Trading Places

Europe’s economic influence in the world increases as the economic dominance of the U.S. declines.

The emergence of the European Union as an economic superpower has brought with it the unprecedented ability to wield significant influence on the world stage.

Positioning itself to become the dominant influence in world trade and commerce, Europe has no qualms about flexing its newly acquired commercial muscle.

One case in point is a new proposal for Europe’s chemicals regulation. “Europe’s grand strategy to impose its regulatory vision on the global economy became explicitly clear this month with the formal unveiling of the EU’s chemicals regulation by Environment Commissioner Margot Wallstrom.

“Just as Jean Baptiste Colbert, Louis xiv’s mercantilist controleur general, imposed stifling regulation on the French economy, the EU move will choke off $90 billion in chemical imports to the bloc, and have a far-reaching impact on global trade liberalization” (Wall Street Journal, July 30).

Europe claims to be regulating for itself. The reality is that it is regulating the world under the guise of EU environmental policy.

This 1,200-page regulatory proposal has attracted a barrage of criticism, particularly from the United States, which claims that the new policy is “excessive, bureaucratic and unnecessary” (New York Times, May 8). The U.S. chemical industry estimates that the new policy will impose $10 billion in new costs against annual chemical exports to the EU of $25 billion.

The proposed chemical regulation is not the only source of tension between nations in the international trade arena. Recent months have seen an escalation of strain in trade relations, particularly between Europe and the United States—the other major economic superpower. The following events serve to illustrate the point.

Trade Disputes

In August, the European Commission (the EU’s executive arm, which handles trade matters for the 15-nation bloc) took the toughest stance yet in its four-year antitrust battle with Microsoft. The Commission asserts that the U.S. software giant continues to abuse European competition rules, claiming in its statement of objections that it has now built a case “too strong to ignore” (Financial Times, London, Aug. 7).

Should this battle develop into a formal court action brought by European regulators, the Commission is confident that the case would withstand the scrutiny of the European Court of Justice. Such an outcome would result in Microsoft facing fines of up to $3.2 billion.

In relation to another longstanding dispute, the August 29 meeting of the World Trade Organization’s (wto) Dispute Settlement Body established a panel to adjudicate on the EU moratorium on genetically modified crops. For nearly five years, the EU has blocked market access to the U.S. and other countries, claiming that genetically modified foods may pose risks. The U.S., on the other hand, claims the moratorium is without scientific basis and amounts to an unfair protectionist measure.

Far from the effects of Europe’s moratorium being limited to within its own borders, the tentacles of European regulation know no geographic bounds. Last year, several African countries refused to accept genetically modified food aid for fear that their crops would be contaminated, thus jeopardizing their own exports to Europe. The U.S. claims that EU actions threaten to deny the full development of a technology that holds enormous potential benefits to both producers and consumers and, it believes, may also provide a significant means to combat hunger and malnutrition in the developing world.

The economic stakes for the U.S. are significant. The moratorium costs U.S. farmers an estimated $300 million each year in lost revenues, making it one of the most contentious issues in a long line of U.S.-EU trade disputes.

In response to import tariffs on steel imposed by the Bush administration in 2002, the EU filed a claim with the wto alleging the violation of trade agreements. In July this year, a wto panel rejected U.S. arguments that the tariffs on selected types of steel imports were needed because increased steel imports were hurting domestic steel producers. The wto ruled that the protective tariffs were illegal, deciding the case in favor of the EU.

Subject to the results of a U.S. appeal (in which the U.S. is not expected to prevail), the EU is now empowered to impose $2.2 billion in retaliatory tariffs on U.S. exports. The European Commission has already drawn up a list of potential U.S. products to be hit with retaliatory measures if Washington fails to conform to the wto ruling.

Whatever one thinks of who is right or wrong, these situations demonstrate the emergence and growing influence of one economic superpower and the relative decline in influence of another.

In truth, America is relinquishing control over its own destiny.

Take, for example, the dispute over the foreign sales corporation tax incentives that were ruled illegal last year. Congress now has to rewrite its tax laws to conform to wto commands—or face the imposition of $4 billion in tariff penalties from Europe. One American commentator wrote, “Our Congress is ordered by foreign bureaucrats to alter U.S. law or our companies face penalties. Presidential decisions to protect vital American industries are declared invalid by Eurocrats. The terms of access to the U.S. market are now to be decided in Geneva …” (American Conservative, Aug. 11).

A Growing Dependence

Contrast the emerging economic dominance of a European superstate with that of its longtime rival, the United States. The former is conscious of the strategic importance of maintaining its critical industries, while the latter quietly slips deeper into a greater dependency on foreign countries for the necessities of national life. The former cultivates its power and influence by aggressively promoting and protecting its trading interests, while the latter is content with opening up its borders in an effort to satisfy the ever-indulgent appetite of consumers gone mad in a feeding frenzy of foreign goods.

America continues to consume more than it produces. It continues to spend more than it earns. While the U.S. consumer has been the savior of the global economy throughout the last decade, at some point the bill is going to have to be paid.

The incredible escalation of America’s proclivity to consume can be dramatically seen by a cursory glance at the nation’s national accounts. America’s trade deficit exploded to $418 billion in 2002 and will be substantially higher this year. Imports have nearly doubled in just 10 years, and the U.S. hasn’t had a trade surplus since 1975. Eventually, the world will cease to finance such excesses, putting downward pressure on the currency and exposing the evaporation of wealth of a once-dominant nation.

Outcome Foretold

Readers of this magazine know well that we have long held to the view that a European federation will rise to be a major force in international politics, underpinned and supported by a great economic empire. The ultimate outcome of escalating trade tensions and political wrangling between the two economic powerhouses of the EU and the U.S. was foretold hundreds of years ago.

Bible prophecy reveals that a final resurrection of the Holy Roman Empire, made up of a group of European nations, is soon to impact the entire world (Rev. 13:4, 16-17; 18:11-15). Dominance in international trade will empower the rise of such a formidable empire. “[F]or thy merchants were the great men of the earth; for by thy sorceries were all nations deceived” (Rev. 18:23). “[A]nd the merchants of the earth are waxed rich through the abundance of her delicacies” (v. 3). Such dominance, however, will plague this Earth only briefly, before this economic, political and military empire will be brought down (vv. 11-15).