Mises Wire

We Don’t Even Want Your American Goods In Europe — Or Do We?

Phew, the disaster is averted – at least for the time being. After Donald Trump threatened to not extend his tariff exemptions to the EU, the US administration announced last month that another one-month relief will be granted. The EU now has until June 1 to make concessions to the US, or else will face tariffs of 25 percent on steel and ten percent on aluminum.

But, as we already found out , the EU can’t really do anything when it comes to concessions. After all, it’s not Europe’s fault that American products aren’t too popular on the continent. That’s at least what Günther Oettinger, the European Commissioner for Budget and Human Resources (i.e. one of the most powerful people in the EU if the title doesn’t ring a bell), said last month in an interview on German TV.

When asked on the gigantic trade surplus Germany has with the US and why it is not importing more goods from across the pond, Oettinger had the idea to name some products Germans simply love from America: “We import jeans from the US.” The list ended there.

Instead, Oettinger argued that it’s totally natural that more goods are exported than imported from the US, considering German products are much better anyway: “The fact that Porsche, Audi, BMW and Mercedes-Benz, that those premium cars are selling like crazy in the U.S. … has to do with design and motors, with quality. In contrast there is no real reason to bring an American car from the U.S. to Germany.”

It’s relieving that Commissioner Oettinger knows best what the people he supposedly serves want — I for my part would appreciate it if American pick-up trucks would be cheaper, but whatever … What is even more astounding, though, is that the EU seems to think this and still is not ready to make any concessions.

The reason Donald Trump wants to slap European products with tariffs is that the EU has traditionally been having excessively high tariffs on products coming from the US. The German-based Ifo Institute for International Economics actually agrees with Trump’s assessment, showing that the unweighted average EU customs duty is 5.2 percent in comparison to the US’ 3.5 percent.

This is especially true for cars. European cars — that is, those Porsches, Audis and BMWs that “are selling like crazy in the US” – are subject to a 2.5 percent duty when exported to America. A Chevrolet Silverado, a GMC Sierra or a Ram — or a Ford Focus of course (European generally like smaller cars than Americans), meanwhile will be slapped with a ten percent tariff when imported in Europe. “The EU is by no means the paradise for free traders that it likes to think,” says Gabriel Felbermayr, the Director of the Ifo Institute for International Economics.

Thus, what the argument boils down to is that US President Trump rightfully thinks it’s unfair from the EU to have extremely high tariffs on US products, that the EU reacts innocently enraged and argues that Trump wants to start a trade war, and still refuses to lower their own tariffs despite supposedly Europeans not even being interested in American products anyway. Or to put it differently: we Europeans can’t lower tariffs on American cars, they are so bad that Europeans wouldn’t buy them anyway even if they were free. It does make sense, right?

The EU has instead decided to threaten the US as well. If the US doesn’t keep its current tariff regime intact, Europeans will retaliate with substantive tariffs of 25 percent on a long, long list of American products — mostly those produced in Republican states. The list is shockingly long for a place that allegedly has no interest in American goods. (If you haven’t read it, then do so.) The list includes Kentucky bourbon, peanut butter, and tobacco. It includes grills, kitchen sinks, and ladders. And obviously Levi’s jeans (yes, those that Oettinger likes so much) and Harley Davidson motorcycles are also included. It’s not entirely clear what a farmer from Kentucky has to do with Trump’s trade policy — even though he and not Trump would be hurt most by this, but hey, the total value of all the goods being slapped with tariffs would be 2.83 billion euros — enough to make Trump nervous.

Looking at the EU’s side of the argument makes it even more evident how childish this dispute really is. Both sides agree that tariffs are not the solution. Both sides agree that trade should more or less happen freely on both sides of the Atlantic Ocean. But both sides seem to think they are still in kindergarten where you hit back when someone has started a fight. There is no way out — a war is inevitable and will continue until the nurse comes in.

Well, there is no nurse in this. Instead, both sides should finally come to the conclusion that retaliation over retaliation, tough word over tough word, will not help anyone. Instead, both sides should realize that the only “fair trade” is free trade. So let’s make it happen: cut tariffs on both sides instead of raising them. It would be a shame if Americans couldn’t buy BMWs as cheaply in the future – and if I can’t afford to buy myself Kentucky bourbon anymore.

RELATED: "The Case for Unilateral Free Trade" by Louis Rouanet

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