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The US is a whole lot richer because of trade with Europe, regardless of whether EU is friend or ‘foe’

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Greg Wright, University of California, Merced

President Donald Trump recently questioned the value of the long-standing United States-Europe alliance. When asked to identify his “biggest foe globally,” he declared: “I think the European Union is a foe, what they do to us in trade.”

This view is consistent with his recent turn against trade with Europe but ignores the immense benefits that Americans have reaped due to the strong economic and military alliance between the U.S. and Europe – benefits that include nothing less than unprecedented peace and prosperity.

As such, Trump’s trade war with Europe and his hostility toward broader Western alliances such as NATO portend a future of diminished standards of living – as a direct result of less trade – and greater global conflict – indirectly due to reduced economic integration. In the words of columnist Robert Kagan, “things will not be ok.”

Some of my research focuses on the impact of increased international trade on U.S. standards of living, which I show are causally linked during the late 20th century. Most of the trade in this period occurred among rich nations and was dominated by the U.S.-Europe relationship.

By calling Europe a “foe,” Trump makes clear that he simply doesn’t understand why rich countries trade with one another, which, to be fair, is something that also puzzled economists for many years.

Why rich countries trade

Though in some ways it seems obvious why the U.S. and Europe trade with one another – some might enjoy Parmigiana from Italy, while others prefer Wisconsin cheddar – economists initially had trouble explaining exactly why there was so much trade among rich countries. Surely, they thought, the U.S. can produce good quality cheese at a cost that is similar to producers in Italy, and vice versa, so why would we need to go abroad to satisfy our palettes?

In 1979, economist Paul Krugman provided a clear answer that would eventually win him the Nobel Prize in economics. The first part of his answer was simple but important and boils down to the fact that consumers benefit from having a wide range of product varieties available to them, even if they are only small variations on the same item.

For instance, in 2016 the top U.S. exports to the EU were aircraft (US$38.5 billion), machinery ($29.4 billion) and pharmaceutical products ($26.4 billion). The top imports from the EU seem almost identical: machinery ($64.9 billion), pharmaceutical products ($55.2 billion) and vehicles ($54.6 billion). Although the product categories clearly overlap, there are important differences in the types of pharmaceuticals and machinery that are sold in each market. Consumers benefit from having all these options available to them.

The second part of Krugman’s answer was that, by producing for both markets, companies in Europe and the U.S. could reap greater economies of scale in production and lower their prices as a result. This has been found to indeed be what happens when countries trade. And more recent research has shown that increased foreign competition can also lower domestic prices.

These benefits have been quantified. For instance, the gains to the U.S. from new foreign product varieties and lower prices over the period 1992 to 2005 were equal to about one percent of U.S. GDP – or about $100 billion.

In short, Krugman’s answer emphasized the extent to which international trade between equals increases the overall size of the economic pie. And no pie has ever grown larger than the combined economies of the U.S. and Europe, which now constitute half of global GDP.

Pfizer Inc. is headquartered in New York. Both the U.S. and the EU import and export pharmaceuticals.
AP Photo/Richard Drew

Largest trading partner

The European Union is the largest U.S. trading partner in terms of its total bilateral trade and has been for the past several decades.

Overall, the U.S. imported $592 billion in goods and services from the EU in 2016 and exported $501 billion, which represents about 19 percent of total U.S. trade and also represents about 19 percent of American GDP.

A key feature of this trade is that almost a third of it happens within individual companies. In other words, it reflects multinational companies shipping products to themselves in order to serve their local market, or as inputs into local production. This type of trade is critical as it serves as the backbone of a vast network of business investments on both sides of the Atlantic, supporting hundreds of thousands of jobs.

It is also a network that propels the global economy: the EU or U.S. serves as the primary trading partner for nearly every country on Earth.

A ship to shore crane prepares to load a shipping container onto a container ship in Savannah, Ga.
AP Photo/Stephen B. Morton

Shipping and new institutions

The U.S.-Europe trade relationship also laid the groundwork for the modern system of international trade via two distinct innovations: new shipping technologies and new global institutions.

