US must defend robust free trade
The mood music from Washington suggests a damaging flirtation with protectionism
In 2011, the European Union began a new trade deal with South Korea. Some in Germany were particularly worried. Both Germany and South Korea are leading manufacturers of cars, and German car makers were concerned that more open markets would hit their sales. In the end, the opposite happened. When the European Union looked at five years of the trade deal last year, it concluded that EU exports had increased by 55 per cent because of it. Car manufacturers across the EU more than tripled their car sales in South Korea.
Meeting Donald Trump for the first time in Washington last week, Angela Merkel used this specific example to explain why free trade, even if not always popular domestically, increases trade overall. Mr Trump may not have been convinced. Although he has said he is not an isolationist, there are concerns that America’s new president is not the robust defender of free trade that most of his predecessors were.
Mr Trump was particularly exercised about the United States’ trade deficit with Germany (some $53 billion in 2016), but he needn’t be: open trade between the West’s largest economy and Europe’s largest is beneficial for both sides. Mr Trump may have focused on cars, but the US exports millions of dollars more in pharmaceuticals, aircraft parts and telecommunications equipment. One industry does not make or break free trade.
Yet the mood music from the White House is not encouraging. Over the weekend, finance ministers from the 20 largest economies met in Germany. For the first time in many years, the closing statement did not include a robust defence of free trade, at the insistence of the United States. This has severely rattled the G20. Steven Mnuchin, the US treasury secretary, spoke of wanting to “re-examine certain agreements”.
All of this is concerning. Trade is not a zero-sum game. Nearly half of all the economic activity in the world takes place across borders. For the US, still the biggest economy, to flirt with protectionism sends a worrying signal. Free trade is what made America rich. More open trade would make it richer still.