Free trade benefits Americans and the world. But free trade must be just that, free. It cannot be free on one side and obstructed by shadow protectionism on the other. And that’s what I fear new U.S. trade talks with the European Union would produce.
On Monday, the European Commission (the European Union’s executive body) authorized talks with the U.S. to remove tariffs on industrial goods and promote trade conformity rules. But while the conformity rule negotiations are positive, offering a chance to remove wasted compliance costs in trade and promote new trade opportunities, the EU’s plan is far from perfect.
For a start, the EU has ruled out including the agricultural sector in the talks. That reflects the overriding French interest in ensuring its agricultural sector remains protected from American farmers. And that EU restriction means that beyond soybeans, this deal would mean the U.S. losing out on a key export growth potential. Reflecting its desire to distract the U.S. away from the French-motivated protectionism, the EU on Tuesday published data on the increasing importation of U.S. soybeans. It wants President Trump to think we already have a great deal. But this is deception.
There are other issues here.
For one, while the World Trade Organization last week ruled against the EU in its outsize subsidy provision to the Airbus airline manufacturer, it’s not at all clear whether the EU will end those subsidies.
Then, there are American pharmaceutical exports. While U.S. companies currently sell their drugs to European markets, they also do so under a shadow system of subsidies. That’s because EU governments mandate lower bulk purchase prices from US drug manufacturers than those manufacturers charge domestically. This forces American consumers to pay the the research and development costs of new drugs, allowing Europeans simply to reap the dividends on the cheap. It’s unfair. Trump should clarify that he will not agree to a new trade arrangement with the EU unless it raises its purchasing prices for U.S. drugs. Alternatively, Trump should impose an export price floor on U.S. drug companies.
Free trade is a good thing. But it has to be free. Unless the aforementioned concerns are explicitly addressed in the upcoming talks, Trump should refuse to sign up to the EU’s proposals. Considering European economic struggles, they need a deal more than we do.
