US President Donald Trump recently criticised the EU for being protectionist, and several political figures in the UK have suggested that Brexit will allow the country to remove protectionist tariffs and regulations to boost trade. But how accurate is this claim in reality? Using data on various aspects of trade, Mark Manger and Atom Vayalinkal argue that the EU is ..

Manger, Mark S.

Vayalinkal, Atom

LSE Research Online

The	EU	isn’t	protectionist	–	it’s	one	of	the	most	openeconomies	in	the	worldUS	President	Donald	Trump	recently	criticised	the	EU	for	being	protectionist,	andseveral	political	figures	in	the	UK	have	suggested	that	Brexit	will	allow	the	country	toremove	protectionist	tariffs	and	regulations	to	boost	trade.	But	how	accurate	is	thisclaim	in	reality?	Using	data	on	various	aspects	of	trade,	Mark	Manger	and	AtomVayalinkal	argue	that	the	EU	is	no	more	protectionist	than	the	United	States	is,	andwould	rank	as	one	of	the	most	open	economies	in	the	world	overall.Is	the	European	Union	really	“very	protectionist”,	as	US	President	Donald	Trump	tweeted	in	July?	Would	the	UK,unshackled	from	European	tariffs	and	regulations,	be	able	to	have	much	freer	trade	relations	with	other	partners,most	importantly	with	the	United	States?	After	all,	the	US	buys	17	percent	of	the	UK’s	exports,	making	it	thesecond-biggest	trade	partner	after	the	EU.	Australia	and	Canada	have	already	announced	that	they	stand	readyto	negotiate	free	trade	agreements	with	Britain.CC0	Public	DomainTo	answer	these	questions,	we	can	compare	the	EU’s	trade	barriers	with	those	of	the	proposed	future	partners.As	usual,	the	picture	is	much	more	complex	than	the	rhetoric	of	proponents	of	a	‘Hard	Brexit’	lets	on.	Dependingon	what	aspects	of	trade	we	look	at,	it	turns	out	that	the	EU	is	no	more	protectionist	than	the	US,	and	in	fact	isone	of	the	most	open	economies	in	the	world.	Looking	beyond	trade	to	regulations	for	services	and	productmarkets,	important	EU	member	states	are	much	less	protectionist	than	other	overseas	markets.	That	doesn’tmean	that	the	UK	won’t	be	able	to	improve	its	trade	relations	with	new	partners,	once	the	country	startsnegotiating	its	own	trade	agreements.	But	getting	better	access	than	what	these	countries	offer	to	the	EuropeanUnion	would	require	a	herculean	effort	by	the	UK	and	a	sudden	outbreak	of	enthusiasm	for	free	trade	amongthese	countries.LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 1 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Tariffs	–	the	duties	charged	on	the	import	of	a	good	–	do	not	matter	as	much	as	they	used	to,	thanks	tosuccessive	rounds	of	multilateral	trade	negotiations.	Rather	than	just	averaging	the	import	duties,	economistsoften	prefer	the	‘trade-weighted	mean’,	whereby	the	duty	is	multiplied	by	the	share	of	a	good	in	the	total	trade	toarrive	at	a	figure	that	represents	the	practical	relevance	of	a	tariff.	This	reflects	that	high	tariffs	on	some	productsmay	not	matter	much	if	there’s	very	little	trade	in	the	good	–	although	the	prohibitive	tariffs	may	themselves	ofcourse	be	the	reason	for	why	there	is	no	trade	in	the	first	place.	We	look	at	both,	the	simple	and	the	weightedaverage	of	tariffs,	in	the	figures	below.	We	show	the	applied	tariffs	–	the	duties	actually	charged,	generally	lessthan	what	the	WTO	would	permit	–	for	Australia,	Canada	and	the	United	States,	the	future	partners	of	the	UK’sfirst	proposed	trade	agreements	after	Brexit	comes	into	effect,	the	European	Union,	and	for	Japan.	All	data	isfrom	2015.Figure	1:	Weighted	mean	and	simple	mean	tariff	rates	on	manufactured	products	in	the	EU,	Australia,Canada,	Japan	and	the	United	States	(2015)Source:	World	BankStarting	with	manufactured	products	in	Figure	1,	it	is	immediately	obvious	that	the	European	Union	is	no	moreprotectionist	than	the	US,	Canada	or	Australia.	Looking	at	the	weighted	mean,	Australia	is	slightly	moreprotectionist	and	the	US	slightly	less	so,	but	the	difference	is	less	than	half	a	percentage	point.	Taking	a	simpleaverage,	the	EU	has	the	second-lowest	tariffs	after	Japan.	This	simply	reflects	that	countries	also	have	low	tariffson	goods	that	they	themselves	produce	competitively,	and	the	EU	and	Japan	are	good	at	exporting	manufacturedproducts	to	the	world.Primary	products	–	mostly	agriculture	–	are	often	cited	as	an	example	of	protectionist	policies	championed	by	theEU	at	the	behest	of	France	and	Italy.	But	even	here,	as	figure	2	shows,	tariffs	are	extremely	low.	Japan	has	thehighest	tariffs,	followed	by	the	US.	When	we	take	a	simple	average,	the	EU	and	the	US	are	on	par.	Naturally,Australia	and	Canada	have	lower	tariffs	because	they	themselves	are	competitive	exporters	of	primary	products.Figure	2:	Weighted	mean	tariff	rate	on	primary	products	in	the	EU,	Australia,	Canada,	Japan	and	theUnited	States	(2015)LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 2 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Source:	World	BankUnfortunately,	tariffs	on	agricultural	goods	are	not	always	what	they	seem:	countries	often	have	quotas	forspecific	goods.	With	these	quotas,	they	sometimes	completely	disallow	any	imports	so	that	they	can	shield	localproducers	from	foreign	competition.	But	even	here,	the	EU	does	not	stand	out.	