Insight
Trump, trade and the EU: Two wrongs don’t make a right
by John Springford and Christian Odendahl 23 February 2017 The US will not gain by resorting to protectionism. If it does so, the EU should stay calm, listen when US criticism is justified, and make its first priority the defence of the WTO process and the rule of law. Donald Trump has made protectionism a key plank of his programme to “make America great again”. While the policies he will pursue are unclear, the strategy is discernible. He has backed out of the Trans-Pacific Partnership (TPP), which was agreed before he took office, but not ratified; the Transatlantic Trade and Investment Partnership (TTIP) is in the deep freeze for as long as Trump is president; and he promises to renegotiate the North American Free Trade Agreement (NAFTA). Instead of multilateral agreements or large regional trade deals, Trump favours bilateral agreements, and has held preliminary talks with Theresa May about a US-UK deal. He has also threatened to raise import tariffs across the board and he has threatened specific tariffs aimed at particular plants, such as BMW’s factory in Mexico. Trump considers trade to be a competition with winners and losers, suggesting that a trade deficit, like that of the US, is a sign of weakness. As a result, he has suggested that he will target trade policy on those countries that run surpluses with the US, to try to force them towards more balanced trade. In Europe, the country with the largest surplus with the US is Germany, which has been accused by Trump’s team of using the euro to keep its products cheap on world markets. Trump may try to label Germany a ‘currency manipulator’, alongside China. This would allow his administration first to persuade, and then use measures, to force ‘manipulators’ to change course. Yet it is Republicans in Congress, not the White House, who have come up with a plan that could have the biggest impact on US-EU trade. House speaker Paul Ryan and Kevin Brady, the chair of the Ways and Means Committee (which oversees taxation and tariffs) have suggested a ‘border tax adjustment’ (BTA) as part of their corporate tax reform. The idea is simple: companies would no longer be taxed according to where production took place; taxes would instead be levied according to the location of sales, which would discourage multinationals from reporting profits in low-tax countries. Under this ‘destination-
CER INSIGHT: Trump, trade and the EU: Two wrongs don’t make a right 23 February 2017
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