Trade, growth and protectionism. Tips for Europe so as to avoid clashing with Donald Trump

June 21, 2017
Editorial Europe
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On the eve of the European Council for the EU leaders held tomorrow and friday (22–23 June) in Brussels (the full meeting calendar can be seen here), with some remarks by professor Carlo Bastasin (of the LUISS School of European Political Economy)

 

Basta1

 

As the International Monetary Fund’s statistics and forecasts show, the U.S. trade deficit (blue in the shown graph) will continue to exist in the coming years, and indeed it will increase a bit, so the problems and controversy concerning international trade will not disappear, especially for the current American administration led by Mr. Donald Trump.

What is changing, and that will continue to change in the coming years, is rather China’s role in these trade imbalances: in fact, the Beijing trade surplus – pink in the chart – will tend to decrease; the European trade surplus will remain practically the same.

Are the United States and Europe destined for diplomatic clashes when it comes to trade?

 

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Trade has, and will likely continue to have, in the short term, a strong impact on the constituent’s behavior in the United States. The map to the left shows that international trade – in the interval between 1994 and 2014 – has generated a stronger crowding out in the Midwest and South of the North American country. In fact, in these areas of the United States, the percentage of “TAA (Trade Adjustment Assistance) certified workers” is higher. These are those workers or former employees who have been the recipient of a support program – where they could get trained, update their skills or assisted in looking for a new job – designed by the Federal Government to help the sectors most exposed to international trade competition.

From the histogram to the right it is also apparent that during the race to the White House, the local communities that were most affected by the crowding out of trade disproportionately voted for the Republican candidate, ie. Donald Trump.

 

 

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Economic and political problems related to trade imbalances are directly relevanto to the situation in Italy. In fact, on the one hand, the European Union (in general terms) is the geographical area from which the largest volume of exports originates, for a value of about 2.500 billion Euros a year, and where the trade surplus is greater. On the other hand, our country – ranking behind Germany and Ireland – is responsibile for the most of Eurozone’s trade surplus with the United States. Could Italy, then, be targeted by the ever controversial Donald Trump?

 

 

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Not only Eurozone’s surplus is an issue primarily for Germany and Italy, but in both countries the surplus in the current account in the balance of payments means that Germans and Italians tend to save more than they wish to invest. In Germany, in particular, there is a surge of precautionary savings, caused by the fear of shocks and crises that might materialize from one moment to the next.

The fear of the disintegration of the Euro and the European Union is uppermost in the Germans’ minds, for example. In order to avoid, therefore, an excessive and potential trade warfare, both the U.S. and the European Union have a common interest in working towards a stabilization of the Old Continent and its integration process.

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