When a country gets desperate, it closes its borders to imports. It’s a sign of surrender: We can’t compete anymore, so let’s close the doors. Closed borders rarely create jobs. In the contrary, they drive prices up, and everybody pays. Import restrictions are the most insidious tax a country can levy on its citizens. And they readily pay for it. Trade wars are an easy sell. Especially to people who cannot balance their checkbook. The price will be paid later.
While the U.S. is closing the door inch by inch, the rest of the world goes the totally opposite way.
Korea signed a free trade deal with the EU yesterday, reports NPR. If approved by the EU parliament (pretty much a done deal), the agreement will come into force on July 1, 2011.
EU president Herman Van Rompuy, said that the pact “sends a strong signal that trade liberalization is key to the recovery of the world economy.”
British Prime Minister David Cameron hopes that the deal will be “laying the ground for further free trade agreements between Europe and other countries, including India, in the future.”
There’s another country that can’t wait: Japan. Japan hopes to follow in South Korea’s footsteps by rapidly striking a free trade deal with the EU, a senior Japanese official told AFP. Japan competes with South Korea in a number of areas including auto production. They want the same preferential access to the European market, home to half a billion people.
It’s not that the Europeans are opening up their borders out of the kindness of their hearts. They have a lot to export: Cars, machinery, foodstuffs. They learned that a common market is good for business. The European Commission estimates the deal will eliminate $2.1b worth of industrial and agricultural duties for European exporters to South Korea. The EU will cut some $1.53b of duties for Korean importers. Hyundais will be cheaper in Europe. BMW’s, Mercedeses, and Audis will cost less in South Korea. Both win, and amazingly, the Europeans win a little more.
I guess the U.S. will have to learn the hard way that a closed market is bad for business.