OPINION:
U.S.-European Union trade relations dodged a bullet with the recent agreement to negotiate lower barriers to commerce on many industrial, agricultural and energy products, but it is doubtful those talks can radically reduce the $170 billion U.S. trade deficit with the EU.
At their core, World Trade Organization and other modern trade agreements are the product of sound economics and a sensible reflection of political realities.
Article-by-article those documents are written to effect modern economists’ vision of freer trade — governments getting out of the way of commerce by lowering tariffs and accepting disciplines on subsidies, product standards, foreign investment rules and similar practices that can favor national champions. This should create an international space where businesses and entrepreneurs can compete, better finance R&D, distribute production to the more efficient locations and accomplish grand economies of scale.
Voila, the iPhone designed in America but assembled in China from components and software from across Asia, America and elsewhere. The Internet and Windows platform providing a global framework for communications, inexpensive exchange of ideas and deal making.
Jobs get rearranged and — lest the New York and Silicone Valley liberals selling services on global platforms forget — jobs are votes. Consequently, the multitude of WTO, EU, NAFTA and other trade and investment agreements were crafted with the express intent of creating a balance of benefits.
And to remind President Trump’s critics hiding behind the ivy on their towers, those deals were made in anticipation that they would foster more or less balanced trade for each participant and not create vast economic wastelands and political headaches in once prosperous manufacturing and agricultural communities.
Developing countries for a time might have trade deficits financed by capital inflows to purchase technology and build up their industrial infrastructure to better compete but trade deficits — and attendant borrowing from foreigners — were not anticipated to be a permanent condition for any nation. The World Bank and International Monetary Fund were set up to facilitate financing for developmental purposes and discipline profligate borrowing.
In 2001, China was admitted into the WTO by Western nations with the expectation that it would throw off state planning, create a domestic market economy and open its markets to foreign products, but instead it has taken the WTO in a terribly different direction.
China imposes egregious conditions on foreign firms seeking to enter its markets, strong arms or outright steals technology. Instead of being illegal, industrial espionage is virtually a state-sponsored industry.
But the specific problem with U.S.-EU relations is that mercantilism is not an Asian specialty. Germany and several other northern European nations have purposefully engineered huge trade surpluses inside the EU and with the rest of the world.
Germany has a current account surplus (the broadest measure of a nation’s trade account) exceeding 8 percent of GDP. That drives huge imbalances with Italy and other southern European nations, and it significantly instigated the dissatisfaction that elected a Euroskeptic populist government in Italy and begot Brexit.
Long ago, the EU ceased to be about building an open internal market. The common currency has become a mechanism for German domination through trade with its southern neighbors.
The Brussels rulemaking bureaucracy has become a French Frankenstein that seeks to regulate every business decision. It imposes huge fines on American companies for business practices considered benign elsewhere — witness the $5 billion penalty assessed on Google for providing the Android operating system based on an advertising business model.
President Trump is naive to accept the EU’s proposal to reduce tariff and nontariff barriers. Without breaking up the euro and German economic policies that require the common currency to be weak against the dollar to prop up troubled southern EU economies, and without curbing the regulatory terrorism of the politically unaccountable Brussels bureaucracy, no deal with the EU will be worth much more than the 2001 WTO accession agreement with China.
What the EU is offering is disingenuous. It’s too limited and merely an obfuscation engineered by the Brussels bureaucracy to boot trans-Atlantic trade problems to the next U.S. administration.
Mr. Trump — and apparently his trade guru Peter Navarro — are clueless and European Commission President Juncker — and his Trade Commissioner, Cecilia Malmstrom — cynical.
U.S.-EU trade relations may have been saved from the calamity of a trade war, but they are hardly headed for better days — unless you speak German.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.
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