Why Europe Should Let Trump “Win” on Trade

The European Union says it’s ready to retaliate against new tariff measures proposed/instituted by the Trump administration. However, letting Trump “win” the trade war would be far smarter.

Mentioning Trump’s name in Brussels (the capital of the European Union) produces a lot of eye-rolls. Trump is not only unpopular, but he is also regarded as being uninformed at best and having malicious intent at worst. Whether or not those things are accurate is a story for another time, but the trade war debate reveals the level of self-reflection in Europe. Much is said about the tariffs imposed on European goods, and the narrative in Brussels is that the United States started the trade war, forcing the European Union to retaliate.

The fact that the European Union initiated the most important trade barriers didn’t occur to them.

On January 18, the European Union adopted a negotiating mandate for the trade talks with the United States. Brussels announced that every new tariff measure by Washington, DC, would be met with retaliatory tariffs in Europe.

EU Trade Commissioner Cecilia Malmström warned that if Trump decides to punish Europeans on trade, “we are very advanced in our internal preparations” to retaliate. “Should that happen, we are ready, it would have a very damaging effect on the negotiations,” she said.

Between 2010 and 2014, the US and the EU negotiated the Transatlantic Trade and Investment Partnership (TTIP). The negotiations ended after considerable public protests in Europe pressured Brussels to break-off the talks. Fear-mongering anti-free trade activists warned the public about the threat of importing goods from the United States, such as GMO foods.

However, importing goods produced to different standards than EU norms does not in the least “undermine” EU standards. Provided consumers are aware of the origin of their products, mutual recognition of standards poses no threat to anyone’s legislation.

report by Foodwatch, a German NGO pretending to stand for consumers, also treats the idea of free trade with contempt. This is well illustrated in a chapter on Mexican trade relations on page 47. The researchers write:

In 2001 Mexico introduced a tax on all soft drinks flavoured with sweeteners other than cane sugar (e.g. with beet sugar or isoglucose, a syrup made from corn or wheat starch). The exception for drinks sweetened with cane sugar protected the country’s own sugar cane production.

They continue by explaining that such taxes are being challenged under WTO trade rules and that industry lobbyists oppose them through the claim of “a form of trade discrimination.” The EU, of course, is well-known for trade discriminatory practices aimed at protecting its own producers, including its famous ban on beef treated with the estradiol-17β hormone.These activists would oppose free trade no matter what because it increases food trade.

Such agricultural protection is always a major sticking point in trade negotiations, so it is certainly an odd point for anti-trade activists to bring up.

The report’s tenor is exemplified by this statement from one of its authors, Thomas Fritz, during the Foodwatch press conference:

Our conclusion is that due to these FTAs [Free Trade Agreements], food trade is indeed likely to grow, along with the risks posed to the consumer and the environment.

Forget concerns about democracy, judicial procedures, or even those of food standards: these activists would oppose free trade no matter what because it increases food trade. “The risk to the consumer”—what risk are we talking about? The risk of falling food prices and increased quality? The risk of expanded choice? And to what “risk” are we exposing the producers in South America to? The risk of increased production and economic prosperity?

What would it take for Donald Trump to “win” the trade war? In essence, Trump supports getting rid of all tariff and non-tariff barriers. All the European Union needs to do is to tell the administration “you won” and drop the previously introduced retaliatory measures. This would open the market and provide cheaper goods for European consumers and enable Trump to approach his goal of a zero-tariff basis.

But that isn’t going to happen because the notion of “winning” is as politicized in Brussels as it is during a Trump rally. So next time you receive eye rolls at the mention of the trade war in Europe, recognize that over here on the old continent, we aren’t really any better.

Rice tariffs: who are we kidding on the EU’s “free trade”?

The European Union introduces tariffs on rice from Cambodia and Myanmar in an effort to protect Italian farmers. Another example of “free trade” à la European Union.

It was announced last Wednesday that tariffs on rice from Cambodia and Myanmar were being re-introduced, in order to fulfil safeguard clauses. The terminology here is telling. European farmers are supposed to be “safeguarded” from foreign competition. It was at the request of Italy the Commission already suggested structural tariffs in November, those starting at €175/tonne in the first year and then progressively dropping to €150 in the second year and €125 in the third year.

