Thursday, August 9, 2018

Why the EU Won't Comply with Trump - Peter Skurkiss

by Peter Skurkiss

Trump has opened a Pandora's box on trade that cannot be closed. The points he has made about the inherent unfairness of the current trade system will not vanish.

Two of the main points of contention between the European Union and President Trump are trade and military spending. Scrap away the rhetoric presented in the mainstream media, most of it reflexively anti-Trump, the fact is that what the president is demanding is nothing but what's fair and reasonable. As regards trade, Europe currently has significantly more barriers to our exports than America does to theirs. As for military spending on NATO, it is universally recognized that the United States carries the bulk of defending Europe. 
At first blush, recent news indicates that Europe is moving in the right direction under U.S. pressure. At the recent NATO conference, countries in the alliance committed to up their defense spending -- somewhat. And the tentative agreement between Trump and European Union President Jean-Claude Juncker for the EU to move to free trade and to buy more U.S. LNG is also a good start. Juncker also said Europe will work with America on curbing China's theft of technology and intellectual property.
But let's be realistic. Words and promises are one thing, deeds are another. Countries in Europe have long promised to increase their military spending but few have and some have actually decreased their defense spending. As for LNG, what's the big concession? Energy-poor Europe needs it, and the U.S. has it. Same with addressing China's aggressive mercantilism; Europe suffers from it as does America.
On trade in general, Europe will find it hard, if not politically impossible, to open up. There are several reasons why aside from the natural tendency for people to want to keep whatever advantages they have had for a long time.
Europe's Structure
As wealthy as Europe may be, its budgets are stretch tight to support the welfare state it has created for itself since the end of WWII. Already, the Mediterranean countries of the EU are drowning in debt. The percent of debt to the GDP for Italy, Greece, Portugal, and Spain are 132, 180, 130, and 99 percent, respectively. And since these countries are yoked to the Euro, there's no way out for them.
These southern countries want Germany, the powerhouse of Europe, to bail them out. And although Germany is wealthy and actually runs a budget surplus, this won't happen. Germany is facing a demographic nightmare. It has one of the oldest populations on the Continent with a meager fertility rate of just 1.5 births per woman. 
Demography is destiny, so it's only a matter of time before this affects German growth. The Germans know this and that they'll soon enough have trouble supporting their welfare state. This is why, aside throwing some crumbs to the Mediterranean countries, Germany will remain tightfisted. And financial prospects for Germany does not factor in the million or so uneducated and unskilled immigrants from Africa and the Middle East that are now domiciled in Deutschland. These new arrivals are people who seemingly can't or won't assimilate into a Western society. The delusional thinking of Frau Merkel and the German establishment is that Mohammad will step right in, replace Hans on the assembly line when Hans retires, and things will go on as normal. Good luck with that. 
The demographic problem of an aging population also affects trade. Even now, before the full effect of the demographic collapse hits, exports account for 46 percent of the German GPD. This means Germany cannot consume what it produces. It must therefore export to maintain viability. And as the German and the European populations diminish further, this factor will only grow more pronounced.
The U.S. is a main market for German exports. In 2017, America ran a $63.3 billion trade deficit in goods with Germany and the trend is continuing into 2018.  According to the U.S. Census Bureau, the goods trade with the European Union was $146.7 billion in 2016. Such trade surpluses, which help underpin Europe's prosperity, are possible only with Europe maintaining its unfair trade barriers to U.S. exports.
Inability to Compete
Although not openly admitted, Europe knows in its heart that it cannot compete with the United States on a level playing field. A trading system devoid of tariffs and other trade barriers would hurt the economies of Europe. The political and cultural attitudes of Europe are highly adverse to risk taking and the entrepreneurship needed to create innovations. One Chinese official looking at the world situation summed it up as America being a robust adult, China as a growing teenager, and Europe as a feeble old rich man. Sounds right to me.
The Europeans might give the appearance of moving to fair trade under U.S. pressure, but that's a smoke screen. In the end, they know that their societies, as presently structured, cannot afford it. 
The socialistic mindset affects Europe deeply. Socialist countries cannot compete with capitalist ones. But more than that, it also influences how Europe looks at America.  Europe sees the U.S. as tremendously rich in natural resources, wealthy, and powerful relative to them. Given how Europeans arrange their own societies, it is only natural that they feel it is America's duty to subsidize them in terms of trade and providing for their defense. 
Sadly, most of the American foreign affairs establishment seems to agree with this sentiment -- a major reason why Donald Trump and his deplorable supporters are seen as an anathema to those 'experts.' And it must be noted, that subsidizing Europe (and China) on trade has not cost any of these elites anything, but it has helped devastate much of middle America.
What's Europe to do?
European strategy is clear. They dare not confront America directly. Instead, they will hunker down and engage in talks with U.S. trade officials, offering small concessions here and there. The real objectives of the talks will not be to work toward a resolution but to delay -- delay hoping for either a blue wave in November or a favorable finding in the Mueller witch-hunt that cuts Trump down to size. Europe's concessions are to appease Trump while he shifts his focus on China. Of course, Europe's fondest wish is for Trump to be repudiated in the 2020 election.
But even should 2020 bring defeat, Trump has opened a Pandora's Box on trade that cannot be closed. The points he has made about the inherent unfairness of the current trade system will not vanish. There will be adjustments in America's favor with or without Donald Trump in the Oval Office. Simply put, there can be no going back to the way things were.
Europe is in a fix. Sooner or later, it will have a stark choice to make: either radically reform its societies or suffer the consequences.

Peter Skurkiss


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