Trump Putting 'Free' Back in Free Trade
Pres. Donald J. Trump announced a breakthrough deal with the European Union regarding U.S. trade relations with the E.U. member-countries. He stated, "We had a big day, very big," standing in the White House Rose Garden alongside Jean-Claude Juncker, the European Commission president. Although our president's fondness for the word "big" may bring a smile to our faces, we may happily mock ourselves with the thought that this event is not only "big," but "hugely" important for our economy.
The goals of any "deal" are crucial in understanding the direction of thinking of the parties. Here, new goals were announced – namely, they struck a deal to work toward zero tariffs, barriers, and subsidies. In short, they agreed to work toward a real free trade arrangement between the U.S. and E.U. markets. "Real free trade" may be distinguished from the bogus free trade we now have where complex econometric models are in place to make rules that are "fair" based on modeling of David Ricardo's comparative advantage theories, taking into account price and cost factors in the E.U., the USA, and the world's economies. President Trump has honestly and fairly stated in public meetings that the present formulation and goals of trade between the E.U. and the USA diminish the USA economically.
Although duties now charged are not intended to be protective tariffs as in the past, but instead are conceived as "fair tariffs" that allow both markets to exchange goods in a way that is most profitable and cost-effective, in fact, they produce imbalances that cause our economy to suffer. The complex rules governing both sides are to prevent trade wars, retaliation, and negative activities like flooding markets to gain a temporary advantage, and then, when the competition is flooded out, jack up the prices and screw the consumers in that market. But these rules, according to Trump, are spun in a way such that U.S. industry suffers.
This newly emerging deal will revise rules of economic engagement and re-evaluate what will be allowed and what will be disallowed. Now, when Americans see or hear the words "free trade," our proper reaction should be a thrill for a true competition among sellers for consumer dollars instead of controlled markets that are supposedly "more competitive" because of the rules that have been imposed. In short, the nod is given to de-regulation.
In other words, the present system already claims to be free, as it claims to be operating under rules of engagement that make trade free. However, the new stated goals are actually more free than the present freedom. To this writer, this is refreshing news, like a nice breeze off the lake on a hot summer day. Or it might be likened to people who reach their majority. They were free citizens of a free society even before their 18th or 21st birthdays, but their sense of freedom suddenly seems more free once they reach those special dates. Putting the matter philosophically, greater freedom and diminution of trade and production and consumption tariffs, barriers, and subsidies will lead ultimately to the greatest good for the greatest number. The new objectives stated on July 25 in the Rose Garden suggest utilitarianism on steroids. True utilitarianism must be driven not only by a desire for equality or parity, but by a drive for freedom both politically and economically.
In addition to the revising and limiting of tariffs, subsidies, and barriers, our president and President Juncker announced that the E.U. would be purchasing more liquefied natural gas (LNG) from the U.S. The opposition to Trump by the hysterical Democratic Party leadership has been castigating him unfairly for being too soft on the Russians. Although his choice of words may have been unwise during his final public appearance with Vladimir Putin, certainly this reference to building new markets in Europe for our LNG is a slap at Putin and Trump's way of stating that we are not going to sit by idly while Russia takes over an increasingly large share of Europe's energy needs, thus creating considerable dependency on Russia. Was that not the point of Trump's slap at Angela Merkel regarding her opening of another pipeline deal with Russia to ship natural gas to Germany? How can one talk about defense against Russia and at the same time enrich Russia by purchasing her energy resources? And now, only a short time later, he is taking the initiative to counter Putin on the same economic front where he criticized Merkel.
The defense of Europe is not only a military matter. For what good is military defense if economic dependence or wrongheaded immigration policy makes a country or a continent vulnerable to being bullied and engulfed by enemy ideologies and hostile political figures? Trump made it clear in his remarks last year in Poland that we are banding together to protect Western civilization. Yes. Western civilization and the American nation-state (our sovereignty) must be protected from the threats both of globalism and of driven, power-mad individuals, from alien ideologies, from fifth column saboteurs of the Deep State, and from aberrant thinking both domestic and foreign. Aberrant thinking would be calling anyone who agrees with the president about any policies a "fascist" or a "racist." The president, while not averse to calling names back, is a man of action and knows, unlike his critics, that decisive actions take precedence over name-calling. His recent rebuff of our NATO allies followed by this July 25 announcement following his constructive and winning dialogue with Juncker reinforces our belief that Trump knows what he is doing.
There is considerable controversy about whether the U.S. exporting of LNG can ultimately make a dent in the European market, where 30% of the natural gas is supplied by Russia. At the same time, we also know that 40% of Russian revenues depend on the Russians' oil and gas markets. To the extent that there is a power struggle between Russia and the USA, it is clear to this writer that any dent in Russian revenues would redound to our advantage on the world stage.
However, Bart Oosterveld, director of the global business and economics program at the Atlantic Council think-tank in Washington, D.C., was skeptical about the significance of U.S. LNG sales. He said: "What I think we saw is the resumption of some basic dialogue. [But] individual items like soybeans and LNG are not massively significant." It has also been pointed out that the Europeans prefer renewable energy sources, which will make it difficult for the U.S. to grow its LNG markets in Europe. However, an executive of Statoil, the Norwegian oil and gas company, has stated that "[i]ncreasingly, European countries are seeing that they do need gas-fired power generation to balance out renewables."
Additionally, another expert, Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former energy official in the Obama administration, stated, "The arrival of U.S. gas is making Russia nervous. And they should be nervous." In his view, as in mine, increased sales of LNG are a significant development as America seeks to reassert economic and political leadership in Europe as well as elsewhere.
Trump's announcement in the Rose Garden should be a source of satisfaction to every American citizen who desires to see our economy grow and thrive.
Mr. Ludwig during the 1990s served for five years as editor of the International Trade Alert, a weekly newsletter to the import-export sector, as well as to bankers, retailers, transportation companies, and legislators about trade policy, legislation, regulations, and the multilateral agreements impacting trade.