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This Is How Trade Wars Start

This Is How Trade Wars Start – EU Threatens To Retaliate Against US Sanctions On Russia

This isn’t good news, not good news at all–the European Union is threatening to retaliate against the US sanctions being proposed upon Russia. The basic underlying problem here being that this is how trade wars start. Someone says “You can’t do that” so then the other people get into a huff and shout “Well, you can’t do that either” and we end up in a spiral of insistences that people can’t do ever more things. It’s true that certain ancient books talk of the value of an eye for an eye, a tooth for a tooth, and yet we also apply “tit for tat” to such actions, the name we also give to the behaviours of children.

It’s also not obvious that there was actually any Russian interference in the US election, the claimed reason for these expanded US sanctions. Sure, there are many claims of all sorts of things but I tend to take the continued shouting over wisps of smoke as being good evidence that no one has found any fire as yet.

My task here though is not to talk about US politics, but about economic policy. And throwing around sanctions just isn’t good economics. Especially when, as here, we risk getting into that spiral of ever more of them:

The bill is likely to complicate the US president’s hopes of improving relations with Russia.
It aims to punish Russia for alleged interference in the 2016 US election.

As I’ve said, I don’t think there’s been much proof of that allegation as yet, quite possibly too early to be trying to retaliate for what isn’t yet known. Still:

Brussels is preparing to retaliate against the US if Washington pushes ahead with far-reaching new sanctions on Russia that hit European companies.

Jean-Claude Juncker, the European Commission president, has called for an urgent review of how Brussels should respond if Europe’s energy companies or other businesses are targeted by sanctions under discussion in the US Congress.

According to a note prepared for a commission meeting on Wednesday, and seen by the Financial Times, Brussels “should stand ready to act within days” if the US measures were “adopted without EU concerns being taken into account”.

The EU does have something of a point here. The US sanctions being discussed will have a rather greater effect on people and companies over here than they will on those in the US. Which seems a little harsh really, punishing us for what Russia is said to have done in the US.

The future of the Nord Stream-2 natural gas pipeline project from Russia to Germany is of particular concern to Europeans. Roughly a third of the European Union’s natural gas supply still comes from Russia. The proposed expansion would double the existing pipeline’s capacity and make Germany EU’s main energy hub.

Yes, sure, Russia’s gas exports are very important to Russia. They’re also pretty important to us here in Central Europe too, we’re the people kept warm in winter by them after all. So, as I say, the EU has a right to be a little worried about this at a minimum. However:

European Commission officials say the bloc could use EU regulations allowing it to prevent the application of extraterritorial measures by the United States; demand a U.S. promise to exclude EU energy companies; or impose outright bans on doing business with certain U.S. companies. In addition, the EU could file a complaint at the World Trade Organization.

So, US sanctions to harm Russia for being bad boys will lead to Europeans suffering, at which point the EU will punish American companies by making it illegal to deal with them. At which point, undoubtedly, enraged Americans start to ban dealings with certain EU companies and off we go into a tit for tat which impoverishes us all.

There really are times when sanctions are a useful tool–not selling nuclear materials to N Korea strikes me as very handy indeed. But it is all too possible to set off a trade war by their too casual implementation, as possibly here.

Image: © AP Photo, Kerstin Joensson

Written by Tim Worstall

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