Europe Thumps U.S., Again

From the Wall Street Journal

On present trends, most of Europe will soon have lower income tax rates than most of America. And now the European Union is stealing another competitive march on Washington, this time on a free trade deal with the world’s 13th largest economy, fast-growing South Korea.

Last week Brussels and Seoul finished the outline of a new trade agreement, and the two sides will now write up the technical language to codify it. As for the pending U.S.-Korea trade agreement, Congress has done . . . nothing.

South Korea has made negotiating trade deals a centerpiece of its foreign and economic policy. The U.S. FTA, signed in 2007 but still not ratified, is one example. Negotiations are planned or under way with a long list of countries, including India, Canada and Australia. On the EU side, the Commission is vigorously defending the pact against domestic critics, including the European auto industry. EU approval isn’t a sure thing, but Swedish Prime Minister Fredrik Reinfeldt is aiming to finish it by December.

Compare that to the U.S., where the FTA with Korea is bogged down in Big Labor politics. Bashing the deal became de rigueur in the Democratic Party primary before last year’s Presidential election. Candidates Barack Obama and Hillary Clinton both claimed the deal wouldn’t open Korea’s auto market to U.S. imports, all evidence to the contrary. Now, with Democrats running both the White House and Congress, prospects are bleak for any trade deal. Colombia has also been left hanging, even though its goods already enter the U.S. duty free under the Andean preferences program.

Don’t count on progress any time soon. President Obama’s trade representative, Ron Kirk, rose from his slumbers last week to give his first big speech but he failed to mention either South Korea or Colombia. Instead, he focused on “trade enforcement,” by which he seems to mean picking fights with U.S. trading partners. This will include, Mr. Kirk said, investigating “labor violations” inside other countries. “And if they don’t fix their labor problems, we will exercise our legal options,” he said. Just what our friends want to see when global trade is contracting: Another U.S. excuse for protectionism.

Korea’s progress with the EU shows how risky U.S. delays are. The European Commission says the EU-Korea deal will eliminate $2.2 billion in duties Korea currently imposes each year on European goods — and cut duties and eliminate nontariff barriers on imports of European cars. American companies could gain similar benefits if only Congress would approve the U.S.-Korea pact.

Across the globe, countries are moving ahead with similar bilateral trade deals, often giving their own national companies an edge over U.S. competitors. In a perfect world, all countries would be able to benefit from multilateral trade opening under the Doha Round. But for now bilateral deals are better than nothing, and America is leaving itself behind.

Merkel’s Moxie

From Investor’s Business Daily:

Stimulus: British Prime Minister Gordon Brown’s idea for a “global stimulus plan” has met with resolute opposition from Germany’s leader, Angela Merkel. Good to see that common sense isn’t dead, at least in Europe.

Brown, who’ll be hosting the leaders of the G-20 nations later this week as they seek a way out of the global financial crisis, has pushed what he calls a “global New Deal” of up to $2 trillion in added spending.

But he’s had trouble selling his idea to others — to put it mildly. Czech Prime Minister and EU President Mirek Topolanek called it “a way to hell.” Even Bank of England Governor Mervyn King trashed the idea.

Now comes Merkel, who, as head of the world’s third-largest economy, has probably killed Brown’s big idea.

“I will not let anyone tell me that we must spend more money,” she said over the weekend. “We must look at the causes of this crisis. It happened because we were living beyond our means. . . . We cannot repeat this mistake.”

Precisely the point. The idea that global bureaucrats and politicians can direct $2 trillion in spending and tax shifts to the most productive sectors of the economy is a sick fantasy that only a socialist could love.

History has repeatedly shown that uncontrolled government spending is wasteful and fails to stimulate anything.

The EU has already dedicated some 4% of the region’s GDP to “stimulus,” yet nothing is stimulated. With EU budgets tight and rules requiring countries to limit their deficits to 3% of GDP, more spending simply isn’t possible now. Nor would it be wise.

The U.S., for its part, has been hoping that Brown’s plan would prevail. After all, we’ve already committed more than 8% of our GDP to stimulus, with more to come.

Merkel’s opposition to this is key. She has a perspective we don’t because of Germany’s tragic history in the 20th century.

After World War I, Germany tried to spend its way out of a recession brought on in large part by the onerous war reparations.

As Weimar Germany printed money, inflation soared (in 1918, $1 bought 4.2 German marks but by 1923, $1 fetched 4.2 trillion marks) and unemployment surged. In that fertile ground for mass economic discontent, Hitler’s Nazis were able to plant their seed.

We’re not saying we’re living through a reprise of Weimar. But the “stimulus” amounts now being bandied about are alarming.

World leaders would be wise to go back to what really works: Lower taxes, less spending, fewer regulations, freer trade.