It looks like the EU is not minded to follow the UK’s post-Brexit lead: accept a U.S. revenue tariff, tackle a few regulatory problems, and gesture towards future convergence (endless talks, always on the back foot).
Perhaps because this looks less like a negotiation for Brussels, and more like the beginning of the end. It would repudiate the EU’s economic model, especially the role of regulation in integration and sovereignty.
Which carries the risk of Europe moving further towards autarky, a direction more suited to China’s model. To yield would be to admit that the EU’s harmonised regulatory fortress is a strategic liability in a more transactional world.
Trump’s instincts – though rarely expressed in economic language – are not inconsistent with a truth acknowledged by orthodox trade economists: over recent decades, the world trading system has drifted into a distorted, sub-optimal equilibrium, shaped by regulatory and political asymmetry, integration clubs and rule-based inertia.
Drawing upon recent analyses, including the St. Louis Fed’s examination of global trade shifts and the Federal Reserve’s insights into trade fragmentation, one can speculate on the impact of the observable trends of recent years.
So, while tariffs fell, supply chains over-concentrated. The post-1990s decline in tariffs between different economic structures enabled deep global supply chains. This increased efficiency — but also vulnerability, dependency, and strategic exposure.
In turn, non-tariff barriers (NTBs) rose, especially in the EU. It seemed like a good idea at the time – for some people – but the reduction in market access for outsiders and entrenching of the local status quo was less transparent.
And at the same time, the EU regulated a lot more than everyone else, and in particular the US. In the early 1990s, a fragmented Europe may have been less intrusive than the U.S. in some areas. Today, it is dramatically more regulated, and weaponizing rules as either de facto industrial policy or targeting US corporate models (see the EU’s war on US tech firms).
Don’t overlook the impact of the expansion of the EU from 9 members in the 1980s to today’s 27, which has privileged trade for insiders, whilst diminishing the relative position of external players like the US.
One result has been an erosion, in places amounting to a reversal, of the principle of mutual recognition. The foundation of liberal trade (as recognised in the most favoured nation designation) being displaced by the EU’s regulatory convergence and China’s political oversight of commerce and leading towards trading blocs.
These dynamics justify a profound rethink of the global regime of political economy. While it’s far from clear that Trump’s methods will lead to the desirable end, they violently disrupt a system that has become impervious to incremental reform.
Leading to two ironies looming over this episode:
First, Trump is threatening mutual harm in order to stop Europe from harming itself. The EU, in defending its system, is threatening to double down on policies that are economically self-sabotaging. (The National Lampoon would approve.)
Secondly, one imagines that Trump does understand the incentives. As a businessman, he has long practiced tax and regulatory arbitrage. He will understand that corporate behaviour – which he wants to change – will not shift because of rhetoric, or even by creating uncertainty, but only by changing the underlying incentives.
So let’s assume that none of the actors fully believe their own rhetoric and all of them understand that this will not end as it begins. Underneath the surface is a deeper recalibration of the global trade order towards more explicit trading blocs (which crucially will need to deregulate internally to grow), unless Trump can successfully broker a new deregulatory and political bargain.
This will not be painless. The transition out of a long-standing but sub-optimal equilibrium rarely is. Hence the Daily Telegraph’s prediction:
“ … everything seems likely to get worse – potentially a lot worse – before it gets better.”
So if you are a small – or even medium-sized – trading nation recognise the risks of committing too much of your trade and regulatory policy to a closed system.
And do as much mutual recognition as you can, recognising that the challenge is not the external politics, but the internal politics of special interests and regulatory privilege.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton. This article was sourced HERE
Which carries the risk of Europe moving further towards autarky, a direction more suited to China’s model. To yield would be to admit that the EU’s harmonised regulatory fortress is a strategic liability in a more transactional world.
Trump’s instincts – though rarely expressed in economic language – are not inconsistent with a truth acknowledged by orthodox trade economists: over recent decades, the world trading system has drifted into a distorted, sub-optimal equilibrium, shaped by regulatory and political asymmetry, integration clubs and rule-based inertia.
Drawing upon recent analyses, including the St. Louis Fed’s examination of global trade shifts and the Federal Reserve’s insights into trade fragmentation, one can speculate on the impact of the observable trends of recent years.
So, while tariffs fell, supply chains over-concentrated. The post-1990s decline in tariffs between different economic structures enabled deep global supply chains. This increased efficiency — but also vulnerability, dependency, and strategic exposure.
In turn, non-tariff barriers (NTBs) rose, especially in the EU. It seemed like a good idea at the time – for some people – but the reduction in market access for outsiders and entrenching of the local status quo was less transparent.
And at the same time, the EU regulated a lot more than everyone else, and in particular the US. In the early 1990s, a fragmented Europe may have been less intrusive than the U.S. in some areas. Today, it is dramatically more regulated, and weaponizing rules as either de facto industrial policy or targeting US corporate models (see the EU’s war on US tech firms).
Don’t overlook the impact of the expansion of the EU from 9 members in the 1980s to today’s 27, which has privileged trade for insiders, whilst diminishing the relative position of external players like the US.
One result has been an erosion, in places amounting to a reversal, of the principle of mutual recognition. The foundation of liberal trade (as recognised in the most favoured nation designation) being displaced by the EU’s regulatory convergence and China’s political oversight of commerce and leading towards trading blocs.
These dynamics justify a profound rethink of the global regime of political economy. While it’s far from clear that Trump’s methods will lead to the desirable end, they violently disrupt a system that has become impervious to incremental reform.
Leading to two ironies looming over this episode:
First, Trump is threatening mutual harm in order to stop Europe from harming itself. The EU, in defending its system, is threatening to double down on policies that are economically self-sabotaging. (The National Lampoon would approve.)
Secondly, one imagines that Trump does understand the incentives. As a businessman, he has long practiced tax and regulatory arbitrage. He will understand that corporate behaviour – which he wants to change – will not shift because of rhetoric, or even by creating uncertainty, but only by changing the underlying incentives.
So let’s assume that none of the actors fully believe their own rhetoric and all of them understand that this will not end as it begins. Underneath the surface is a deeper recalibration of the global trade order towards more explicit trading blocs (which crucially will need to deregulate internally to grow), unless Trump can successfully broker a new deregulatory and political bargain.
This will not be painless. The transition out of a long-standing but sub-optimal equilibrium rarely is. Hence the Daily Telegraph’s prediction:
“ … everything seems likely to get worse – potentially a lot worse – before it gets better.”
So if you are a small – or even medium-sized – trading nation recognise the risks of committing too much of your trade and regulatory policy to a closed system.
And do as much mutual recognition as you can, recognising that the challenge is not the external politics, but the internal politics of special interests and regulatory privilege.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton. This article was sourced HERE
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