Historians often offer different interpretations of the events that have shaped our destiny, yet, with respect to World War 2, the bloodiest conflict in history, they seem to concur on two points. First, that those yearning for peace underestimated the National Socialists’ determination to wage a war of conquest until it was far too late to deter them, and, second, that Nazi Germany failed to anticipate that Britain, the United States, and the Soviet Union – each of which it provoked - would eventually combine and exercise overwhelming power to destroy it. These combined errors help account both for the breakout of the war and its subsequent murderous intensity. Fortunately, trade wars do not kill people, but the consequences for the living standards of the world’s citizens could turn out to be disastrous. Moreover, as the great tariff conflicts between the United States, Europe and China escalate, similar errors are being repeated today as happened in the run-up to World War 2.
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President Trump’s proclamation that, because of national security concerns, he will apply a 25% tariff on all steel and a 10% tariff on all aluminium imports into the United States – except provisionally and dependent on NAFTA negotiations those from Canada and Mexico – affects, respectively 5.1 billion Euros and 1.1 billion Euros of EU exports. These are not trivial sums. However, the invocation of the national security exception in this case has implications that go far beyond narrow sectoral effects: it represents a challenge to the world trading system as we know it, and is, in fact, the challenge the President of the United States had promised many times during the election campaign and as a private citizen in decades prior.
The best way I can describe my feelings about trade these days is as an unstable anxiety disorder. Following on November 8 2016, the date of the US election, my anxiety level rose markedly as the Trans-Pacific Partnership (TPP) was buried. Shortly thereafter it touched a maximum when a dangerous idea called the Border Adjustment Tax was gaining traction, and the North-American Free Trade Agreement seemed headed the way of TPP. Then I became a little less prone to panic attacks, as various checks and balances on Presidential action seemed to kick in. Executive Orders now command the preparation of studies of why trade agreements are not working instead of commanding immediate departure from them. That gives me hope.
During his run for President of the United States, Mr. Trump called the North American Free Trade Agreement (NAFTA), “the worst trade deal ever approved by this country”. His target is Mexico, which runs a $ 50 billion surplus of trade in goods and services with the United States. Trade with Canada, the third NAFTA party, is essentially balanced. However, NAFTA’s provisions cannot be changed without affecting Canada and without Canada’s consent, and the Foreign Ministers of Canada and Mexico have declared that they want the new NAFTA to be negotiated trilaterally, not bilaterally as Mr. Trump prefers
The referendum in favor of the exit of Britain from the European Union (“Brexit”) marks a sad day for Britain and for Europe. It represents a victory of nationalism over the liberal economic order, in the country that inspired the ideas that lie at its foundations. The referendum probably signals the end of an experiment widely supported by the young, the elites and most economists, but which has failed in the eyes of the majority of British people. For Britain, the economic risks are considerable, but they pale in comparison to the possible political fallout, since Brexit may pave the way for the separation of Scotland, which voted 60% in favor of staying in the EU, and could upset the uneasy peace in Northern Ireland, which voted 56% in favor of staying. Also perilous for political stability is the schism within the ruling conservative party. Of note is the repugnant reaction to the outcome of large numbers in the remain camp. Nearly three million have already signed a petition for parliament to call for a second Brexit referendum. Though the referendum is technically not binding, and there are scenarios under which it could conceivably be ignored or reversed, the assumption now has to be that Britain will leave the European Union.
Q: The U.S. Federal Reserve on Dec. 16 raised interest rates, ending what Fed Chairwoman Janet Yellen called an “extraordinary seven-year period” during which policymakers kept the federal funds rate near zero in an effort to support the economy. How will the Fed’s action affect Latin American economies, many of which are struggling with anemic growth and low prices for their commodity exports? How will the interest rate hike affect Latin American countries’ ability to pay off their dollar-denominated debt? Which nations are most at risk, and which countries in the region might see any benefi t from the U.S. interest rate hike?
Trade negotiators rarely get to celebrate a victory. The United States, for example, has been negotiating over 15 bilateral free trade agreements, with none concluded since the Korea-US agreement was finalized at the end of 2010. This makes the recently finalized Trans-Pacific Partnership (TPP)agreement between the United States and 11 other countries all the more remarkable. But the TPP still faces major hurdles, not least a divisive ratification debate in the U.S. Congress, which has already become entangled in presidential electioneering. Meanwhile, as WTO delegates prepare for their biannual ministerial meeting in Nairobi in December, they are unable to agree even on whether they should switch off the respirator on the Doha Development Agenda, a multilateral trade round that was initiated back in December 2001, which has been floundering over at least the last seven years.
Greek Prime Minister Alexis Tsipras has already completed two notable labors. First, he led his radical left-wing Syriza party to an improbable election victory in January 2015. Then, also improbably, he won a resounding no vote in a referendum on July 5 on accepting the terms of Greece’s international creditors for a new bailout package.