EU-US trade relations: War and Peace

Uszta, Dániel (2020) EU-US trade relations: War and Peace. BA/BSc thesis, BCE, International Study Programs. Szabadon elérhető változat / Unrestricted version:

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It can be stated with perfect utility and without any demagoguery, if perhaps a bit tongue in cheek, that trade saves lives. A 2015 study by Nei and Jackson, cited over 77 times, establishes trade as the strongest factor behind the phenomenon of a 90% decrease in incidence of interstate wars between 1950-2000. There are numerous studies, which for the sake of brevity will not be listed here, supporting Nei and Jackson’s conclusion. It is for this reason, that the events of the most recent two decades, the slowdown of the multilateral system, the advance of regionalism, and the most recent trade conflicts perpetrated by the US, are crucial trends to understand for any would be economist, or indeed citizen of the 21st century, and it is the reason for this paper. Such trends are too broad to be analyzed with satisfactory results unless narrowed down, to be maneuverable, leading to a specific area having been chosen for this essay: The trade relations between the EU-US, the largest economies of the present day. The concrete question to be answered in this paper was: “What will be the future of the EU-US trade relations, and what will be the effects on their economies?” Beyond the above cited example an overwhelming proportion of literature surveyed for this essay detail the positive effects of increased trade upon its beneficiaries. All forms of trade agreements resulting in freer trade increase welfare for the citizens of participating countries. Conversely, the majority of literature consulted and displayed within the theoretical chapters of this paper find that protectionist measure has negative economic effects. The modern trading “order” is built upon a foundation laid by decades of multilateral policy cooperation, started by the post WW2 GATT (1947), eventually taking the form of the institution of the WTO in 1994. The forward momentum of multilateralism slowed first at the Doha round, started in 2001, the first round to end without a successful trade agreement between WTO members. A twofold increase in regional trade agreements (RTAs), an alternative to multilateral trade agreements, can be observed from the point of stalling in the Doha negotiations. As of the present day the WTO is in crisis, with an increasing number of RTAs, a stalling of the WTO appellate body due to political decisions by the Trump administration, and the rise in an old enemy of multilateral trade: trade wars. 2018-2020 marked the first time since WW2 that two major economic powers, namely the US and China, has engaged with an all-out trade war. More consequently for this paper, the US has levied tariffs against the EU, albeit to a lesser extent than with its Chinese partner. The theoretical chapters of this paper detail the characteristics of trade wars, the arguments raised by its supporters and opponents. The literature surveyed finds that trade wars result in welfare losses for the involved parties, while there is also some evidence of job creation as a result of protectionist policies, which is outweighed by the aforementioned welfare loss effects. In order to answer the research question, a literature review of relevant sources of academic textbooks, theoretical and empirical studies as well as government sources were consulted. Two scenarios were constructed, one called Cooperation and one titled Competition. The Cooperation scenario analyses a state of increased trade barrier reduction through an FTA between the US and EU, using TTIP as a case study. The Competition scenario uses the most recent and significant trade war as a case study: The US-China trade war. The reasons behind the choice of this trade conflict are twofold: 1. It shows the Trump administration approach to managed trade 2. It is the most recent, post WTO example. This case study is then used to analyze the likelihood and effects of the Competition scenario. During the analysis of the research question key insights were found, the biggest of which lies in the difference between the motivations of the US-China trade war and that of the EU-US confrontation. The US-China trade war was motivated by the US trade deficit with China, concern by the US over China using unfair trade practices in acquiring technology, and political concerns over the rise of Chinese influence. It is easily apparent, that the EU-US conflict shares only one of the motivational factors behind the US-China trade war: a trade deficit for the US. This key difference changes the way, and overall likelihood, in which a trade conflict between the EU-US is to be waged. The aim of the US administration to rebalance trade was also found to be futile during the analytical parts of the essay, as protectionist measures are likely to result in welfare reductions, despite a “better” trade balance. The Cooperation scenario was deemed to be extremely favorable economically, if complicated politically at present. Both scenarios were found to have likely major spillover effects for third parties, with either trade creation or trade diversion as a result of increasing cooperation, or confrontation. In conclusion, the trade relations between the EU and US were found to be extremely complicated, with either an increasing conflict or confrontation being equally possible under the Trump administration, both with staggering effects for the EU-Us , and states outside of the duo. The coming 2020 US election and the fallout from Covid-19, might provide a change to the current status quo, with a different administration preferring a different approach and Covid increasing the need for economic cooperation in a time of economic contraction.

Item Type:BA/BSc thesis
Subjects:Commerce and tourism
International economics
ID Code:13997
Specialisation:Economist in International Business
Deposited On:06 Oct 2021 12:41
Last Modified:02 Dec 2021 11:49

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