Back then, the proposal didn’t find a majority in the Council, and therefore bounced back to Berlaymont, which now confirmed its initial intention. Until now, Cambodia and Myanmar benefitted from the EU’s Everything But Arms (EBA) trade scheme, which unilaterally grants duty-and quota-free access to the world’s least developed countries (apart from arms and ammunition).

Italian MEP Tiziana Beghin said, according to Politico, that she had been fighting for a safeguard to protect Italian farmers since 2014, and said that the news was a “relief” for more than 4,000 enterprises and families.

The Five Star Member of the European Parliament surely completed a smart political move for her constituants, which benefit from new tariffs, or who have been misled into supporting them. More misled however have been those who for the longest time have believed that the goal of the European Union was to be in favour of free trade. What a disappointment that must be.

The European Commission writes in its press release:

“The initial request for trade safeguards on rice imports was tabled by the Italian government in February 2018 and supported by all other EU rice growing Member States (Spain, France, Portugal, Greece, Hungary, Romania and Bulgaria).”

It is written in this way because either the Commission has absolutely no notion of what it means to have a vested interest, or because it realises itself that free trade does not exist in the European Union.

While rice-producing member states are naturally lobbied by their local rice farmers, consumers have nobody to speak on their behalf. Too many of the established consumer organizations have nothing to say on tariffs. In fact, it seems all too often that they back the protectionist far-left and far-right positions, in order to “protect jobs” and “support local production”.

To them, consumer prices seem irrelevant. In fact, the European consumer organization BEUC has nothing to say at all about the EU’s re-introduction on rice tariffs. Does it not matter to them that it is low-income consumers who will be hit the hardest by this form of indirect taxation?

This is not the first time this happens. The European Union constantly introduces new tariffs, and many have been added since the United Kingdom voted to leave the European Union. The reasons are diverse: often it is because the producing country is accused of subsidizing their local economy (which the EU does also through the Common Agricultural Policy), but a safeguard measure can be as blatantly protectionist as in the example of rice imports from Cambodia and Myanmar.

If you were to suggest something similar on a national level, you’d be accused of nationalism. If done on a Brussels-level, it is merely a safeguard.

Protectionism is purely ideological because it is based on sentimental beliefs. If we were to take nationalism out of the picture, it would be difficult to argue that international free trade would be disadvantageous while domestic free trade (say, between cantons or provinces) is advantageous. This is particularly true in large trading blocs such as the European Union. Aren’t French farmers also hurt by imports from Bulgaria?

And if internal subsidization processes of the EU are working to eliminate those differences within the bloc, then how is Bulgaria supposed to rise out of its economic hardships, if nobody can ever compete with Western Europe, make a profit and innovate? And what is the big threat anyway, when cheap food for our consumers is the result?

The price for the economic illiteracy of this entire process is footed by the European consumer, who is told that the Trump’s of the world are the problem with free trade. And while Washington D.C’s trade politics have indeed changed for the worse, they’re unparalleled in their doublespeak by an EU pretending to stand for free trade in the world, while catering to local interests in order to keep the bloc together.

Trump’s Free Trade Suggestion remains Unheard

During European Commission president Jean-Claude Juncker’s visit to Washington D.C, Donald Trump once again suggested a tariff-and subsidy-free trade area between the European Union and the United States. Yet, the American president continues to fall on deaf ears, for reasons that tell more about the EU than it does about ominous ‘Trumpism’.

The meeting in Washington seemed to have a positive announcement within, as both parties agreed on an end to tariffs, non-tariff barriers, and subsidies on non-auto related industries. In a joint press conference, both parties announced that the European Union would increase imports on liquified natural gas (LNG), as well as American soybeans.

The European Union Commission returned to Brussels in a self-congratulatory manner, claiming to have avoided a trade war. And yet, with the exception of free trade no non-auto industrial goods, as well as vague promises on avoiding retaliatory trade measures triggered by tariffs on steel and aluminium, the meeting was unproductive. The import of soybeans cannot be increased simply through a Commission president statement: there are no EU tariffs on soybeans, and if companies in Europe don’t magically decide to buy them, then literally is expected to change. On LNG, the story is comparable: the European Union has already been promoting LNG for years, and the press conference just reiterated that point.

Politico Europe conveniently called the whole process “The art of no deal“.

