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March 14, 2018

The geopolitics of trade war

We noted a report in Politico of a signs of a possible detente in trade war rhetoric between the US and the EU. But we think that Trump will pull through with his steel tariffs, and that there is a more than even chance of additional tariffs on cars - even if the EU were to react moderately to the steel tariffs. 

Bruegel did the maths on the impact of a 35% tariff on car imports to the US, and found a total maximum cost to the EU of €17bn, and possibly lower. All European car makers, with the exception of Fiat Chrysler, are highly exposed. Audi, Jaguar Land Rover, and Porsche have no assembly factories in the US, while Volvo, VW, Mercedes, and BMW, have US factories but are still mostly importing their cars to the US. With certain assumptions about price elasticity the study estimates a fall in demand for EU cars by some 500,000. The authors argue that the €17bn overestimates the total impact because the car makers are likely to reduce output in response. 

We think that the overall economic effect will be much larger because of the pivotal role of the car industry in the EU. Reduced output in that industry will affect other EU industries, and any further trade retaliation would add to the costs.

Gideon Rachman argues that there is a relatively short path between trade wars and real wars. The first round of tariffs is not going to have a big impact on China, but this will change once Trump targets intellectual property. Rachman reminds us that Peter Navarro, Trump's chief trade adviser, has written a book called Death by China.

Natalie Nougayrède makes a broader geopolitical point. Contrary to what she used to believe, Donald Trump is really out to damage the EU - and he may use Poland as an ally to undermine European solidarity. 

"Trump’s mixture of hostility and indifference to the European project, its trading power and its liberal, democratic values, is hardly news – just as his hatred for Merkel is no secret. But with the early signs of a trade war, and the growing evidence of the president’s disdain for Britain’s predicament just when transatlantic empathy was expected, we see his estrangement from historical norms in sharp focus."

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March 14, 2018

A European labour authority

The European Commission yesterday rolled out a proposal to create a new European agency, the European Labour Authority. The new authority will aim to coordinate better the national labour authorities, especially in the field of labour mobility. The Commission notes that the number of people not working in their home member state has almost doubled in the past decade from 9m to 17m, around 7% of the EU labour force. The agency will have three main functions: to improve access to information and services for employers and citizens on labour mobility and social security coordination; to improve coordination among national authorities; and to mediate in disputes between these national authorities. The Commission aims for the new agency is to be up and running in 2019, so the Council and Parliament would have to approve the proposed regulation this year. 

Perhaps the quickest overview of what the new agency will and won't do is to look at the existing EU bodies that it will or will not replace. The European Labour Authority will replace seven EU bodies, including the committees on free movement and posted workers, and some other quangos. It will not replace all labour-related EU agencies, like, for example, the Eurofound foundation for the improvement of living and working conditions.

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March 14, 2018

On Novichok

The British press has been relatively silent on the two principal victims of the nerve gas attack, merely noting that they remain in critical condition. Die Welt has a revealing interview with a German expert on weapons of mass destruction. Hans Rühle, who was formerly head of the chiefs of staff in the German defence ministry, said that anybody who got in touch with Novichok will die. It is the deadliest nerve gas known to man. Since the Skripals were not the only people exposed to it, we think this statement points to a possible escalation of the crisis. The police still has not found the gas.

Rühle adds some interest additional information. Both North Korea and Iran are also believed to produce Novichok. It is five to eight times stronger than VX. One litre of VX is sufficient to kill 1m people. Novichok is a so-called binary weapon: a compound of two harmless, easy to store, pesticides. This is how Russia cheated on chemical weapons bans. It simply continued to produce the two pesticides. 

Theresa May will today announce some of the sanctions for Russia - quite a possibly financial sanctions. We noted a tweet by Charles Grant (@CER_Grant), which sums up a wider sense of puzzlement:

"One of the saddest things about the #Skripal affair is that the Russian state seems to have used a method that it knew would be traced to it. They want us to know they did it, to scare us."

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