The real price of a new EU-US trade war

Last month, trade commissioner Cecilia Malmström told European trade ministers that if President Trump hits the EU with 25 per cent tariffs on cars, Brussels is prepared to hit back with tariffs on some $20 billion worth of American exports.

Trade wars don’t involve the outright destruction of military action, but both kinds of conflict put political ambitions and vested interests ahead of human welfare. And though the damaging effects of trade wars are not always immediately apparent, make no mistake, they are numerous, deep and extensive.

In March, President Trump reiterated his intention to impose tariffs on cars and car parts from the EU should the two parties fail to arrive at a comprehensive deal. The US Commerce Department had previously submitted a report to the White House in mid-February, concluding that Trump could justify the tariffs on national security grounds.

As with military intervention, what matters is an outcome, not a justification. If the US imposes a 25 per cent tariff on imported EU cars and parts, it would mean higher prices for US consumers and, ironically, damage the American car industry, which depends on imported parts. By the same token, if the EU retaliates, it will end up hurting not only US exporters, but European consumers too.

Protectionists, however, haven’t been very creative in their reasoning. One of their key motivations is rooted in the idea that tariffs protect  domestic industries. The EU has been extremely successful in employing this argument. Export subsidies pushed through the Common Agricultural Policy (CAP) were initially developed to guarantee high prices for European farmers, offset by import levies. Protecting farmers was the ostensible aim of the CAP.

What policymakers didn’t see, however, was that the CAP resulted in excess supply from national producers, coupled with a lack of demand from domestic consumers. What’s more, once the CAP was fully implemented in 1967, imports from the US covered by new tariffs declined by 40 per cent.

Did the policy achieve its goal of protecting European farmers? Certainly. Did the policy’s gains outweigh the costs? Absolutely not.

The cost of protectionism is consumer choice, or what economists call ‘welfare loss’. That basic insight seems lost on most policymakers, perhaps unsurprisingly when they face well-organised industry lobbyists with deep pockets and political influence. The prospect of possible job losses in a particular region or industry is always likely to weigh more heavily on a politician’s mind than the more widely dispersed benefits of free trade.

The agricultural industry is a case in point. European farmers know what they stand to lose if the EU opens its market to agricultural imports from across the pond. In much the same way, the US car industry knows it would suffer from proper competition with European car giants.

But do we as consumers know what we would lose and what we could potentially win with a more liberal trade policy? When was the last time we truly noticed an imported cheap good in the store?

Should the US impose a tariff and the EU retaliate, it’s likely most of us won’t even notice that we’re in a trade war. However, the US-China dispute demonstrates amply that, just as with real wars, those fought with tariffs do not have winners.

The latest data suggests that the trade war with China has cost American consumers $20 billion and US exporters $16 billion. Both the US and Chinese economies each lose about $2.9 billion annually because of Chinese tariffs on soybeans, corn, wheat and sorghum alone. It’s a stark reminder that trade wars not only hurt the side that starts it, but also the one that retaliates.

As with every war, it is often assumed that threats and acts of aggression, in this case, tariffs, will bring about victory – certainly that seems to be Trump’s view. Ultimately, however, they always end up causing destruction. Simply put, there is no argument for protectionism that justifies its impact on all of our welfare.

As in the Prisoner’s Dilemma, both parties are better off if each chooses to cooperate. In this case, the EU and the US will both win if instead of seeking to sucker their opponent, they work together on a mutually beneficial trade deal.

Maria Chaplia is a media associate for the Consumer Choice Center.

Originally published at

Збільшення “курячих” квот дозволить європейцям харчуватися дешевше

КИЇВ. 19 березня. УНН. Незабаром Україна отримає шанс збільшити експорт курятини в Європу. Це станеться, якщо Європарламент схвалить домовленість сторін про зміну угоди про зону вільної торгівлі. Від позитивного рішення ЄП виграє європейський споживач, який отримає великий вибір продукту за низькою ціною. Про це заявила представник “Центру вибору споживача” (Consumer Choice Centre) Марія Чапля, передає УНН з посиланням на Food and Drink International.

Згідно з попередньою угодою, Єврокомісія планує збільшити імпортну квоту на українську курятину – з 20 тис. тонн до 70 тис. тонн в рік, нагадала Чапля.

