We’ve another example of Donald Trump really not quite getting the right end of the stick over trade. He’s claiming that the European Union was set up to rip off Americans. Nothing could actually be further from the truth – the EU was set up to rip off Europeans. Something it does very well of course which is the very reason not just that we should leave but also that the institution should be thrown into the dustbin of history.
It’s entirely true that many people get this wrong, as The Donald does, but it is still true. All those trade protections protect producers. And they do so at the expense of consumers. Thus the people being ripped off by trade barriers are those huddled within them:
Donald Trump has attacked the European Union, China other nations over trade, threatening to “take on” the bloc and superpower.
Addressing a rally in Michigan, the US president said the EU “sounds so nice” but it was “formed to take advantage of the United States”.
Now it is quite true that the rhetoric here within Europe is that the EU protects us from those beastly Americans. But that’s just the rhetoric, not the reality:
Trump’s new economic threat comes at a time when the 28-nation European bloc is bracing for a potential trade war with Washington. May 1 is the deadline for Washington’s ultimatum to either limit exports to the US or face steep steel and aluminum tariffs.
The people who will lose from those US tariffs are Americans of course. They will have to pay more for anything made of steel and or aluminium. That equally applies to the trade barriers that the EU puts up against imports from around the world. The people made worse off by this are European consumers.
Mr Trump, speaking at a rally in Michigan, pledged to support US farmers and accused Brussels of putting up barriers to trade.
That part’s entirely true, it surely is. But who is it that loses from this? Yup, you and me inside those lovely “protections” the EU so delightfully proffers us. The people who benefit at the producers within the tariff barriers who can all charge us more given that they don’t face that international competition.
Donald Trump tears into EU accusing it of trying to ‘take advantage of the US’ as he hints he will hit the bloc with trade tariffs
As I say, the general rhetoric is that the EU’s trade protections do indeed save us from being steamrollered by those horrible Americans. But what they actually do is rip us Europeans off. We’ve got to pay more for what we buy because we’re not able to buy whatever those things are which the Americans – or other foreigners – make cheaper or better than we do. We’re the people made poorer by EU trade restrictions. Therefore we’re the people being ripped off by the EU, aren’t we?
Thank goodness we’re leaving, eh?
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The EU was formed (well, maybe not at day one, but soon after) to be a rival superpower to the USA and USSR. It was a part of that to ensure competitive industries and retain capability. Why else the me-too dollar, the me-too Boeing, the me-too navsats? The EU bosses do not much care for the consumers in the EU. If they give any trouble they can be replaced.
There is no greater proof of this than the fact that the EU's Competition Commission explicitly codifies that its role is to protect those already in business from new competition.
Whatever else Brexit is, it is a casting off of this religion of stasis.
Largely true. But the producer surplus is important as well as is the consumer surplus. And any nation would be wise to maximize both, if possible.
Of course we all talk about helping producers because one producer supplies many consumers and hence profits more overall from his trade than any individual consumer (even though consumers in aggregate likely benefit more than producers).
So what to do? This is not an economic problem- the economic solution is free trade- it's a political one, how to get your trading partners to lower, or better yet eliminate, trade barriers? The standard approach is to pressure their producers (who have more lobbying power than consumers) to lobby for it.
No, Trump still doesn't understand trade. Impeding Americans' access to the British/European goods we desire, flogging ourselves in some sort of symmetry with the way youse are flogging yourselves, does no good, if threat were to become reality.
However, Trump does know how to work a crowd, such as that one in Washington Township, Michigan. And he realizes that his job is to defend America, and to be the Bad Cop (with Kudlow now installed as the Good Cop), asserting extreme and sometimes seemingly insane demands to extract concessions from terrified foreign governments.