As	figure	3	shows,	the	US	hasalmost	the	same	share	of	tariff	lines	(in	other	words,	individual	products)	on	which	it	charges	a	‘specific	rate’.Figure	3:	Share	of	tariff	lines	with	specific	rates	for	primary	products	in	the	EU,	Australia,	Canada,	Japanand	the	United	States	(2015)LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 3 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Source:	World	BankOf	course,	with	tariffs	already	so	low,	they	often	have	little	practical	impact.	Product	market	regulations	and	rulesthat	restrict	access	for	service	providers	are	often	much	more	relevant.	Many	of	these	are	not	in	the	EU’s‘competence’	but	are	set	by	the	member	states	themselves.	We	are	looking	at	some	of	the	bigger	EU	membereconomies.	Again,	the	data	reveals	that	EU	members	are	no	more	protectionist	than	the	US,	and	much	less	sothan	Australia	and	Canada.The	Organisation	for	Economic	Co-operation	and	Development	(OECD)	has	developed	indicators	that	measurethe	relative	restrictiveness	of	product	market	regulations,	including	rules	that	limit	competition.	As	figure	4	shows,it	turns	out	that	the	United	States	imposes	more	restrictive	rules	for	product	markets	than,	for	example,	Germanyor	the	UK.	Only	France	and	Canada	come	close.	But	the	UK	is	by	no	means	the	least	regulated	–	theNetherlands	have	lightened	the	regulatory	burden	even	more,	apparently	without	being	held	back	by	the	EU.Figure	4:	OECD	product	market	regulation	indicators	for	selected	EU	states,	Australia,	Canada,	and	theUnited	States	(2015)LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 4 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Source:	OECDBecause	the	UK	is	especially	competitive	in	services,	especially	professional	services	that	can	be	supplied	acrossborders,	this	sector	will	be	of	great	interest	in	future	trade	negotiations.	But	here	again,	as	figure	5	shows,	it	turnsout	the	US	is	not	less	protectionist	than,	for	example,	France,	and	much	more	so	than	the	EU	members	Germanyand	the	Netherlands.	Only	in	professional	services	does	the	US	offer	comparable	market	access	to	the	very	openAustralia	and	Netherlands.Figure	5:	OECD	STRI	indicators	for	selected	EU	states,	Australia,	Canada,	and	the	United	States	(2015)LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 5 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Source:	OECDFinally,	let	us	consider	what	economists	refer	to	as	‘revealed	openness’	–	how	much	does	a	country	actuallytrade	in	relation	to	the	size	of	its	economy?	To	arrive	at	this	figure,	we	add	exports	and	imports	and	divide	thisfigure	by	gross	domestic	product.	Bigger	countries	are	usually	less	open,	because	a	lot	of	trade	already	takesplace	within	their	own	borders.	The	EU’s	nominal	GDP	($1630bn)	and	that	of	the	United	States	($1800bn)	werenot	very	different	in	2015.	For	the	EU,	we	only	consider	trade	with	non-members,	and	we	look	at	the	Eurozoneseparately.	As	we	can	see	in	figure	6	below,	the	European	Union	is	almost	as	open	as	the	United	States,	whilethe	figure	for	the	Eurozone	is	virtually	identical.Figure	6:	Revealed	openness	in	the	EU,	Eurozone,	Australia,	Canada,	Japan,	and	the	United	StatesLSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 6 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/Source:	World	BankWhat	does	this	mean	for	the	UK’s	future	as	a	trading	nation?	First,	in	the	case	of	a	‘cliff-edge’,	hard	Brexit	thatforces	the	UK	to	fall	back	on	the	WTO	to	guide	its	trade	relations,	it	will	be	challenging	to	replace	the	EU	with	theUS.	Second,	leaving	the	EU	to	liberate	the	UK	from	its	protectionist	regulations	seems	like	an	overblownargument	in	the	light	of	the	data.	Finally,	if	we	assume	that	Australia,	Canada	and	the	United	States	would	still	tryto	protect	the	same	sectors	they	seek	to	shelter	now,	the	most	direct	way	for	Britain’s	trade	policy	to	be	muchfreer	than	today	would	be	a	radical,	unilateral	liberalisation.	From	a	purely	economic	point	of	view,	this	optionoffers	great	gains,	but	it	also	creates	enormous	social	dislocations,	and	it	is	far	from	clear	that	it	would	findpolitical	support	in	the	United	Kingdom.This	article	first	appeared	on	EUROPP	and	gives	the	views	of	the	authors,	and	not	the	position	of	LSE	Brexit,	norof	the	London	School	of	Economics.Mark	Manger	is	Associate	Professor	at	the	Munk	School	of	Global	Affairs	at	the	University	of	Toronto.	He	is	theauthor	of	“Investing	in	Protection:	The	Politics	of	Preferential	Trade	Agreements	between	North	and	South”(Cambridge	University	Press)	and	of	a	dozen	articles	and	book	chapters	on	the	negotiation	and	design	of	tradeagreements.	He	has	been	a	consultant	to	the	Governments	of	Canada	and	of	Japan	on	Free	Trade	Agreements.Atom	Vayalinkal	is	a	Research	Assistant	at	the	Munk	School	of	Global	Affairs	at	the	University	of	Toronto.LSE Brexit: The EU isn’t protectionist – it’s one of the most open economies in the world Page 7 of 7		Date originally posted: 2017-10-24Permalink: http://blogs.lse.ac.uk/brexit/2017/10/24/the-eu-isnt-protectionist-its-one-of-the-most-open-economies-in-the-world/Blog homepage: http://blogs.lse.ac.uk/brexit/

The EU isn't protectionist - it's one of the most open economies in the world

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