“Не дивлячись на те, що цифри здаються багатообіцяючими, малі тарифні квоти по своїй суті шкідливі і обмежують вибір споживачів. Обмежуючи кількість імпорту курячої грудки, що надходить на ринок ЄС, ЄС створює спотворення на ринку, що призводить до зниження добробуту споживачів.

Простіше кажучи, вільна торгівля – це обмін, який дозволяє кожній стороні використовувати свою перевагу і отримувати вигоду з переваги іншої”, – заявила вона.

Вигоду від збільшення імпортних квот отримають європейські споживачі, говорить Чапля.

“Європейські споживачі можуть отримувати значно більший запас курячих грудок за нижчою ціною”, – наголошує вона.

У той же час, результатом угоди можуть бути незадоволені європейські птахівники, каже представник Центру.

“І тут дуже важливо не дозволити їм перешкодити цим переговорам”, – зазначила вона.

В ідеалі, ЄС не повинен вводити торгові обмеження у вигляді тарифних квот, так як це б’є по споживачах.

“Замість цього потрібно сприяти вільному обміну”, – резюмувала Чапля.


Young people choose free trade – and the government should too

As the Brexit no-deal vote and the deadline itself approach, expectations of the UK seizing this opportunity and reclaiming its trading heritage are heating up. What will a post-Brexit UK choose: being a global advocate of free trade or a protectionist ex-EU state? 

According to a poll conducted last month, UK voters would prioritise the protection of the farming industry over cheaper food prices. However, the survey results identified that views on tariffs vary with age. And the young choose free trade.

Among those between 18 and 24, 41 per cent favour lower prices while 34 per cent would protect farmers. However, 68 per cent of those surveyed who are in the over 65 category prioritise farmers compared to only 13 per cent who favour lower prices. 

In the event of a no-deal Brexit, Britain will employ a tiered approach, under which 87 per cent of import tariffs will be cut to zero. “Sensitive products” such as beef, poultry meat, sheep meat, and pig meat will be subject to higher level tariffs, defined as a proportion of “most favoured nation” (MFN) status. This is supposed to protect British farmers from losing their jobs and ensuring a swift transition. Yet, along with this, it will also present us and them from enjoying lower prices.

Contrary to popular perception, protectionism is bottom up. The proposed tariffs do not necessarily mean that the British government is protectionist. What they do mean, however, is that the British meat industry has been more successful in defending and advancing its interests than British consumers. 

Proponents of protectionism stress that free trade is a zero-sum game with winners and losers measured in jobs. But this centres around short-term costs of free trade and consequently fails to see that free trade primarily seeks to create prosperity in the long run. Since young people tend to be more future-oriented than the elderly, it is understandable why anti-protectionist tendencies are rarer among them, as the poll shows.

However, while protectionists tend to overlook the advantages of free trade, free trade supporters like me do not turn a blind eye to its drawbacks. Similar to creative destruction, free trade does leave some people jobless, which in turn escalates anti-trade sentiment all across the world. Every time free marketers ignore this fact, we play to the advantage of protectionists. Instead, we have to face and address it.

Unemployment resulting from free trade is a short-term transitional cost. It is essential to understand that since costs are a vital part of every policy – none of us has a 100 per cent guarantee against them. The key question is what policy is at stake.

Furthermore, very often it is technological progress that destroys the jobs blamed on free trade. The elderly who prioritise farmers’ jobs over lower prices are more focused on the immediate effects of trade, or on the costs.

So, let’s face it. As of 2017, around 1.4 million people were employed across all the sectors that could be affected by the abolition of tariffs on agriculture. Zero tariffs would leave some people jobless, but overall they would simply force the industry to compete.

Compared to Brazil and the US, the UK is struggling with beef finishing. In terms of mutton, Australia and New Zealand will be UK’s main competitors on the global market. It’s not difficult to see why the industry has been determined to avoid dealing with the potential repercussions of unilateral liberalisation. However, it is fair to expect that the application of tariffs is merely a transitional measure. In this case, we should pioneer it.

It’s easy to talk about costs if you’re not the one to bear them. For some reason, however, it’s far more complicated to see the benefits even if you are the one who gets them. If the UK eliminates tariffs on agricultural imports, low-income households would be the first to reap the benefits. 

