International Trade, Brexit, and Trade Wars
Successes & Failures of 2016 U.S. Elections — Part 27
One effective way to avoid wars is to leverage political and military strength to negotiate to achieve peace. Charity begins at home, so first let’s make “America Great Again” with a boom in the industrial sectors and creation of millions of good-paying jobs and the generation of long-lasting prosperity, internal safety, and peace.
International trade:
( February 21, 2017, Washington DC, Sri Lanka Guardian) Mr. Trump led a campaign against the existing trade principles the United States has advocated for decades, including the tendency to have multi-lateral trade agreements. He plans to show how serious he was about deviating from Washington’s free-trade orthodoxy and using the threat of tariffs to address what he calls the unfair trade practices of China, Mexico, Germany, among other countries. Nevertheless, he needs Congressional support to carry out actions to demonstrate his vison.
In an interview with The Wall Street Journal on January 13, 2017, Mr. Trump said, “Free trade doesn’t mean anything. It’s not free if China sends its products here and we can’t send our products there.” Mr. Trump and his key advisers have criticized the global trading system as unfair because the U.S. market is more open to freely traded goods and investment than are some other economies. Trade agreements don’t need to be with zero-sum gain; it can be and should be, a win : win situation.
His vision is to abandon all multilateral trade agreements United States is having (perhaps, except for the European Union) and future alliances, and engage in only bilateral trade agreements between individual countries. This makes sense; if one country does not like the agreement or one is violating it, the other country can give 30-day’s notice and exit the agreement or the two countries can renegotiate. This is much easier than several countries trying to negotiate what’s in it for them; such multilateral agreements take awful long time to materialize.
America needs to avoid unproductive trade wars:
Some countries, such as the United States and Britain, are in trade deficits, but a few others, such as China and Germany, have a trade surplus. Countries with trade surpluses will continue to take steps to protect their current account surplus and their currencies. Countries with high annual trade deficits (high consumers, such as the United States and Eurozone partners) have accused Germany and China of encouraging savings over consumption, damping the recovery. This seems like sour grapes.
Moreover, especially with Brexit, Germany and France are concerned about protecting their economies and holding the Eurozone together and the Euros; the question is how much support they can get from Mr. Trump in this regards.
Trade wars are painful and many times, counterproductive:
There are no winners in trade wars. For example, if President Trump goes ahead with his threat to impose a 35% tariff for automobiles imported from Germany to the United States, it will have marked effect on the sales of German cars, such as Volkswagen and BMW, in the United States. Whereas, other issues, such as improving relations with Russia, the future of NATO, ending the Iranian nuclear deal, and dumping the Paris climate change agreement, etc., while important to Germany and China, not as much as valuable to as bilateral trade with the United States.
More intense issues exist with trade between Canada and Untied States. The trade between two countries exceed $2.0 billion, each day. Most of this comprise of automobile parts and food. In the case of car chassis, some of these go across the U.S. Canadian border several times before the final product is launch in the U.S.A. Thus, rather than having a free trade, trade without taxes, it will be a nightmare to impose a fixed tariff for such product (i.e., taxing multiple times for the same item).
If German Chancellor Angela Merkel is concerned about bilateral trade and NATO and the European Union, she should take steps similar to those taken by the U.K. Prime Minister Theresa May; visit White House and have a face-to-face discussion with the president of the United States. Chancellor Merkel and her team should meet with Mr. Trump and his team to increase ties between the two countries and start bilateral negotiations on good faith for what is acceptable to both countries. However, as the first step, one of their envoys is coming to United States this week to initiate trade discussions.
Brexit and the American political revolution:
With the Brexit, the current government in the United Kingdom is on a political path somewhat like that brought about by the U.S. election in November 2016. The constituents in both countries rejected the establishment. In this regards, there are more commonalities and agreements between Britain (Ms. May) and the current administration in the United States (Mr. Trump), than differences.
Meanwhile, Mr. Trump will be demanding increased defense contributions from European alliances, especially NATO members. He will hold on to campaign promise of NATO-allies accountable for defense and for contributing the minimum set target of 2% of GDP of individual participating countries. Only, the United States, United Kingdom, Greece, Poland, and Estonia pays the required 2%, but not other countries including Germany and France. Couple of other countries have promised to fulfil that commitment by the end of 2017.
Moreover, Mr. Trump will insist NATO not only to get involved more in the issues related to Europe and its territories and increase cooperation between contributing countries, but also increase bilateral collaboration on counterterrorism with the United States. In recent years, Europeans have faced many challenges, especially Germany and France. In addition to the Brexit, they are facing other ongoing changes and concerns, such as growing nationalistic movements (e.g., in Italy and Germany), increasing domestic security threats, a serious refugee crises, and associated increased domestic terrorism.
Unites States administration is supporting the NATO; however, European partners must engage more in defense and security, on-ground military personnel, sharing antiterrorism-related information and contributing finances. Currently, U.S. is providing over 70% of the NATO budget; with fair contributions from the member countries, this should bring back under 50% of the budget.
Considering the above, in the long run, NATO must be prepared to take broader and direct responsibilities in maintaining the peace in the region, while the U.S. providing similar or somewhat lesser amount of funds and military personnel. With the deep divisions within the European Union, greater financial and economic integration seems unlikely, but strengthening of the military and security union is however, is a greater possibility.
Nevertheless, with the ongoing changes in the political, economic, and security concerns in the Europe, the time will tell whether NATO would remain the same or it may eventually convert into a European military or a defense force. Such as a European Army to take care of its local issues and to protect sovereignties of its member countries.
To be Continued
Professor Sunil J. Wimalawansa MD, PhD, MBA, DSc, is a Physician-Scientist, Social Entrepreneur, Philanthropist, and Educator with strategic long-term vision (LinkedIn-Wimalawansa).
The author can be reached via https://wimalawansa.org/
The author can be reached via https://wimalawansa.org/
