In November 2017, Spaniards learned that the US Secretary of Commerce had decided to tax the import of black olives — between 2.31 and 7.25 percent — because these were being sold below market price. That is, the Trump administration decided the Spaniards were guilty of “dumping” olives.
As usual, the dumping was made possible by domestic subsidies. These came from the funds (nearly 40 percent of total budget) that the European Union (EU) dedicates to its Common Agrarian Policy (CAP). Spain receives more than €5 billion.
According to the EU, the CAP exists to boost agrarian production, thus guaranteeing a certain level of income to the agrarian population, “stabilizing markets,” guaranteeing the security of supplies, and ensuring “reasonable prices.” This interventionist strategy, however, exists to shield a sector that produces less than 2 percent of EU GDP.
The Costs of Tariffs and Subsidies
CAP policy has been problematic. One the one hand, the subsidies have caused a foreign backlash, leading to Trump’s tariff which harms Spanish producers — Spanish companies have lost many contracts with American buyers who have turned to olives from Egypt, Morocco, and Turkey instead). But another side effect of CAP has been harm inflicted on low-income countries that now cannot export their products into Europe.
Thus, thanks to CAP, Spanish industries are on both ends of this anti-trade equation.
The US, however, is hardly a paragon of free trade.
After all, the US Department of Agriculture spends $25 million every year on subsidies for farm businesses, since the approval of 1862 Morrill Act. Some of those subsidies are for insurance, export promotion, and price-loss coverage.
A better approach would be to move more toward a system of virtually no agricultural subsidies at all, as is the case in New Zealand. In 1984, the New Zealand government passed a reform to eliminate farm subsidies. At the beginning, this was a cause for alarm among farmers.
However, the New Zealand agriculture sector has not suffered, and the number of farms has remained constant since the reform. More than 10 percent of the working population is linked to agriculture and around 90 percent of total farm output is exported. Contrary to the EU situation, agriculture represents almost a 7 percent of New Zealand GDP.
We Need Unilateral Free Trade
Bilateral trade agreements mustn’t be reviewed, but repealed
Bilateral trade agreements like CETA and NAFTA are not a real case of free trade, and apart from being just commercial ties among a series of countries or continental blocks, they tend to promote harmonization of rules and crony capitalism.
Engaging a “trade war” in the name of free trade as Trump is doing against China — regarding solar panels and European Union agriculture — is not a good solution neither moral nor economically. Americans will suffer.
Instead of slapping new tariffs on olives from Spain, both sides of the Atlantic ought to think about real, unilateral, free trade.
While it is true the US president is wrong to impose new tariffs, the EU establishment is also hypocritical in denouncing “Trump’s protectionism” because the EU maintains its own protectionist policies that are especially damaging to developing economies.
Ángel Manuel García Carmona is a Student of Computer Engineering at the Open University of Madrid (UDIMA).
Source: Mises Institute