By Jacob M. Schlesinger in Washington and Bojan Pancevski in Berlin 

When German Chancellor Angela Merkel visited Donald Trump shortly after he took office, the new U.S. president opened the meeting by telling her, "Angela, you owe me one trillion dollars."

It was his estimate of a 14-year gap between what Germany spent on its own defense and what it had promised to spend under arrangements with the North Atlantic Treaty Organization, according to an official briefed on the session.

Now, as NATO leaders prepare for a summit this week, Mr. Trump's European counterparts are girding for a meeting with a U.S. president who is taking aim at elements of the trans-Atlantic alliance he insists place unfair burdens on the U.S.

Since the post-World-War-II era the alliance has entwined security, through NATO, and the economy, through trade pacts. Mr. Trump has invoked a Cold War-era U.S. law to brand some imports from Europe as a threat to American security, the first time the law had been invoked against U.S. allies. Using that justification, he has placed tariffs on European steel and aluminum and threatened more against cars. The moves sparked European retaliation against U.S. industries.

The president also says the security umbrella the U.S. spread across Europe during the Cold War allows allies to benefit without paying their full share as set by NATO goals.

"I'm going to tell NATO, you got to start paying your bills," Mr. Trump said at a rally in Great Falls, Mont., Thursday evening. "The United States is not going to take care of everything."

At a meeting in Quebec last month, Mr. Trump jousted with European leaders not only on trade but also on immigration, Russian relations, terrorism and other matters, and then walked away from a joint statement prepared by the group. European officials worry about a new round of discord at the NATO summit that opens on Wednesday in Brussels.

The postwar order has been jolted many times before, over security and economics. Lyndon Johnson placed tariffs on Volkswagen pickups, retaliating for European curbs on U.S. chicken. France left NATO in 1966. George W. Bush drew Continental condemnation for his own steel tariffs and the Iraq invasion. Barack Obama criticized NATO allies over their military budgets.

But many Europeans fear a deeper split this time because no previous American president has so openly questioned the trans-Atlantic alliance's value.

White House spokeswoman Lindsay Walters said administration officials have been in regular contact with European allies and are "working together to improve policies and resolve discrepancies to ensure that all Americans have access free, fair and reciprocal trade."

Uncertainty about Washington's commitment is prodding Europeans to spend more on their military and to hash out market-opening concessions. It is also emboldening opponents of European unity inside the Continent and on its borders, while prompting the region's leaders to look for alternative markets and allies.

Donald Trump "should not be underestimated," European Council President Donald Tusk told European heads of government at a gathering last month. "He is systematic, consistent and has a method to undermine what the European values are in respect to trans-Atlantic relations," Mr. Tusk said, according to people who attended. Mr. Tusk is a former Polish prime minister whose own government has been more supportive of Mr. Trump than others in the region.

Many European leaders received letters in June, on White House stationery and bearing Mr. Trump's signature, telling them of the president's "growing frustration" with their military spending levels and his expectation they redouble efforts when they next meet.

His plans to follow the NATO meetings with a private sit-down with Russia's Vladimir Putin, the alliance's biggest foe, stoked fears among European leaders that Mr. Trump may make concessions to the Russian leader.

"The U.S. is now being viewed in Europe as evolving from a strategic partner to a strategic problem," said Dan Price, a free-trade supporter who ran international economic policy in the George W. Bush White House and now runs a consulting firm advising multinational companies. For the whole postwar era, "Europe trusted that the U.S. would defend its interests and values. That fundamental trust is regrettably eroding."

Trump officials say the hand-wringing is overdone, and the president, for all his rough language, has done more to support Europe than his predecessor did. The Obama administration, despite soothing words, "went for its first six years in office with an approach to Europe that systematically disengaged -- we withdrew the last U.S. tanks from Europe, we pivoted to Asia, we reset relations with Russia," said A. Wess Mitchell, the State Department's top official for trans-Atlantic affairs.

The Trump administration has sought to expand a U.S. government program aiding Eastern European countries resisting Russia, has encouraged NATO membership for former Soviet states Ukraine and Georgia, and is building a new NATO command center. "Judge us by our actions," Mr. Mitchell said.

Trump advisers say the president is willing to apply an unusually high level of pressure on allies -- and in the process convey ambiguity about how far the U.S. will go -- to rebalance the economic relationship. "Our job is to reassure Europeans, but I think first and foremost it's to make sure that Americans remain stakeholders" in the alliance, Mr. Mitchell said.

Or, as one person familiar with administration deliberations put it: "Uncertainty is better than a one-sided guarantee." When Europeans worry more about the American commitment, "you're more likely to get a result. That's the art of the deal."

