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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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George HW Bush has died

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George Herbert Walker Bush, the linchpin of an American political dynasty whose presidency saw the end of the Cold War and the close of an era of American bipartisanship that conflict fostered, has died. He was 94.

During his single term in the White House, the Berlin Wall fell, newly democratic states sprang up across Central and Eastern Europe, and the Soviet Union came to an end. And in the Middle East, the U.S. military launched its most successful offensive since World War II. For a time, Bush rode foreign policy triumphs to high popularity. But he saw his standing plunge during a 1990s recession and lost to Bill Clinton after one term.

On April 22nd President Bush was admitted to the Houston Methodist Hospital  after contracting an infection that spread to his blood. He was said to have been responding to treatments and appeared to be recovering.

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Court Orders White House to give Jim Acosta his hard pass back

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Federal judge Timothy J. Kelly sided with CNN on Friday, ordering the White House to reinstate chief White House correspondent Jim Acosta’s press pass.

The ruling was an initial victory for CNN in its lawsuit against President Trump and several top aides.

The lawsuit alleges that CNN and Acosta’s First and Fifth Amendment rights are being violated by the suspension of Acosta’s press pass.

Kelly did not rule on the underlying case on Friday. But he granted CNN’s request for a temporary restraining order.

This result means that Acosta will have his access to the White House restored for at least a short period of time. The judge said while explaining his decision that he believes that CNN and Acosta are likely to prevail in the case overall.

CNN is also asking for “permanent relief,” meaning a declaration from the judge that Trump’s revocation of Acosta’s press pass was unconstitutional. This legal conclusion could protect other reporters from retaliation by the administration.

“The revocation of Acosta’s credentials is only the beginning,” CNN’s lawsuit alleged, pointing out that Trump has threatened to strip others’ press passes too.

That is one of the reasons why most of the country’s major news organizations have backed CNN’s lawsuit, turning this into an important test of press freedom.

But the judge will rule on all of that later. Further hearings are likely to take place in the next few weeks, according to CNN’s lawyers.

(CNN)

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CNN sues President Trump for banning reporter Jim Acosta

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CNN is filing a lawsuit against President Trump and several of his aides, seeking the immediate restoration of chief White House correspondent Jim Acosta’s access to the White House.

The lawsuit is a response to the White House’s suspension of Acosta’s press pass, known as a Secret Service “hard pass,” last week. The suit alleges that Acosta and CNN’s First and Fifth Amendment rights are being violated by the ban.

The suit is being filed in U.S. District Court in Washington, D.C. on Tuesday morning, a CNN spokeswoman confirmed.

Both CNN and Acosta are plaintiffs in the lawsuit. There are six defendants: Trump, chief of staff John Kelly, press secretary Sarah Sanders, deputy chief of staff for communications Bill Shine, Secret Service director Joseph Clancy, and the Secret Service officer who took Acosta’s hard pass away last Wednesday. The officer is identified as John Doe in the suit, pending his identification.

The six defendants are all named because of their roles in enforcing and announcing Acosta’s suspension.

Last Wednesday, shortly after Acosta was denied entry to the White House grounds, Sanders defended the unprecedented step by claiming that he had behaved inappropriately at a presidential news conference. CNN and numerous journalism advocacy groups rejected that assertion and said his pass should be reinstated.

On Friday, CNN sent a letter to the White House formally requesting the immediate reinstatement of Acosta’s pass and warning of a possible lawsuit, the network confirmed.

In a statement on Tuesday morning, CNN said it is seeking a preliminary injunction as soon as possible so that Acosta can return to the White House right away, and a ruling from the court preventing the White House from revoking Acosta’s pass in the future.

“CNN filed a lawsuit against the Trump Administration this morning in DC District Court,” the statement read. “It demands the return of the White House credentials of CNN’s Chief White House correspondent, Jim Acosta. The wrongful revocation of these credentials violates CNN and Acosta’s First Amendment rights of freedom of the press, and their Fifth Amendment rights to due process. We have asked this court for an immediate restraining order requiring the pass be returned to Jim, and will seek permanent relief as part of this process.”

CNN also asserted that other news organizations could have been targeted by the Trump administration this way, and could be in the future.

“While the suit is specific to CNN and Acosta, this could have happened to anyone,” the network said. “If left unchallenged, the actions of the White House would create a dangerous chilling effect for any journalist who covers our elected officials.”

Acosta has continued to do part of his job, contacting sources and filing stories, but he has been unable to attend White House events or ask questions in person — a basic part of any White House correspondent’s role.

Acosta is on a previously scheduled vacation this week. He declined to comment on the lawsuit.

On CNN’s side, CNN Worldwide chief counsel David Vigilante is joined by two prominent attorneys, Ted Boutrous and Theodore Olson. Both men are partners at Gibson, Dunn & Crutcher.

Last week, before he was retained by CNN, Boutrous tweeted that the action against Acosta “clearly violates the First Amendment.” He cited the Sherrill case.

“This sort of angry, irrational, false, arbitrary, capricious content-based discrimination regarding a White House press credential against a journalist quite clearly violates the First Amendment,” he wrote.

David McCraw, the top newsroom lawyer at The New York Times, said instances of news organizations suing a president are extremely rare.

Past examples are The New York Times v. U.S., the famous Supreme Court case involving the Pentagon Papers in 1971; and CNN’s 1981 case against the White House and the broadcast networks, when CNN sued to be included in the White House press pool.

The backdrop to this new suit, of course, is Trump’s antipathy for CNN and other news outlets. He regularly derides reporters from CNN and the network as a whole.

Abrams posited on “Reliable Sources” on Sunday that CNN might be reluctant to sue because the president already likes to portray the network as his enemy. Now there will be a legal case titled CNN Inc. versus President Trump.

But, Abrams said, “this is going to happen again,” meaning other reporters may be banned too.

“Whether it’s CNN suing or the next company suing, someone’s going to have to bring a lawsuit,” he said, “and whoever does is going to win unless there’s some sort of reason.”

(CNN)

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