On the technological front, the introduction of the standard shipping container in the 1960s set off the so-called second wave of globalization. This under-appreciated technology was conceived by the U.S Army during the 1950s and was perfected over Atlantic shipping routes. In short, by simply standardizing the size and shape of shipping containers, and building port infrastructure and ships to move them, massive economies of scale in shipping were realized. As a result, today container ships the size of small cities are routed via sophisticated logistics to huge deepwater ports around the world.

These routes eventually made it profitable for other countries to invest in the large-scale port infrastructure that could handle modern container ships. This laid the groundwork for the eventual growth of massive container terminals throughout Asia, which now serve as the hubs of the modern global supply chain.

At the same time that these new technologies were reducing the physical costs of doing business around the world, the U.S. and Europe were also creating institutions to define new international rules for trade and finance. Perhaps the most important one was the post-war General Agreement on Trade and Tariffs, which eventually became the World Trade Organization, creating the first rules-based multilateral trade regime. A large body of research shows that these agreements have increased trade and, more importantly, raised incomes around the world.

Overall, these advancements contributed to the subsequent enrichment of hundreds of millions of workers in Asia, Latin America and Africa by helping to integrate them into the global economy.

And when the world gets richer, the U.S. also benefits for many of the same reasons noted above: demand for U.S. products increases as incomes rise around the world, as does the variety of products the U.S. can import, and the prices of these goods typically fall.

A cartoon Trump blimp flies as a protesters speak out against Trump’s visit to London.
AP Photo/Matt Dunham

Taking the long view

But it appears that President Trump sees the U.S. on the losing end of a failed relationship.

It is unsurprising that tensions with Europe have come to the forefront over perceived imbalances in trade, particularly for a president who is not afraid to take long-time allies to task.

This is because U.S. trade policy has arguably been overly optimistic in recent years, particularly with respect to China, whose accession to the WTO proved to be much more disruptive to labor markets around the world than was predicted. Previous U.S. administrations preferred patience over confrontation, leading to a perhaps inevitable backlash that has spilled into other relationships, such as the one with Europe.

However, the U.S. relationship with Europe is clearly different, primarily because it is longstanding and has been largely one of equals. But also because their shared values mean that there are many non-economic issues — such as the spread of liberal democracy and the promotion of human rights — that get advanced by the close economic ties.

It’s important to not underestimate what is at stake if the U.S.-Europe alliance is allowed to falter. Americans are likely in the midst of the most peaceful era in world history, and global economic integration, led from the beginning by the U.S. and Europe, has been a key contributing factor. Global extreme poverty is also at its lowest point ever, again in large part due to globalization.

The ConversationThese are the byproducts and legacies of seven decades of expanding international trade and should not be taken for granted.

Greg Wright, Assistant Professor of Economics, University of California, Merced

This article was originally published on The Conversation. Read the original article.

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Trump Administration Wants California To Pay Back Billions For Bullet Train

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SACRAMENTO, Calif. (AP) — The Trump administration plans to cancel $929 million in U.S. money for California’s beleaguered high-speed rail project and wants the state to return an additional $2.5 billion it’s already spent.

The U.S. Department of Transportation announcement Tuesday came after threats from President Donald Trump to make California pay back the money awarded to build the train between Los Angeles and San Francisco.

The project has faced cost overruns and years of delays.

The Trump administration argues California hasn’t provided required matching dollars and can’t complete work by a 2022 deadline.

Gov. Gavin Newsom’s office and California rail officials didn’t immediately comment.

Last week, Newsom said the rail project “as currently planned, would cost too much and take too long.” He wants to refocus on building a line in central California.

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Supreme Court Justice Clarence Thomas Calls For Reconsideration of SCOTUS Verdict In New York Times v. Sullivan

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WASHINGTON (Reuters) – U.S. Supreme Court Justice Clarence Thomas on Tuesday urged the court to reconsider its landmark precedent that made it harder for public figures to sue for defamation even as he joined in a decision to end a defamation suit against comedian Bill Cosby.

