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Richmans' Trade and Taxes Blog
Easy to Get Entangled in an Alliance, Hard to Secede
Brexit is a great example of the proposition that it is easy to form an alliance but hard to secede from it. In 2016, the United Kingdom voted to exit the Eurozone. The exit is still going on. The USA and the European Union are involved in a military alliance. But original French and German efforts to form an alliance were intended to prevent the United States from dominating Europe. The USA invented NATO as a defensive military alliance to prevent the USSR from establishing itself in Europe. This gave the USA control of Europe and led to the collapse of the Soviet Union. A Europe free of communism was achieved by the break-up of Yugoslavia.
The USA took advantage of its success in breaking up the USSR and Yugoslavia by getting some former parts of the USSR and Yugoslavia to join the European Community and NATO, In 1999, Poland, Hungary, and the Czech Republic joined, followed by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia. Albania and Croatia joined in 2009. The most recent member added was Montenegro in 2017. As of 2018, there are four aspiring members: Bosnia, Herzegovina, Macedonia, and Georgia. The Ukraine, Sweden, Finland, and Serbia are considering applying for membership. The incorporation of countries formerly parts of the Soviet Union and of Yugoslavia has encouraged Russian counter measures in the Ukraine, Georgia, Syria, Turkey, Iran and elsewhere. American media are united in considering Russia the aggressor while the Russia considers NATO the real aggressor.
A formal military alliance is “permanent” and “entangling. Thomas Jefferson, in his inaugural address, declared his devotion to "peace, commerce, and honest friendship with all nations, entangling alliances with none", using a phrase which is often attributed to Pres. Washington.
Trade agreements are non-military alliances. But they involve a loss of sovereignty and infringe upon the operation of free markets. They reduce trade barriers to a selected group of industries in each country and are good examples of crony capitalism. Each country experiences a loss of sovereignty, not merely foregoing the right to impose trade barriers. The agreements have provisions for compulsory arbitration, labor rights, and created a new international agency with powers of its own, the World Trade Organization. Treaties become the supreme law of the land. The WTO, for example, ordered the Congress of the USA to cease requiring domestic vendors to label the country of origin of meats. Congress meekly repealed the law requiring such labelling.
While for small countries infringement on their sovereignty is relatively cost-free, large countries may suffer immense costs. For example, trade agreements lack a requirement that countries balance their trade with the rest of the world. America’s trade deficits have exploded since the adoption of the GATT agreement in 1994 with the obvious negative effects on USA manufacturing and the loss of millions of well-paid jobs. Our leaders are well aware of this loss of sovereignty. German Chancellor Angela Merkel is quoted as saying that European Union (EU) member states must be prepared to transfer powers over to Brussels at a debate on the ‘tensions’ between globalization and national sovereignty. She is quoted as saying, “Nation states must today be prepared to give up their sovereignty.”
The huge USA trade deficit is a serious problem. Nations must have the right balanced trade. Every treaty should provide for the right of each signatory to balanced trade and the right to impose single-country-variable-tariffs which rise and fall with changes in its trade deficit. Such a tariff is described in our book Balanced Trade (Lexington Books, 2014). It is worth trying and like adjusting exchange rates invites no retaliation.
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