey back in the mainstream camp at NATO. But that will require Trump to be willing to bankroll and support Turkish interests in Syria. Whether this is compatible with putting ‘America first’ and a possible rapprochement with Russia might be Trump’s first big foreign policy acid test.

Poul Skytte Christoffersen, senior advisor: EU – don’t run for cover

Many place faith in the prospect that Trump as president will put the election pledges aside and let reason prevail. But several of his promises – especially those that worry the Europeans – have been made so often and bluntly that it seems impossible for him to turn back completely. Here are three areas we should look out for.

First, Europe’s worst nightmare is that Trump agrees with Putin – over the heads of Europeans –  on a new security arrangement in Europe, dividing the continent into areas of interest, where the Americans (and NATO) should keep their hands off Eastern Europe in return for increased Russia-US cooperation for instance in the fight against ISIS. The close cooperation between the EU and the USA in Ukraine has so far stopped further Russian destabilization of the country. Unless the EU maintains the line – even without the United States – there is a serious risk of undermining the reform process, which is finally under way. Europe and the United States have vital security interests at stake in Eastern Europe.

Climate is perhaps the most important area where Europe’s path will diverge from the one sketched out by the President-elect. While Trump denies climate change and is ready to pull out of the Paris Agreement, the rest of the world moves in the opposite direction. While China has previously been a climate spoiler, the country now has felt first-hand, what climate change means. The EU must take the lead on climate change and reap the benefits from the economic gains of the green agenda.

Brexit supporters have expressed strong hope that President Trump will save the UK from the serious consequences of withdrawing from the EU. In my view this is over-optimistic, the present strength of the UK lies in the service sector, where the US is traditionally very cautious on opening its market.  What is left of the UK manufacturing industry (for instance the car industry) has a production chain that is deeply integrated with European producers. It is difficult to see, how Uncle Sam will be able to help.

Olaf Böhnke, senior advisor: German global leadership by default

Merkel has shown through many years and crises her talent to “domesticate” difficult personalities like Putin, Erdogan or Berlusconi. Expectations are high that she will manage to meet Donald Trump in her very own way and thus limit the possible damage the transatlantic partnership might face in the months to come.

But her engagement with the President-elect will be constrained by the fact that Merkel is weaker than she was a few years ago; this has demonstrated reluctance to accept what seems obvious to the rest of the world: that Germany is the biggest and most prosperous European economy. It was mainly her leadership which navigated the EU through the stormy waters of the euro crisis, the conflict on Ukraine with Russia and the refugee crisis.

Berlin is entering a turbulent year of electoral campaign. While the fight within the CDU/CSU for a tougher line in the refugee question is still ongoing, the SPD shows tendencies to play the peace party in good memory of Gerhard Schröder’s opposition to George W. Bush’s intervention in Iraq, which saved him his chancellorship. The wild card in Germany’s parliamentary election in September 2017 – like in many other European states these days – will be the populistic AfD, which is taking voters from all political camps. Although 50% of Germans are in favour of another term for the Grand Coalition, the AfD in parliament will change the consensual political culture of Germany significantly.

Current polls on Donald Trump show the highest level of distrust and open dislike for a U.S. President ever. Merkel’s balancing act in the upcoming months will be to engage with Trump for the sake of the indispensable transatlantic partnership while at the same time not becoming contaminated by his unprecedented unpopularity in Europe.