The price of meat would decrease by more than three per cent as a consequence of a higher supply, according to a report issued by UK Trade Policy Observatory at the University of Sussex in October 2017. The report also stated: “households right at the bottom would benefit the most, those in the middle 20 per cent of the distribution would be no better off than those at the top.”

Even though the number of winners from free trade significantly exceeds the number of losers, the latter are drastically more vocal and much better organised. Whether it’s Italy, the US, or the UK, industries that are threatened by free trade shout the loudest – loud enough for the government to hear and give them what they want. 

Choosing protectionism over free trade would be a step back. Not long ago, the EU applied the safeguard clause to rice imports from Cambodia and Myanmar under the very same justification used by the proponents of tariffs on meat: to protect farmers. Such protectionist measures limit the number of products available to consumers and result in an increase in prices. The world expects the UK to champion free trade after Brexit, not use the same restrictive tools as the EU.

While unilateral liberalisation on all agricultural imports would have a short-term cost, the wave of prosperity brought about by free trade would lift everyone up. Protectionism goes from the bottom up. The sooner we become aware of this and learn to speak up for the benefits of free trade, the faster protectionism will lose its power.

Trade body counters calls for import tariff cut

A spokeswoman for the Consumer Choice Center said: “Imposing any tariffs on food will not only put another burden on British consumers and increase the costs of Brexit, but will also send a signal to the rest of the world that post-Brexit Britain will pursue protectionism ahead of consumer interests.

“Free trade is vital for consumer choice as it allows consumers to enjoy a greater variety of products at a lower cost. Interventions in the form of tariffs, non-tariff barriers or quotas hit consumers the hardest and, therefore, should be avoided or decreased at all costs.

‘Consumer will lose’

“Leaving the EU without a deal would cost the UK 2.2% of GDP ​[gross domestic product] by 2030. However, unilateral liberalisation would help compensate up to 80% of that reduction in real GDP. Therefore, it is key that, after Brexit, the UK either fully abolishes its tariffs on food, or keeps them low. If Brexit comes with tariffs on food, a small group of people – British farmers – will win, while every British consumer will lose.”


DEBATE: Should we slash post-Brexit tariffs on food imports to offer consumers cheaper goods?

Should we slash post-Brexit tariffs on food imports to offer consumers cheaper goods?

Bill Wirtz, policy analyst at the Consumer Choice Center, says YES.

Contrary what the protectionists will tell you, tariffs don’t only hurt the country upon which they are imposed.

If the government decides to maintain import tariffs on food post-Brexit, it is British consumers who will foot the bill for these duties in the form of higher prices. This is particularly devastating for low-income households, which spend the largest proportion of their income on food.

The UK should remember its bad experiences with tariffs on food. History buffs will recall the 19th-century corn laws, which were introduced to protect local producers against corn from France or Germany. The result of this isolated trade policy quickly became visible: while the British producers profited, the price of grain exploded in the 1830s.

The same economic principles apply today.

Remainers and Brexiteers alike should make it their mission to offer cheaper food and more choices to the British consumer. Tariffs just help farmers, whereas free trade benefits everyone.


Proposed EU duties on rice would hurt European consumers, says #ConsumerChoiceCenter

European Affairs Manager of the Consumer Choice Center Luca Bertoletti criticized the request and said that it’s time the European Union stopped pushing forward protectionism.

“The reasoning behind trade barriers is to protect a specific industry – in this case Italian rice growers – from competition. What’s usually overlooked though is that whilst taking the producer side, protectionist policies end up causing a great harm to consumers who get stripped of the opportunity to enjoy the benefits of free trade. The Italian government is simply asking to limit the affordability of rice,” said Bertoletti.

“The Association of South East Asian Nations (ASEAN) is the third largest trading partner of the EU. In 2017, co-operation with the ASEAN resulted in the output of more than € 227,3 billion in goods. As part of this economic engagement, the European Union has been actively trading with both Myanmar and Cambodia and therefore using the agricultural imports, in particular, rice, to feed up the EU market.

“Before employing another protectionist measure, the European Commission should ask itself whether it wants to ensure European consumers are able to enjoy a great supply of rice and consequently a favourable pricing or whether it is the unwillingness of one group to compete which matters more,” Bertoletti concluded.

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.