Rejecting Mercosur would be a lose-lose
Frank Schäffler // 25 September 2020
Nearly a month ago, “Fridays for Future” speaker Luisa Neubauer met with German Chancellor Angela Merkel. According to Neubauer, Merkel assured her that she would “definitely not sign” the free trade agreement between the EU and the Mercosur states – Argentina, Brazil, Paraguay and Uruguay. The agreement negotiated by the Commission must be ratified by the European Parliament and the Member States. Merkel’s rejection of it is prejudicial and simultaneously alarming. Not only because the agreement had been negotiated over several years, but also because this rejection endangers prosperity and employment opportunities in Germany. This is especially palpable during COVID-19, where global trade sorely needs fresh stimuli. Considering that 88% of the German economy relies on imports and exports, if global trade decreases by 9% this year, many people will begin to fear for their jobs.
Prior to the pandemic, EU member states achieved a trade volume of 127 billion euros with Mercosur countries. This is a substantial figure that reveals significant growth potential. As of now, car exports from Germany to South America are burdened with tariffs as high as 35%, machines with rates between 14-20%, and pharmaceuticals at 14%. Moreover, the EU wanted to lift tariffs for 92% of products imported from Mercosur countries. Dismantling trade barriers would have been a welcome boost to grow the international economy, yet the German government joins the ranks of the globalisation critics – to the detriment of Europe and South America.
The Mercosur trade deal would be beneficial both to the overall wealth of Europe as well as to the increasing equality of opportunities and economic security of South America. If the deal fails, the clearing of woodland in the Amazon rainforest might intensify, as other trade partners, such as China, would care less about environmental concerns. Furthermore, rejecting the deal would lead to many of the workers, whose working conditions were supposed to be raised by the supply chain law, not having any work at all. Rejecting the trade agreement would be a grave setback for the wealth and civil societies of South America.
Although environmentalist groups do not march side by side with right wing populists and Donald Trump against the free market, the spirit of isolationism bears similarities. Social and environmental arguments veil paternalistic and patronising ambitions. According to this world view, the consumer no longer knows what is best for themselves, including what they should buy and consume. It is the Chancellor, the Parliament and Fridays for Future who know better and are better.
The overwhelming power invested in an overarching institution that decides which products the public can or cannot buy results in the thralldom of the consumer, as the individual is no longer assumed to be equipped with the necessary ability to decide for themselves. If the citizen does not comply, they will have to pay more. The tariff on South American imports bears resemblance to punitive taxation of European citizens, as they have less choice at increasingly expensive prices.
The core sentiment lies in the strive for autarky. Trump’s ‘America first’ campaign pursues this goal, as does the drive for autonomy of supply in the pharmaceutical sector and the positive reception of lobbying in the agrarian sector. None of these contribute to solving the global problems of effective pharmaceutical and foodstuff supply. The protagonists seem to care more about virtue signalling than about effecting positive economic change. Following a long tradition in American politics, the strive for autarky has repeatedly been the trigger for economic disputes, as seen in Trump’s economic policies. In the end, these aims are only pursuable through tariffs and duties. But when countries isolate themselves economically and citizens stop cross-border trading, the seed for distrust and mutual resentment is sown, upon which further political and even violent conflicts may grow.
The world has become increasingly less free over the past couple of years. The belief that the fall of the iron curtain had cemented a permanent victory for the free market and capitalism seems to have been a misguided conclusion. Economic nationalism, central planning of the economy, and international isolation are back and trending once again – forces that should be rejected by all.
This article is a translation of the German original from Prometheus. The author is a liberal member of the German Parliament.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).