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Brussels Builds A Wall

Europe Builds A Wall
 Baba Vida fortress in Vidin, Bulgaria
Image by Borislav Borisov

One of the main reasons that Europe is such a magnet for tourists are the castles. Drive through France, Germany, Italy, Poland and any of the other 27 nations that exist within it’s borders and you are hard pressed to have missed a castle or a walled city or two. In times of trouble the European go to way of handling threats, real or imagined was to throw up a wall.

Of course today such actions are dismissed as old fashioned, and certainly not progressive. Build bridges they cry, not walls.

However the instinct is strong, and the latest example comes from the European Parliament. And these walls are not of wooden palisades, or of ashlar blocks one upon another, but of tariffs, and of trade walls. 

The rapid slow down of the economic heft of the economies of the European Union is one of the biggest macro-economic stories of the last few decades. Despite the rapid growth in the physical size of the European Union, as it absorbed the nations of the former Soviet bloc, its population grew from 460 million in 1980 to just under 750 million today. However in that time it’s proportion of world trade has dropped from 34% in 1980  to 16% in 2019. In every year GDP grows, but slowly. The rest of the world is leaving Europe behind.

However the old defensive instinct runs deep in European politicians. Pretty much any document about taxation from the European Parliament of Commission adds the prefix ‘harmful’ and suffix ‘competition’. Rather than being a driver of innovation, rather than an opportunity to free entrepreneurship lowering taxation is seen as harmful. 

This is at root the reason why the European Union is currently building barriers. The most well known recent example is the Digital Tax, France is imposing import tariffs of 3% on firms with global revenues above €750 million yearly generated from digital activities, of which €25 million are made in France. This naturally impacts on US interests with firms such as Google, Facebook and Apple being in the firing line. The Trump administration has reacted as could be expected with proposals to tax imported French luxury products.

However the new wall being built by the Europeans may be far more serious. Pascal Canfin, is a Euro-lawmaker and Chairman of the powerful Environment Committee of the European Parliament. He is also a member of President Macron’s political Party.  

He is looking at imposing carbon tariffs, tariff that impact on the entirety of society, not merely the digital sector. 

In the light of Brexit, the EU is trying to tie the UK to its regulations, not just on departure but going forward into an unspecified future in what they describe as ‘dynamic alignment’ or in layman’s terms – the UK is not to benefit from its declaration of independence. But this plan to wrap the UK into any future tariff and tax hikes by a European Union desperate to protect its own over-regulated industrial sector is already causing concern outside the continent of Europe. 

At the World Economic Forum in Davos last week US Treasury Secretary Steve Mnuchin made it very clear the US was watching, and not in a good way, “if you want to put a tax on people, you know, go ahead and put a carbon tax, that’s a tax on hard working people”.

Wilbur Ross, Commerce Secretary was more blunt, “Depending on what form the carbon tax takes, we will react to it, but if it is in its essence protectionist, like the digital taxes, we will react”. 

If the EU wants to hamstring the UK, then it might just get away with it, but with its increasing population, and decreasing competitiveness and global standing, today it only has walls rather than ideas. It will fail if it takes on the US and the rest of the world.

That tourist in Europe might notice something about it’s walls, today defensive walls are in ruins across the continent. The only walls that are still in use are those of prisons. If it wants to grow and maintain any serious role in the world economy it will have to embrace competition, not hide behind walls pretending the real world isn’t out there.

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