Over the course of Mr. Trump's term, he has rankled Europe on many issues, from abandoning the Paris climate and Iran nuclear deals to indicating initial ambivalence about NATO's self-defense mission. The trade spats in particular have stoked Europe's concerns about relations with this administration.

Europeans are frustrated by uncertainty about how its decisions are made. Confusion surfaced around Mr. Trump's March 1 announcement of the metals tariffs. Allies were invited to negotiate exemptions, and they initially did so with U.S. Trade Rep. Robert Lighthizer, during a Brussels meeting on March 10. EU Trade Commissioner Cecilia Malmstrom then flew to Washington for meetings and found the administration had since put Commerce Secretary Wilbur Ross in charge.

Europeans say Mr. Trump's understanding of trans-Atlantic economic relations is based on an incomplete and distorted use of the data. They complain his assertion that Europe has a $151 billion trade surplus with the U.S. counts only goods, ignoring, among other things, his own government's estimate of a U.S. $51 billion surplus in services.

They proposed in Quebec a joint study of facts and figures, to try to show Mr. Trump that his assumptions are mistaken and to establish common ground. That has further irked Washington. "The whole European strategy is to have endless commissions and discussions, without coming to grips with reality," said Mr. Ross. "We don't need a hundred more. What we need is action."

The sides are also locked in a stalemate over tactics. The EU has said it won't negotiate any trade concessions with U.S. until Mr. Trump promises to remove the metals tariffs and take away the threat of further penalties. The U.S. refuses to give away the leverage of existing and threatened tariffs without European action.

That impasse has persisted through more than a dozen rounds of talks between Ms. Malmstrom and Mr. Ross in person, on the phone or via videoconference from March to June. Ms. Malmstrom repeatedly hinted at concessions Europe could make -- on accepting U.S. limits on European steel exports, and on acceding to Mr. Trump's demands of lower car tariffs -- if the U.S. took away the threat, according to European officials. Mr. Ross said Europe had to take the first step, and that the promises were too vague. Ms. Malmstrom "made clear that she had no mandate," he said.

The Europeans retaliated against the U.S. metals tariffs in late June by imposing tariffs on more than $3 billion worth of U.S. goods. The U.S. is now threatening tariffs on car imports.

A core U.S. strategy is to find and expand cracks in European unity, and play countries off against each other. The way one U.S. official put it is, "Trump wants to...smoke everyone out and see what the real red lines are."

At the White House in April, Mr. Trump suggested to visiting French President Emmanuel Macron that France leave the EU, after which the U.S. would offer France its own trade agreement, according to European officials.

Four days later, Mr. Trump told a visiting Ms. Merkel, "Angela, you are the president of Europe, you need to get the Europeans to do a deal. These other countries will come to your doorstep if you negotiate something between us," according to an official in the room. She demurred.

The White House spokeswoman said the president "wants a better deal. If he can't get it done through the EU then we can do individual deals."

Pessimists worry Mr. Trump's high-pressure negotiating strategy poses the risk of a miscalculation and a full-blown trans-Atlantic trade war disrupting global commerce, or of further moves by Mr. Putin to destabilize Europe.

There are optimists on both sides of the Atlantic who believe the parties can reach amicable deals on trade and defense spending. On NATO burden sharing, in "the last year and a half, the number of European countries who have stepped up, the number spending 2% [of GDP] or committing to spending 2% by 2024, has tripled," said Mr. Mitchell.

On trade, optimists note that Europe has started to float concessions and Mr. Juncker plans a July 25 meeting with Mr. Trump to discuss their disagreements. In addition to suggesting a possible reduction in auto tariffs, the Europeans have started discussions on ramping up purchases of U.S. natural gas, a priority export for Mr. Trump.

In his April White House meeting with Ms. Merkel, Mr. Trump told her: "Angela, you need to stop buying gas from Putin," according to the official in attendance, a reference to a natural-gas pipeline between Russia and Germany.

Ms. Merkel said she would like to diversify gas purchases and promised to persuade her EU partners to make that part of any trade deliberations, the official said. EU leaders have since agreed to try to find ways to cooperate with the U.S. on energy, hinting at the possibility of facilitating more U.S. liquefied natural gas sales on the Continent.

"We're going to go through some bumps in the road, but the target is elimination of tariffs or other barriers," said Mr. Ross. "The net effect will be much more freedom and more global trade."

--Emre Peker, Valentina Pop and Vivian Salama contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

July 08, 2018 16:16 ET (20:16 GMT)

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