In the simplistic world of debate on global commerce, you are either a protectionist or a free trader. In truth, the free trade vs protectionist debate has always been something of a false dichotomy. Every country – regardless of how many Adam Smith books their trade minister has read – protects their key industries.
All western economies protect their farming sectors. That shuts out often superior produce from dozens of developing countries that EU and other wealthy countries give development aid to. But no government in Europe, Canada or the US would dare take those hand-outs from their farmers. It’s not about good economics but politics.
Even before Donald ‘America First’ Trump became US President, the self-professed leader in free-market capitalism was one of the most protectionist regimes in the world. Without government subsidies and tariff barriers, the ailing US car industry would swiftly go out of business.
For a generation, the European Commission has thought of itself as a ‘free trader’, producing annual reports that criticize the ‘trade restrictions’ imposed by other countries. That hasn’t stopped it from waging its own long-running tit-for-tat tariff battles with the likes of China, Indonesia and Russia.
That is why free trade agreements tend not to be very ambitious. Politics always gets in the way. At the start of the now moth-balled TTIP talks, the EU (at the behest of France) removed the cultural industries from the negotiations. That prompted the US to retaliate by carving out financial services and ensured that there was bad blood between the two sides from the start.
Trump’s decision to impose a 25% tariff on steel imports and 10% on aluminium is forecast to cost the EU economy $2.8 billion a year. On Wednesday (7 March) the Commission is expected to unveil a package of measures that would include a dispute settlement with the US, along with a list of US brands including Levi’s jeans, Harley-Davidson motorbikes, and Bourbon whiskey. This is planned to hit US exporters with an identical $2.8 billion loss.
Last Friday, Commission President Jean-Claude Juncker described Trump’s tariff hike as “stupid”.
But “we can also do stupid”, he said. So it would seem.
The danger is that once a trade war starts, somebody has to turn the other cheek for it to end. That is unlikely to be an erratic and combustible Commander-in-Chief. Trump has already used his presidential think-tank (also known as his Twitter account) to threaten taxes on European cars. That will upset well-to-do Americans, who would blench at the prospect of having to swap their Merc or BMW for a Chevrolet.
When it comes to trade: poking each other’s eyes out leads to collective blindness.
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After a bruising election defeat, former Italian PM Matteo Renzi has resigned as leader of the centre-left Democratic Party (PD), pledging that his party would not strike deals with the anti-establishment parties that voters favoured.
The US is still Europe’s most important trade partner and therefore Europe should regulate trade with the transatlantic relationship in mind, writes Heidi Obermeyer. And while the EU seeks a coalition to respond to Trump’s threat on aluminium and steel tariffs, Christofer Fjellner warns, that Europe should avoid over-reacting to the US announcements.
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Foreign ministers from the Baltic states, three exposed allies on NATO’s eastern flank, during a visit in Washington this week urged Western leaders not to respond naively to Russian threats.
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Bulgarian PM Boyko Borissov and Russian President Vladimir Putin again discussed big energy projects with Russian participation in Bulgaria. The meetings are yet to result in anything tangible.
Germany will provide €1.2 billion to help Azerbaijan finance its part of the Southern Gas Corridor project, German media report.
Look out for…
The EU-India Conference on Advanced Biofuels, jointly organised by the Commission’s Directorate-General for Energy and India’s Ministry of Petroleum and Natural Gas, aiming to facilitate the deployment of advanced renewable fuels in the EU and India.
Views are the author‘s