Juncker’s effort to charm Trump into believing that he scored a victory is sad, in comparison to the actual opportunity that President Trump presented to the EU. Not only did Trump repeat during Juncker’s visit in D.C that he’d prefer a free trade deal with Europe that’d exclude all kinds of tariff-barriers, he also repeated the said statement in a tweet on Thursday:

However, if Juncker were to actually claim to walk in the footsteps of statesmen such as Robert Schuman, he’d embrace full free trade. In trade between rich and poor countries, both sides benefit, because they pay less for products, capital goods (machines, computers, etc.), and highly specialised labor. While it is true that job losses can occur when competition increases, it is important to account for increases in exports through free trade. The German car producer Mercedes might not like the competition of Italian cars on the German market, but since many Italians purchase his product, it’s manifestly more profitable to freely trade.

Protectionism is purely ideological because it is based on sentimental beliefs. If we were to take nationalism out of the picture, it would be difficult to argue that international free trade would be disadvantageous while domestic free trade (say, between cantons or provinces) is advantageous. This is particularly true in large trading blocs such as the European Union or, for that matter, the United States.

Tariffs are nothing more than a useful tool for the reactionary extremes of the right and left wings of the political spectrum. This is all the more visible in the sense that whenever Trump addresses the idea of freeing trade relations from all government intervention, nobody bothers to even address it.

Trump’s free trade suggestions remain unheard, because the solutions of subsidising or protecting through standards are immediate and popular. The European Union doesn’t follow an ideological line on free trade, it merely pretends to do so for the efficacy of political point-scoring.

The solution on trade isn’t “somewhere in the middle”. The idea that we’ll import some American products here and there, in order to get temporary concessions on some of our goods, is unproductive and hurts consumers. The only answer Jean-Claude Juncker should give when Donald Trump suggest completely free trade between the two continents is “yes please”.

The European Union Started This Trade War

Within the next 30 days, the European Union wants to respond to new US tariffs on steel and aluminum, which were imposed by the Trump administration. After an initial exemption, the president now seems to be more determined to follow through with his attempt to “protect American industries.” With a trade war seemingly about to begin, let’s throw light on who started it in the first place.

The EU’s Retaliation

Through a 25 percent tariff on steel and a 10 percent tariff on aluminum, President Trump intends to shield American producers from foreign competition and keep jobs inside the United States. This is in line with Trump’s general tendency towards economic protectionism, demonstrated by his support for tariffs on the Canadian manufacturer Bombardier’s C-series jets (planes which are partially produced in the UK as well) and for tariffs on imported solar panels and washing machines.

The European Union recently announced its retaliation against those import duties. It has launched legal proceedings against the measure and plans on additional taxes on American imports in Europe, including things like clothing, motor vehicles, orange juice, or cigarettes.

It is certainly strange the European Union doesn’t manage to rise above the mercantilism of Donald Trump. Before his election, and during his first months in office, European politicians made positive signals for free trade. Where Trump wanted less free trade, Europe responded with more economic cooperation. Back in July 2017, we saw headlines like “EU, Japan seal free trade deal in signal to Trump.”

“Although some are saying that the time of isolationism and disintegration is coming again, we are demonstrating that this is not the case,” European Council President Donald Tusk said during a press conference with Japanese Prime Minister Shinzo Abe.

In a follow-up speech, however, EU Commission president Jean-Claude Juncker completely overturned this return to economic principles and to the moral high ground. In a now legendary quote, Juncker said in a speech in Hamburg, Germany:

So now we will also impose import tariffs. This is basically a stupid process, the fact that we have to do this. But we have to do it. We will now impose tariffs on motorcycles, Harley Davidson, on blue jeans, Levis, on Bourbon. We can also do stupid. We also have to be this stupid.

The episode ended with Trump granting an exemption to the European Union. That deadline has now expired, with no deal having been reached. In Brussels, lawmakers are up in arms about the measures, while Washington does not seem to see this as a priority.

Even Donald Trump seems unimpressed by threats coming from the EU. Unlike last time, we weren’t showered in tweets about German cars, but we did get a standard exclamation by the president, which was probably a reaction to the EU’s decision to launch an appeal at the World Trade Organization (WTO):

The EU Started the Trade War

The general media narrative is that the European Union is now forced to “respond” to a trade war initiated by the United States. But is Donald Trump right about the fact that American products get treated unfairly in Europe? The answer is: yes, absolutely.

