Expanding And Liberalizing Trade With Europe: A Must For The Free World

Por Alejandro Chafuen: Publicado el 13/6/2015 en: http://www.forbes.com/sites/alejandrochafuen/2013/06/13/expanding-and-liberalizing-trade-with-europe-a-must-for-the-free-world/


Several articles have been written about the economic benefits of increased trade and investment between Europe and the United States. The economic advantages are relevant. The potential impact on the institutions of the free society is even more important.

When one looks at the indicators of corruption and respect for rule of law, the United States and Western Europe, despite their problems, score much better than the rest of the world. When we look at rates of economic growth the picture is different. During these past 5 years, the U.S. and the EU are growing much slower than other regions of the world.

Countries which score much worse in most governance indicators, such as the BRICS (Brazil, Russia, India, China and South Africa), are growing, on average, at twice the rate of Europe and the U.S. In addition, several Latin American countries with dismal respect for the rule of law are also growing much faster than the U.S. and EU. Those of us trained in economics pay attention to the role of incentives in all areas of life. Politics is no exception. If leaders believe that rule of law leads to less economic growth than rule by interests or privilege, there is a bigger chance that they will choose the latter.
Enhancing economic development in Europe and the United States, where civil societies have not given up their efforts to live under equality before the law, is essential. Increased trade is one of the few drivers of growth which might garner enough support for speedy implementation. Massive deregulation, tax reductions and simplifications can also work wonders. The climate of opinion, and the push of special interests tied to the government, unfortunately, might prevent such libertarian policy changes in the near future.

Two European organizations are actively promoting the Transatlantic Trade and Investment Partnership (TTIP). FAES, the Spanish think tank founded by former Prime Minister José María Aznar, is one of them. The former executive director of FAES, Jaime García Legáz, is the current Deputy Minister for Trade in the Spanish government and is an active supporter of free trade. García Legáz co-authored TAFTA The Case For An Open Transatlantic Free Trade Area. This proposal goes beyond the official TTIP effort and calls for establishing a free trade area between Europe and the United States. At a recent launching of the book Aznar argued that “a free trade agreement would boost the Atlantic basin: it would add dynamism to our economies, boost growth and jobs, strengthen our geostrategic position and renew the foundations of the Atlantic relationship, which is not exhausted, but instead comprises an extraordinary potential for prosperity.” Aznar has always been convinced that there is no opposition between freedom and prosperity. Free trade enables economic growth, the expansion of the middle classes and, as a consequence, it helps sustain the economic safety nets which have become so strained during these years of crisis.

García-Legaz added that “the economies of Europe and the United States account for 50 percent of the global GDP, so that the free trade agreement between the two would be the most far-reaching one that you can sign today.”   According to his calculations “it would generate an annual increase in EU GDP of 0.5 percent and gains of 86 billion euros for the EU as a whole.”  Elimination of all tariffs and non-tariff barriers could lead to a doubling of those benefits, but such radical reform is unrealistic.

The Friedrich Naumann Foundation for Freedom, the non-profit educational think tank of the Free Democratic Party in Germany, has also been active promoting TTIP.  They brought some of their heavy hitters to Washington D.C., to meet with think tanks and policy leaders.  Among them, Anne Ruth Herkes, Deputy Minister at the German Federal Ministry of Economics and Technology and coordinator of TTIP negotiations.   During a meeting with the CEOs of Hudson Institute, Americans for Tax Reform and others, she described the strong links that exist between Germany, the EU and the U.S.— 50% of Germany’s GDP and 1 out of 4 jobs depend on foreign trade and the U.S. is its largest trade partner outside the EU.

Both FNF and FAES have an extensive network of friendly think tanks in the Americas.  FNF has RELIAL, a Latin American think tank network, under its umbrella.  Through training programs, scholarships, and joint efforts, FAES has been a leader in helping mobilize think tanks in the region.  As several countries have free trade agreements with the U.S., including Mexico, Chile, and Colombia, and many others are big trading partners, it is essential to take them into account in this EU-U.S. negotiation.  President Aznar was explicit: “The transatlantic relationship cannot rest on the North Atlantic only,” it “must include Latin America.”  FAES is also a major player within theEuropean Ideas Network, an important regional force, and together with FNF and other German foundations can help attract international support for TTIP.