The 1964 high court ruling in the libel case known as New York Times v. Sullivan has served as a powerful protection for media reporting on public figures. But Thomas, one of the high court’s most conservative justices, said it is not rooted in the U.S. Constitution.

That ruling and the court’s later ones extending it “were policy-driven decisions masquerading as constitutional law,” Thomas wrote, expressing views that appear to be aligned with those expressed previously by President Donald Trump.

Thomas made the comments in a concurring opinion agreeing with his fellow justices in refusing to consider reviving a defamation lawsuit against Cosby by Kathrine McKee, an actress and former Las Vegas showgirl who said he falsely called her a liar after she accused him of raping her in 1974.

McKee was represented in the case by attorney Charles Harder, who represented Trump in a defamation suit brought against the president by adult film actress Stormy Daniels. Daniels has said she had a sexual encounter with Trump in 2006, which he denies. McKee had appealed a court ruling in Massachusetts that threw out her lawsuit.

In January 2018, Trump called current defamation laws “a sham and a disgrace” following the publication of a book about the White House by author Michael Wolff called “Fire and Fury: Inside the Trump White House,” which among other things questioned the president’s mental health.

The high court’s unanimous 1964 ruling held that in order to win a libel suit, the plaintiff must demonstrate that the offending statement was made with “actual malice,” meaning knowledge that it was false or reckless disregard as to whether it was false.

The case involved a lawsuit against the New York Times, a newspaper that Trump often criticizes for its coverage of him.

Thomas wrote that “we should carefully examine the original meaning of the First and Fourteenth Amendments,” referring to the constitutional provisions protecting freedom of speech, freedom of the press and the application of those rights to the states.

“If the Constitution does not require public figures to satisfy an actual-malice standard in state-law defamation suits, then neither should we,” Thomas wrote.

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Leaving Neverland: First Trailer For Devastating New Michael Jackson Documentary Released

HBO/Channel 4 production features the testimonies of two men who allege that the singer sexually abused them as children

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Powered by Guardian.co.ukThis article titled “Leaving Neverland: first trailer for ‘devastating’ Michael Jackson documentary” was written by Benjamin Lee, for theguardian.com on Tuesday 19th February 2019 19.32 UTC

It’s a documentary Michael Jackson’s estate doesn’t want you to see. But despite legal threats, HBO and Channel 4 will air Leaving Neverland next month.

A new trailer offers a first look at the troubling two-part, four-hour film that premiered at Sundance film festival last month, featuring the testimonies of James Safechuck and Wade Robson, who allege that Jackson sexually abused them as children.

“He told me if they ever found out what we were doing, he and I would go to jail,” says Robson in the trailer.

The film shocked critics and audiences when it was shown at Sundance. Variety’s Owen Gleiberman called it “devastating” and the Hollywood Reporter’s Daniel Fienberg praised it as “complicated and heartbreaking”.

“This is not a movie about Michael Jackson,” said director Dan Reed to Variety. “This is not a movie about Michael Jackson abusing little boys. It’s a movie about two families and how two families came to terms with what their sons revealed to them many years after Jackson died.”

Jackson’s estate has already criticised the film in a 10-page letter addressed to HBO’s CEO. It denied the allegations and condemned director Dan Reed for not speaking to anyone in Jackson’s family or legal team. Since the film premiered, some Jackson fans have attacked the director and the two accusers.

“There is also this league of fans who are almost like a cult, and they say very nasty things [about the film] on social media,” Reed said to Vice. “And their words echo the two-decade long rhetoric of the Jackson family and legal team, which is shaming the victims. It happens often in these cases. It’s what they do very aggressively and relentlessly, and I don’t think you can get away with that in 2019 like you could in the past.”

Earlier this month, a Chicago pre-run of an upcoming Broadway show based around Jackson’s music was cancelled because of the Actors’ Equity Association strike reportedly causing delays. Equity has rejected that its “modest” demand was to blame for the cancellation.

“The developmental lab that was scheduled for this production was delayed by 12 working days during the strike,” a spokesman said. “It is difficult to understand how a modest delay in February would impact a run that was scheduled for late October.”

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