Here are the tariff rates imposed on Europe by the United States on a number of goods (numbers taken from the United States International Trade Commission):

  • New Diesel car: 2.5 percent
  • T-shirt: 16.5 percent
  • Umbrella: Tariff-free
  • Olive oil: 5 cents/kilogram ($5/100 kg)
  • Biscuits: Tariff-free
  • Regular cigarettes: $1.05/kg + 2.3 percent
  • Orange juice: 7.85 cents/liter
  • Sugarcane: $1.24/ton

Here are the tariff rates imposed by the European Union on a number of goods (numbers taken from the European Commission):

    • New Diesel car: 16 percent
    • T-shirt: 8 percent
    • Umbrella: 4.7 percent
    • Olive oil: €134/100 kg ($156/100 kg)
    • Biscuits: 9 percent EA (additional “agricultural component” duty), 24.2 percent ADSZ (additional duty on sugar contents)
    • Regular cigarettes: 57.6 percent

Orange juice: 12.2 percent

  • Sugarcane: €4.6/100 kg ($5.37/100 kg, $53.7/ton)

Just on a random selection, it turns out that the European Union is already heavily taxing imports from the United States. In fact, while the EU is threatening to introduce duties on products it hasn’t been taxing yet (such as bourbon), it also wants to increase taxes on things like orange juice, which are already heavily taxed. On top of that, you also need to add two components of non-tariff barriers: food quality and other product safety standards, as well as agricultural subsidies.

In practice, this means that in order to export to the European Union or any of its associated members, an American orange juice producer needs to abide by the European Union Council Directive 2001/112/EC on fruit juices (this one was amended in both 2009 and 2012 to tighten requirements on labelling and content of the juices): Health control (food law, hygiene, microbiological criteria, contaminants, pesticides), Plant health control (harmful organisms), Marketing standards. This makes him obligated to know everything about Regulation (EC) No 852/2004 on the hygiene of foodstuffs as well as Commission Regulation (EC) No 2073/2005 on microbiological criteria for foodstuffs, and Commission Regulation (EC) No 466/2001 of 8 March 2001 setting maximum levels for certain contaminants in foodstuffs. Since the regular producer is unable to figure all of these regulations out by himself, he’ll have to pay compliance costs for firms to figure them out for him, because if he doesn’t, retailers will quickly drop his products because according to EU law the importer is responsible for the import.

On top of that, he will have to pay a 12.2 percent import duty.

After complying with all of these rules, he will then compete on a European market in which Spanish orange juice producers receive agricultural subsidies (which make up 40 percent of the EU’s annual budget), and can, therefore, sell for much cheaper.

Non-tariff barriers matter just as much as tariff barriers, even though they more difficult to measure. How exactly the European Union, given all of these restrictions, pretends to claim to hold free trade as a value is questionable.

What about a Race to the Bottom?

President Trump is clearly hyperbolic in his claim that there is such a thing as a 100 percent customs duty, but he isn’t wrong in bemoaning the EU’s trade policy. While the European Union might practice free trade within its own borders, it is a protectionist bloc for anyone who wishes to trade with it.

This is particularly frustrating given the important of Euro-American trade relations. Europe is the United State’s largest trading partner. US goods and services trade with the EU totaled nearly $1.1 trillion in 2016. Exports totaled $501 billion; imports totaled $592 billion.

The ones suffering from all of it are the consumers. It’s the consumers who pick up the tab when customs duties have to be paid, and when local producers can increase prices when they’re shielded from international competition. As low-income producers spend most of their income on consumption goods, they are suffering from it the most.

Of course, pointing fingers at “who started it” doesn’t resolve the fundamental problem. Neither Brussels nor Trump have an understanding of how trade relations work. If the European Union wants to appropriately respond to new tariffs on steel and aluminum, it should actually reduce tariffs on US imports. This would send a clear sign that the belief in free trade in Europe is consistent, no matter how much Trump uses mercantilism for political point-scoring with his base.

If there is to be a trade war, it should be a trade war to see who can slash tariff barriers the most.

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Free Trade For Us is a single-issue campaign produced by the Consumer Choice Center and supported by partners to raise awareness about the positive impact of free trade and to show policymakers all over the world that the millennial generation is united against tariffs, trade barriers, and retaliatory measures that only hurt consumers and workers.