What role will U.S. think tanks play?  In order to help approve the North American Free Trade Agreement (NAFTA), the Fraser Institute in Canada created a network of think tanks.   Fraser supplied the network with a variety of books, one-pagers and editorials about trade.  The most relevant material was translated into Spanish.   Michael Walker, then director of Fraser, remarked “we sought to promote the agreement in all three countries.”  Only a few free-market think tanks, such as the Competitive Enterprise Institute, opposed NAFTA for not being libertarian enough.  Fraser’s network was strategic and successful.

No such concerted effort by U.S. think tanks in support of TTIP or TAFTA exists today.  “Tea Party” followers tend to be the more skeptical voters when dealing with international free trade.  U.S. think tanks with donor bases that overlap with that of Tea Party groups, like The Heritage Foundation, are waiting for the fine-print before taking a stance on TTIP.  Their challenge is to show that better access to foreign markets is only part of the story.  It is easier for economists than voters to understand that a major benefit of these pacts come from reducing our own barriers to trade rather than increasing exports.

These agreements tend to have more components of “managed” rather than “free” trade, and it is always easy to find weaknesses in them.  Some of the additional challenges for the approval of TTIP include: getting labor unions to talk to each other; helping counter anti-German and anti-U.S. sentiment (poised to be the biggest winners); paying attention to the economic needs of the U.S. South, which is gaining in economic clout; and preserving freedoms in the financial world to win allies in the U.K.

If the area of the world that has more respect for rule of law does not find a way to grow faster, more countries will move to models based on cronyism.  Freer and increased trade is one of the few things that can help accelerate growth in the Transatlantic North.   The benefits will be felt beyond economics and beyond their borders.


Alejandro A. Chafuén es Dr. En Economía por el International College de California. Licenciado en Economía, (UCA), es miembro del comité de consejeros para The Center for Vision & Values, fideicomisario del Grove City College, y presidente de la Atlas Economic Research Foundation. Se ha desempeñado como fideicomisario del Fraser Institute desde 1991. Fue profesor de ESEADE.

The GOP Debate: What Candidates Showed The Most Wisdom On World Affairs?

Por Alejandro Chafuen: Publicado el 7/8/2015 en:   http://www.forbes.com/sites/alejandrochafuen/2015/08/07/the-gop-debate-what-candidates-showed-the-most-wisdom-on-world-affairs/2/

