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Tariffs, Barriers and Subsidies

Stock-Markets / Protectionism Jul 27, 2018 - 03:16 PM GMT

By: Raul_I_Meijer

Stock-Markets

There’s not a shade of a doubt that I’m not an expert on tariffs, trade barriers and subsidies, and I’d be the last to suggest any such thing. But I can read. Still, do correct me if I’m wrong anywhere. The whole field is so complicated -no doubt often on purpose- that there’s always the possibility that there are side issues involved for which one would need to actually be an expert.

But still. Now that EU chief Jean-Claude -‘When it becomes serious, you have to lie’- Juncker is due to arrive at the White House soon, I looked at some of the items involved. Last night Trump said that all tariffs, barriers and subsidies should be dropped between the EU and US. Why the TTiP doesn’t come anywhere close to that is anyone’s guess. Too complicated for the boys and girls?


In at least some major fields, Trump does seem to have a point or two. The US has a 2.5% tariff on European cars, while the EU slaps a 10% tariff on American cars. That’s 4x as much, or a 300% difference. Whoever said yes to that? Sure, the US has a 25% tariff on EU pickups, but nobody in Europe drives pickups, hence they don’t produce them, so that’s not consequential.

So what had Trump done? He’s threatened a 20% tariff on Beemers and Mercs, and added -for entertainment value only- that he doesn’t want to see any of them in on Fifth Avenue anymore. Cue EU carmakers warning about the cost to American customers.

That’s all fine and well, but those tariffs on personal cars are still 300% higher. So push your European government to make them equal. Easy as -American- pie. How about zero? I can see where Trump’s coming from. Issuing warnings to the American public about BMW’s getting more expensive doesn’t look entirely on the up and up.

Also, I was looking at agriculture. Now, I grew up in Europe, and I do have an idea about EU farm subsidies (they’re notorious even inside the EU, going all the way back to the 1950s-60s). There was a point where they were over 70% of the total EU budget. They’re 30% or even somewhat below that now, but that’s not because subsidies have gone down, it’s because the EU budget has grown exponentially.

US farm subsidies were some $23 billion last year, and a year ago the Trump administration proposed a $4.8 billion cut to that. Now that Trump has initiated a one-time $12 billion for farmers to make up for the effects of his tariff proposals, one half of America -Conservatives- cry foul because: “that’s Soviet-style politics”, and no doubt the EU will cry right with them.

But look: under the EU’s Common Agriculture Policy (CAP), EU farm subsidies for the 2021-2027 period will fall a whole 5% to ‘only’ $420 billion. And that’s just a proposal, and already France, the main beneficiary of the subsidies, has declared that such a cut is unacceptable. Soviet style?

The meeting of tee-totaller Trump and wine-totaller Juncker is interesting enough in and of itself, and you bet the Donald knows what and who Juncker is, but unless Jean-Claude comes with something very substantial, the numbers I cited above would seem to be very clear. And that’s without steel, aluminum etc etc.

If your side gives its farmers almost 20 times as much as the other side, what are you going to say? You may ask for some time to adapt, but that would seem to be it. However, Juncker could never sell egalization of subsidies ‘at home’. France and others would shave his head and ass and apply tar and feathers. And Macron would fear the same fate if he gives in. As Merkel would on the car issue.

Juncker has no room to wiggle on the whole shebang. All he can do is damage control and a good glass of wine (wonder if Trump instructed his staff not to give him any, or merely cut him off after the first bottle). It’s just that Trump has noticed the policy damage, and doesn‘t like it. And you have to wonder, who ever accepted those terms, and signed treaties like that TTiP that they are engraved in?

If you ask me, communities and countries should always make sure they remain in control of all their basic necessities. And food is certainly one of them. Also. if any politician near you ever proposes selling the rights to your drinking water to some foreign party, tar and feathers is your reply. Let Americans make their own cars, And German and French theirs. It’s not of the same importance as food, water, shelter and clothing, but you get the drift.

Schlepping food halfway across the planet is a dangerous thing once you become dependent on it to feed your children and your community (schlepping it halfway through Europe is as well). Selling your local water rights is even worse. That’s downright insane.

But if you’re going to trade, and once you’ve excluded basic necessities, zero tariffs or at least equal tariffs seems the way to go. Just wait till Trump starts that discussion with China for real. That conversation is largely about barriers, it’s different from Europe, though -hidden- subsidies feature ‘bigly’ as well.

Still, summarized, though I’m far from a Trumponado, I can see his point(s). I find it much harder to see what earlier US administrations were thinking when they agreed to all this stuff. And sure, his approach is brusque and perhaps brutal, but the country he’s, for better or for worse, president of, does seem to have gotten the short end of an very extensive array of sticks.

But by all means, don’t listen to me, listen to the experts. Then again, also look at the numbers.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2018 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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