financial leverage

Fortress Europe IV: Trade

In the previous post about Fortress Europe I mentioned that Europe is not very self-sufficient. Self-sufficiency or autarky is not as common or popular as it was pre-1950. In Medieval Europe autarky gave rulers the opportunities to become stronger as most people were farmers. After the cities pulled in more people after 1200 trade became increasingly more important for Europe followed by colonialism, imperialism and the post colonialism after World War II.

How this ties in with Europe today, the EU and trade is simple. What I summarised in the first paragraph took place in Europe and post colonialism is about 50 years ago. The EU is from 1993 officially since the Treaty of Maastricht. In 1989 the Berlin Wall fell and according to the U.S. and Russia the Cold War is over, sort of. Thus there is “free” trade between the U.S.-EU-Japan triad, China, Russia, the Commonwealth countries and the rest of the world.

Trade affects Fortress Europe internally and externally. Trade brings together demand, supply, price setters and price takers and can stimulate economic growth or decline. China has been growing a lot recently due to producing pretty much everything for consumers for global exports. More exports than imports means more trade revenues than trade expenses.

Additionally when a country or supra-national organisation like the U.S. or EU exports more than it imports, the extra trade revenues add financial reserves which can be used to pay off international debts and import. This ability of countries or their supra-national organisations to pay for goods and services across the border is known as the balance of payments. You pay you get, you cannot pay you loan. The less loans you have the more financial leverage you have in international affairs of many kinds.

After economics human rights and ethics come into play. Trade is “free” when there is no monopoly. In a market with a true monopoly one party determines supply and sets prices. The consumers, big and small have no influence and pay. A market without monopoly has ample of competition which improves quality of goods, services and lowers the prices. There is a problem though. Depending on who defines “free”, trade may well be not “free” unless the market complies with certain demands. Corporations and governments have a hand in this practice.

A good example of how Fortress Europe handles “free trade” is still ongoing. In Europe the costs of production are higher thus the price per unit on average is higher. This also applies to agriculture. Farming is intensive and costly and the (profit) margins can be thin. The EU subsidises European agriculture to protect its own farmers and internal markets while blocking agricultural products from other countries, think of Africa. The economic policy of protectionism (against foreign competition) has two sides: it increases autarky and decreases over-reliance on others. Africa’s agricultural industry suffers as a result.

Another example of a trade situation is the current market for energy and fuel. It is easy to take energy and fuel for granted but they are vital for the current living standards in the EU. A big supplier of energy and fuel is Russia. The EU wants to avoid using coal and Russia is rich in natural resources. This makes the EU very reliant on Russia’s supply which contributes to a balance of powers. The careful response to the recent Crimea-Ukraine situation should tell you enough.

There is one other factor that is crucial to understanding Fortress Europe’s position regarding trade. If the abbreviation F.D.I. does not ring a bell I will spell it out: “foreign direct investment.” This is a factor that can make or break countries in international and global trade. It comes down to governments, global enterprises, multinationals and large enterprises investing in the economies of other countries and continents. Does the Marshall Plan ring a bell? That was a more political, foreign policy version of F.D.I. and it worked. Look at the European capitals today and notice how the stock exchange, international offices and expat facilities are all present. After Washington London is one of the most influential cities in the world of today.

The topic of trade regarding Fortress Europe is complex. My intention to keep it short still resulted in 800 plus words. I started with the introduction of the autarky versus the market. This puts the EU in a difficult position, namely to balance between economic dependence and independence. Every country and every continent faces this dilemma. To open the borders or to protect the internal markets? F.D.I. plays a big role too. There are no easy answers. The upcoming T.I.P.P. treaty will enter the EU into a new era of trade. How it works out depends on many factors. Trade is a process that can benefit many but also a few.