Donald #Trump wants tariff-free trade on goods. Why doesn’t the Commission take him up on it?

| March 22, 2018

In the looming trade war between the European Union and the United States, the consensus seems to be, that means to avoid this crisis are spare. Jean-Claude Juncker made it clear in a speech in Hamburg that “we also have to be this stupid”, in reference to the retaliatory tariffs on a number of American products. US tariffs on steel and aluminium are set to cost Europe tens of thousands of direct and indirect jobs, writes Bill Wirtz.

Donald Trump has been on the defensive about his steel tariffs ever since they were announced. The US president constantly fires back at EU officials, including by threatening of imposing import tariffs on European automobile imports.

On Saturday, Trump tweeted out that the European Union is treating the U.S “very badly” on trade, but that if Europe would be willing to drop all its tariffs on Americans goods, he would favour dropping theirs as well.

Yes, Donald Trump suggested a tariff-free trade agreement on all goods between the European Union and the United States. However, no reaction came out Brussels after the said tweet on the weekend. In contrary: French Minister of the Economy Bruno Le Maire toured TV stations on Monday in order to make it crystal clear that the EU will take appropriate measure to counter the threat coming from Washington. Le Maire told CNBC that the European response will be “strong” because thousands of jobs and plants are at stake. Where exactly the resoluteness of the French minister came from to speak on behalf of the EU seems unclear.

It’s certainly strange that the suggestion of the American president passed unnoticed, given that Council president Donald Tusk tweeted out on Wednesday that the EU and the U.S should pick up frozen trade talks. Surely the Wallonian parliament we be deeee-lighted.

Outside of Twitter diplomacy, one thing is for certain: the announced tariffs on both sides are set to hurt European consumers. Be it blue jeans, bourbon or orange juice: tariffs are paid by the people who buy their products in the store, particularly low-income households. Tariffs are inherently regressive, because expenditures on traded goods are a higher share of income and non-housing consumption among lower income households.

The European Union needs to improve its capacity of making a consistent case for free trade. Since the economic arguments for free trade are of a scientific rather than an ideological nature, it is not surprising that they contain reservations.

For example, consumers in a rich country who trade with producers in a poor country get cheaper products that require unskilled labor, while consumers in poor countries pay less for products. capital-intensive (machines, computers, etc.) and highly specialised labor. It is therefore reasonable to conclude that the benefits of free trade are not purely ideological. It is protectionism that seems 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, whereas domestic free trade (say between cantons or provinces) is advantageous.

Tariffs aren’t but a useful tool for the reactionary right- and left-wing extremes of the political spectrums. They reduce the choices of consumers and increase prices for the poorest of the poor. The European Commission should take President up on his suggestion for intercontinental tariff-free trade on goods.

Bill Wirtz is a policy analyst for the Consumer Choice Center.

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Category: A Frontpage, EU, European Commission, US