Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Conservative analyses of EU's failure cite regulation, ignore trade imbalances
I've noticed that conservative analyses of why the EU failed invariably focus upon regulation, but miss the trade imbalances. For example take the British Conservative Party's Daniel Hannan's eloquent and humorous oration at the Oxford Union in favor of Brexit:
Daniel Hannan is correct that the European Union has been an economic disaster. He cites some good statistics to prove his point. But like many other conservatives, he only attributed that disaster to one of its causes: the regulations of the European Commission. He missed the other major cause: the trade imbalances.
Eventually, every trading system which sustains imbalanced trade eventually slows economic growth. That’s because the trade deficit counties have to borrow from the trade surplus countries in order to buy imports. And because they have trade deficits, they lose their industries. Eventually, the trade deficit countries become credit risks (e.g., Greece, Cyprus, Portugal, Spain, Italy). They can no longer borrow to buy imports. Then the banks in the trade surplus countries that loaned them the money to do so have to deal with bad loans. (Deutsche Bank just flunked the Federal Reserve’s “stress test.”) Economic growth within the trading system slows.
As Hannan noted, now that Britain is out of the EU, it can negotiate its own trade agreements. Trump’s statement about Brexit invited a trade agreement between Britain and the United States. In contrast, Obama stated, before the Brexit vote, that he would not negotiate any trade agreement with an independent Britain; instead he would put Britain in the “back of the queue.”
Trade deficit countries (such as U.S. and Britain) should trade more with each other. Both would benefit.
Journal of Economic Literature:
Atlantic Economic Journal: