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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 May Pardon Military Men Accused Or Convicted Of War Crimes

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WASHINGTON (Reuters) – U.S. President Donald Trump has asked for files to be prepared on pardoning several U.S. military members accused of or convicted of war crimes, including one slated to stand trial on charges of shooting unarmed civilians while in Iraq, the New York Times reported on Saturday.


Trump requested the immediate preparation of paperwork needed, indicating he is considering pardons for the men around Memorial Day on May 27, the report said, citing two unnamed U.S. officials. Assembling pardon files normally takes months, but the Justice Department has pressed for the work to be completed before that holiday weekend, one of the officials said.

One request is for Special Operations Chief Edward Gallagher of the Navy SEALs, scheduled to stand trial in coming weeks on charges of shooting unarmed civilians and killing an enemy captive with a knife while deployed in Iraq.

Also believed to be included is the case of Major Mathew Golsteyn, an Army Green Beret accused of killing an unarmed Afghan in 2010, the Times said.

Reuters could not immediately identify a way to contact Gallagher and Golsteyn.

The newspaper reported that the cases of other men are believed to be included in the paperwork, without naming them.

The Department of Justice declined to comment on the report, while the White House did not immediately respond to a request for comment.

Legal experts cited in the report said that pardoning several accused and convicted war criminals, including some who have not yet gone to trial, has not been done in recent history, and some worried such pardons could erode the legitimacy of military law.

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Migrant Crisis

Trump Administration Considers Flying Migrants Across Country to Relieve Border Crowding

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Migrants wait in El Paso, Texas, to board a van to take them to a processing center on May 16. PHOTO: PAUL RATJE/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Trump administration may begin flying asylum-seeking families at the southern U.S. border across the country to have their initial claims processed, a Customs and Border Protection official said Friday.


For months, immigration authorities have been shuttling newly arrested migrants—mostly families and children from Guatemala, Honduras and El Salvador—between border stations as facilities have become overwhelmed. Migrants have routinely been bussed hundreds of miles from the border in Southern California or El Paso, Texas, to as far away as Tucson, Ariz., before authorities process and then release them to aid groups.

Now, plans are being laid for the air transportation of parents and children out of overcrowded stations to other locations in the U.S., including northern and coastal states with Border Patrol offices that have capacity, if the flow of families doesn’t diminish, the CBP official said.

“This is an emergency. The entire system is overwhelmed,” the official said. “We are just trying to safely get them out of our facilities as quickly as possible.”

Border Patrol officials have flown nearly 1,000 migrants from overcrowded processing centers and stations in the Rio Grande Valley to nearby Del Rio, Texas, and San Diego since last Friday, another U.S. official said Friday.

The private, contracted flights have cost between $21,000 and $65,000 each and can carry a maximum of 135 people, that official said.

Mark Bogen, the mayor of Broward County in South Florida said Friday that he was told by local law-enforcement to expect as many as 135 migrants to be flown to the area and released by the Border Patrol after their asylum claims are processed.

Mr. Bogen said Broward County doesn’t have the resources to manage such an influx and that its shelters are already crowded with homeless local residents.

“We don’t know if these are seniors or kids,” he said of the potential migrant arrivals. “We were provided one thing: the number 135.”

The CBP official said no migrants were currently being flown to Florida. “We are in preliminary planning stages,” the official said.

The Trump administration contends that the record number of adults with children presenting themselves for asylum has brought the border infrastructure to a breaking point. CBP said on Friday that the agency had averaged 4,500 apprehensions per day over the preceding week. Some 248,000 migrants travelling as families illegally entered the U.S. between October, the start of the federal fiscal year, and April—more than in any prior full year.

Democrats, who control the House of Representatives, have blamed President Trump for exacerbating the flood of families to the southern border by cutting aid to Central America and threatening to close the border altogether.

The White House is seeking $4.5 billion in emergency border funding from Congress along with changes to asylum laws that the Trump administration says would make it easier to detain families longer, process applications more quickly, and deter more people from making the journey to the U.S.

Democratic lawmakers have refused to fund asylum policies they consider inhumane, but indicated late Thursday that they would consider funding some of the administration’s requests, making a counteroffer that excludes funding for detention beds, a Congressional aide said.

(Reporting by Wall Street Journal)

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Trump Administration Rejects Subpoena For Tax Returns

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WASHINGTON (AP) — The Trump administration is missing another deadline to produce President Donald Trump’s tax returns. A top House Democrat says he expects to take the administration to court as early as next week over the matter.


Treasury Secretary Steven Mnuchin (mih-NOO’-shin) says in a letter Friday that he will not comply with the subpoena from the House Ways and Means Committee for six years of Trump’s tax returns because the request “lacks a legitimate legislative purpose.”

Mnuchin’s rejection of the subpoena had been expected. Earlier Friday, Ways and Means Committee Chairman Richard Neal had said, “We will likely proceed to court as quickly as next week.”

Democrats are seeking Trump’s tax returns under a 1924 law that directs the IRS to furnish such information to the chairs of Congress’ tax-writing committees.

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