It’s true that the economy of the United States—which represents between 16 and 17 percent of the global economy—is of tremendous importance for the rest of the world. But with 80 percent of the world’s production being created beyond our borders, those aspiring to lead the country can’t neglect the foreign scene. Most candidates answered questions about the three difficult “I” topics: immigration, ISIS, and Iran. China and Russia also appeared in the discussions. Mexico was mentioned mostly on the immigration front and, briefly by Donald Trump, as a competitor—but not as the important trade partner that it is. What was not discussed is also relevant to understanding how key players in the United States see the world scene. The debate did not include discussions on trade and monetary issues. The trade pacts with Europe and the countries in the Pacific are not moving forward due to distrust more than to anti-trade feelings. Trade, even if the administration can’t move forward, is not moving backwards. In the monetary arena, the U.S. dollar has strengthened considerably against the Euro, gold, and many commodities, especially oil. Today the U.S. dollar is 20 percent stronger against the Euro and gold than one year ago, and buys twice as much oil than a year ago. The only purely economic topic addressed—with implications for the world economy—is the 18 trillion dollar debt. Much of that money is owed to foreigners and foreign governments. While Sen. Ted Cruz and Dr. Ben Carson focused on the destructive potential of this debt and cited it as an example of the betrayal of voters’ trust, Sen. Rand Paul connected the debt to one of his foreign policy stances: “Do you borrow money from China to send it to anyone? Out of your surplus, you can help your allies, and Israel is a great ally. And this is no particular animus of Israel, but what I will say, and I will say over and over again: we cannot give away money we don’t have. We do not project power from bankruptcy court. We’re borrowing a million dollars a minute.” Looking beyond economics, the absence of questions on Cuba is also telling. In my view, there are three main reasons that Cuba was not addressed: 1) location: if this debate had been held in Florida, rather than Cleveland, the recent policy change towards Cuba’s tyrannical regime would not (could not) have been neglected; 2) economic relevance: given the small size of the Cuban economy, this recent policy change cannot compare to the tremendous impact of Immigration, ISIS, and Iran; 3) with the exception of Venezuela, Latin American countries with large economies might flirt with Cuba, but will not be overrun by it. Immigration was covered by all the candidates. Except for Trump, who repeated his conspiratorial theories that Mexico authorities plan to send the worst of the country’s inhabitants north, the candidates sounded very similar: legal Immigration yes, illegal no! Sen. Marco Rubio correctly pointed out that today, “the majority of people coming across the border are not from Mexico. They’re coming from Guatemala, El Salvador, [and] Honduras.” Yet the overwhelming majority of extra-legal immigrants today are from Mexico. Requiring them to leave, a take most candidates seem to support, only seems realistic if there is a fast way to invite those who can find a job to return legally—much like the Krieble Foundation’s Red Card proposal holds. This would require bringing the capabilities and strength of the private sector as a powerful collaborator in this essential but thorny issue. Gov. Scott Walker had a chance to speak about foreign policy, which was very important for a candidate from a state which is seldom mentioned in the international scene. He focused on the importance of having allies “not just in Israel, but throughout the Persian Gulf” mentioning Egypt, the Saudi leaders, and the United Arab Emirates. When he asked them, “What’s the greatest challenge in the world today? Set aside the Iran deal,” they answered “it’s the disengagement of America.” All of the candidates disparaged U.S. foreign policy and the Iran deal. Donald Trump did not hold back, declaring brashly, “what’s happening in Iran, is a disgrace, and it’s going to lead to destruction in large portions of the world.” Sen. Ted Cruz was not so different: “We have abandoned and alienated our friends and allies, and our enemies are stronger. Radical Islam is on the rise, Iran is on the verge of acquiring a nuclear weapon, China is waging cyber warfare against America.” Cruz stood by his criticism of General Dempsey, who argued that ISIS could be defeated by jobs and ideology alone. Jeb Bush piled in and criticized Barack Obama for abandoning Iraq: “He left, and when he left, Al Qaida was done for. ISIS was created because of the void that we left, and that void now exists as a caliphate the size of Indiana. To honor the people who died, we need to—we need to—stop the—Iran agreement, for sure, because the Iranian mullahs have their blood on their hands, and we need to take out ISIS with every tool at our disposal.” Dr. Carson shared similar concerns: “Our friend can’t trust us anymore. You know, Ukraine was a nuclear-armed state. They gave away their nuclear arms with the understanding that we would protect them. We won’t even give them offensive weapons.” Gov. Walker endorsed arming Ukraine and went one step further: “I would work with NATO to put forces on the eastern border of Poland and the Baltic nations, and I would reinstate, put in place back the missile defense system we had in Poland and the Czech Republic.” The feisty exchange between Gov. Christie and Sen. Paul on how to conduct proper surveillance of potential terrorists was one of the highlights of the debate—yet their focus is more on internal freedom and security than world affairs. In his closing statement, Donald Trump, leader in the polls, focused on other countries but spoke about the U.S. the way someone who is trying to become the coach of a team speaks about his team and its competitors, “Our country is in serious trouble. We don’t win anymore. We don’t beat China in trade. We don’t beat Japan, with their millions and millions of cars coming into this country, in trade. We can’t beat Mexico, at the border or in trade. We can’t do anything right. Our military has to be strengthened.” The first debate is over, voters will continue to watch—and so will the world.   Alejandro A. Chafuén es Dr. En Economía por el International College de California. Licenciado en Economía, (UCA), es miembro del comité de consejeros para The Center for Vision & Values, fideicomisario del Grove City College, y presidente de la Atlas Economic Research Foundation. Se ha desempeñado como fideicomisario del Fraser Institute desde 1991. Fue profesor de ESEADE.