How a Trade War Escalates - WSJ Editorial
The European Union on Wednesday released its target list of retaliatory tariffs on American exports worth $3.5 billion if Mr. Trump pushes ahead with his steel and aluminum tariffs. This is how Mr. Trump’s trade irruptions could imperil American exporters and become a destructive spiral.
The EU is acting with some restraint—for now—in crafting a narrow list of items on which to impose tariffs, including bourbon, orange juice, corn, ladders and motor boats. None are vital to European industry, but they are politically shrewd in targeting exports from states represented by Republicans on Capitol Hill. The point is to punish voters in states Mr. Trump carried in 2016 and Republicans running for re-election this year. Too bad Europe can’t impose a tariff on Wilbur Ross and Peter Navarro, the architects of this fiasco.
The danger for the EU is that this will inspire Mr. Trump to indulge his schoolyard impulses and hit back at the EU again. “The European Union has been particularly tough on the United States. They make it almost impossible for us to do business with them,” Mr. Trump said at a White House presser with Swedish Prime Minister Stefan Löfven. He’s also threatened tariffs on European cars.
Since White House aide Gary Cohn soon won’t be around the White House to explain how unconnected to reality this is, we’ll try. It is not “almost impossible” for American companies to do business in Europe. The bilateral trading relationship between the U.S. and the combined EU states is the largest in the world. In 2016 American companies sold goods worth $270 billion in the EU and services worth $231 billion. America has a bilateral trade deficit in goods with the EU—$147 billion in 2016—but a services surplus of $55 billion.
The flip side of the trade deficit is a substantial flow of investment into the U.S. from Europe. Around half of new direct investment in America (measured as acquisition of an American firm, or creation or expansion of a subsidiary) came from Europe in 2016—nearly $200 billion.
Such investments, made over decades, supported roughly 4.7 million jobs of Americans employed directly by affiliates of European companies as of 2015, according to U.S. Bureau of Economic Analysis data (counting all of Europe, including some countries that aren’t EU members). And that ignores Americans employed by companies that sell to those European affiliates, and those who work for U.S. firms that benefit from European investment in equity markets and so on. This is what economic “winning” looks like.
American leaders at least dating to George Marshall have understood that close economic ties between the U.S. and Europe are necessary to support the trans-Atlantic military alliance. Not coincidentally, the Continent’s most vigorously pro-trade politicians also tend to be its most pro-American. A perverse consequence of Mr. Trump’s trade wrangling is that he’s alienating them.
(snip)
Mr. Trump would better serve American workers and businesses by urging the EU to join him in dusting off stalled free-trade talks. If he persists instead in stoking a trade war with America’s most important strategic and economic partner, he and America will lose—and big.
https://www.wsj.com/articles/how-a-trade-war-escalates-1520467475
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