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INTERECONOMICS – REVIEW OF EUROPEAN ECONOMIC POLICY
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Economic Convergence or Divergence in the EU?
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Featured Topic
The European Response to a Challenging World Trade Regime
It only takes a quick glance at today’s headlines to see that the global trade regime is changing. Due in large part to the “America First” policy of the current US administration, the last 18 months have borne witness to what some fear may erupt into a full-blown global trade war between the US and much of the rest of the world. The US has recently introduced tariffs on over 200 billion USD in Chinese goods, slapped tariffs on aluminum and steel exports from the EU and is tearing up the North American Free Trade Agreement (NAFTA) citing security concerns. These actions and the response to them have sent waves around the globe.
In this issue’s Forum, Gabriel Felbermayr looks at US President Donald Trump’s break with conventional trade regime protocol and how it might succeed and fail. Maria Demertzis and Gustav Fredriksson consider Europe’s most effective response to Trump’s new tariffs on the EU by using game modelling to find the optimal results. Trump has also threatened to leave the World Trade Organization (WTO), which would undermine the rules-based multilateral system that the EU so strongly supports. The US complaints are not without merit, however, and both Simon J. Evenett and Bernard Hoekman look at the shortcomings of the WTO and how to address them. Jacques Pelkmans tackles a reoccurring complaint among WTO members: China. The Chinese government has been skirting WTO rules using massive interventionism and a lack of reciprocity in trade. These are two of the numerous tactics China uses in what Pelkmans refers to as the 'socialist market economy with Chinese characteristics'.
The EU is in a position to take a leading role in reshaping the WTO and preserving the multilateral system. To do so, it must respond to unprovoked aggression swiftly and resolutely. To this extent, the EU has challenged the tariffs within the WTO, applied balancing tariffs in line with the rights provided under WTO rules and implemented safeguards to protect its markets. Additionally, the EU needs to collaborate with WTO members to ensure that the rules are updated to fit the changing world trade regime. Finally, Annette Bongardt and Francisco Torres point out the EU’s firm belief in multilateralism as well as its commitment to social and environmental standards and suggest that it is the EU’s duty to insist upon the preservation of a rules and value-based system. These ideas and more are elaborated and examined in this Forum.
A Closer Look
NAFTA on the Brink
From the campaign trail to the White House, US President Donald Trump has attacked the North American Free Trade Agreement (NAFTA) as the "worst trade deal ever". After threatening to pull out of the deal, he slapped tariffs on Canadian and Mexican steel and alumninum imports, citing national security issues. Tense negotiations ensued until yesterday when a deal was reached between the three countries. In our Letter from America, Geoffrey Gertz looks at the burning questions surrounding the current developments: How will the new NAFTA differ from the previous agreement? Will Trump get the backing of the US Congress? And if not, will he seek to withdraw from NAFTA?
Getting Back on Track with Turkey
The recent crisis in Turkey has seen the Turkish lira plunge 40% and inflation rise to a 15-year high of almost 18%. Despite strained relations with Ankara, neither the EU nor the US wants a weak or unpredictable Turkish ally, writes Daniel S. Hamilton. Instead of letting the situation deteriorate further, the EU should establish a partial Customs Union with Turkey and the US should conisder a Jobs and Growth Initiave in order to strengthen bilateral commercial ties, including a mutual commitment to democratic and transparent domestic laws.
Dealing with Donald Trump
US President Donald Trump has two trade goals: to reduce the country's deficit in goods trade and to contain the rise of China. Gabriel Felbermayr considers Trump's evolving trade policy agenda that many see as rash and erratic. By breaking protocol, Felbermayr writes, the US president has gained substantial bargaining power, because he puts himself in a situation in which he actually has to implement his threats in order to save face on the domestic and global stages. Paradoxically, argues Felbermayr, Trump's betrayal of the WTO protocol may help to move the world out of the current stalemate and bring much needed reform for the challenges in the current era.
From the Next Issue
Forum: The Multiannual Financial Framework of the EU
with articles by Margrit Schratzenstaller-Altzinger, Alan Matthews, Friedrich Heinemann and more
On the Risk of a Sovereign Debt Crisis in Italy
by Oliver Holtemöller, Tobias Knedlik and Axel Lindner
A Simple Post-Crisis EMU Phillips Curve: Implications for Monetary Policy
by Peter Hennecke
Quote of the Month
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from Maria Demertzis and Gustav Fredriksson's Forum article The EU Response to US Trade Tariffs
About Intereconomics – Review of European Economic Policy
Intereconomics is jointly produced by ZBW – Leibniz Information Centre for Economics and the Centre for European Policy Studies (CEPS). The journal appears bimonthly and features papers by economists that deal with economic and social policy issues and trends in Europe or affecting Europe. To submit a paper for publication, please visit the Submissions section of our website for relevant information.
Intereconomics is published by Springer-Verlag Berlin Heidelberg.
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