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To Fight Inflation, Liberalize Trade
It’s one of the few things politicians can do to make life cheaper.
There’s not much elected politicians can do about high inflation. They might have inadvertently caused it with massive COVID-19 rescue and recovery programs, which saved businesses and jobs but also put money in the hands of consumers at a time when supply chains were strained. When producers can’t meet demand, prices rise.
Central banks have the strongest tools to fight inflation, but there is something governments can do: cut tariffs and regulatory barriers to trade. More and cheaper imports would reduce costs for consumers.
Europe’s priority should be ratifying trade deals with Chile and Mexico that eliminate almost all remaining tariffs on agricultural and other goods.
Both have been on hold, because — as EU foreign-policy coordinator Josep Borrell put it in an interview with Politico Europe — “of concerns in one member state.”
That would be France. Emmanuel Macron didn’t want to make trade an issue in this year’s elections.
In addition to the agreements with Chile and Mexico, the French president has put the brakes on a pact with Mercosur, the economic bloc of Argentina, Brazil, Paraguay and Uruguay.
The EU and Mercosur concluded two decades of trade negotiations in 2019. EU exporters could save €4 billion in tariffs per year. European companies could bid for South American government contracts. The deal would open up a market of 300 million consumers to European agricultural products while extending European environmental, food-quality and food-safety regulations to four countries that together form the fifth-largest economy in the world.
But French farmers fear competition from South American beef. Macron also argues Mercosur must do more to stop the deforestation of the Amazon.
France is not the only problem. Belgium has singlehandedly held up ratification of a trade deal with six countries in Central America. Its economic components have been in provisional effect for ten years, but the political chapters — for example, on labor rights — are not.
“That is a disaster,” Borrell said after visiting Latin America. “We cannot keep people waiting for ten years.”
Macron is still waiting for the outcome of legislative elections in June. A victory for centrist and center-right parties should allow him to move forward. What’s Belgium’s excuse?
Repeal Trump’s tariffs
There is no calculation of how much the trade deals would save Europeans in living costs, which rose 7.5 percent in the last year.
Such calculations do exist in the United States. Three economists estimate that repealing Donald Trump’s tariffs alone would reduce inflation from 8.5 to 7.2 percent, saving every American household almost $800 this year.
Relaxing Joe Biden’s “Buy American” policy in procurement could shave another .6 points off inflation.
Biden did ease — not repeal — Trump’s tariffs on European aluminum and steel. The EU removed tariffs on bourbon whisky and Harley-Davidson motorbikes.
Biden has not withdrawn Trump’s tariffs on China, even though they’ve failed in their stated aims. China still steals intellectual property. It still requires foreign companies to partner with Chinese firms and share their technologies. It still limits foreign investment. It seldom allows foreign companies to bid for public contracts. Biden’s trade representative, Katherine Tai, told Congress in March that the tariffs have “not incentivized China to change.” Yet they remain in place.
In Biden’s hands
There are other ways in which Biden could liberalize trade, few of which require congressional approval:
Remove tariffs on Canadian lumber, which have driven down imports and raised home construction costs.
Rejoin the Trans-Pacific Partnership Barack Obama negotiated, but which Trump kept America out of.
Speed up negotiations for a post-Brexit trade deal with the United Kingdom.
Stop fighting Canada and Mexico on their interpretation of country-of-origin rules for tariff-free car exports under the United States-Mexico-Canada Agreement. (Forbes has more.)
Waive the Merchant Marine Act of 1920, better known as the Jones Act, which doubles the cost of moving containers between American ports by mandating that only American-built ships with American crews can serve American coastal trade. This adds between $500 and $1,800 to annual living costs for families in Puerto Rico and Hawaii.
Biden says he wants to do “everything in [his] power to lower prices for families,” but so far he hasn’t done any of the above.