GED Under the Radar - March Edition
This month under the radar: Europe's birthday, its trade partners, taxpaying robots, Kimchi and a trade war!

Tom Blackwell @ flickr.com Tom Blackwell @ flickr.com

 

Every month there are some economic stories that fall through the cracks. In this segment,  the GED Team will present to you those economic stories, which we found most interesting each month but felt received less popular media attention than they actually deserved. These stories can come from all over the world. They can be relevant and important for the global economic system as a whole or just affect a select group of few, they can be serious or they can be humorous. In any case they will be interesting. This is “GED Under the Radar”!

 

March’s Radar Stories in Short:

  • Lotte and the Missile System
  • Europe’s Birthday
  • Should Robots Pay Taxes?
  • Trump’s Next Trade Targets
  • New Statistics on EU Trade Relations

 

Lotte and the Missile System

 

Lotte Group, one of the biggest South Korean conglomerates, has experienced the closure of 23 of its retail stores in China at the beginning of March as well as a halt to the construction of a Lotte theme park in the northeast of China, ordered by the Chinese authorities. These and other incidents such as several cyber attacks and bans on sales of travel tours to South Korea are all affecting the country’s companies since Washington and Seoul agreed to build a missile shield system, the so-called THAAD (Terminal High altitude Area Defense). Since Lotte agreed to sell one of its golf courses to the South Korean government in early 2017, land that will be used for the installation of THAAD, it has found itself in the middle of a set of tensions between China and South Korea. Protesters also gathered in front of Lotte’s Chinese retail stores after the sale of the golf land to the government became public.

 

The THAAD, which is a response to North Korea’s missile threats, is something China does not seem too be amused about. But as Beijing cannot do much about the new defense system, it rather chooses to show off its objection mainly by putting economic pressure on South Korea, particularly the products Seoul exports to China.

 

Goods from South Korea, particularly fashion, music and TV shows, are especially popular among young Chinese, and about a quarter of Korean exports go to China each year (that is double of its exports going to the US and almost three times the exports going to the EU28). Yet, China started to block entertainment products, such as TV shows and K-pop music within China and, just after the official agreement between the US and South Korea on THAAD in 2016. Several representatives of the Korean entertainment industry, such as K-Pop bands, canceled their events in China, as some of them had been denied visas to enter the country.

 

The protests were further fueled by Chinese news media, suggesting Lotte to be an accomplice in an effort to undermine China and nationalist voices, which called to not eat Kimchi and boycott South Korean products in general.

 

Additionally, all this comes at a moment when the establishment of formal ties between China and South Korea is actually having its 25th anniversary this year and at a time when Seoul is heading to hold presidential elections in May 2017, after its former president Park Geun-hye was impeached and dismissed.

 

Happy Birthday Europe! – 60 Years Treaty of Rome

 

On March 25th, 1957 six European nations – Italy, Belgium, West Germany, France, the Netherlands and Luxembourg – came together at the Palazoo die Consevatori in Rome to sign a treaty establishing new institutions aimed at bringing Europe closer together just 12 years after the most devastating war the continent had ever seen had ended. In doing so, these countries laid the foundation for what should later become the European Union. Last week the major political leaders of the EU countries came together once again in Rome to celebrate the 60th anniversary of the signing of the Treaty of Rome and with it the 60th Birthday of modern Europe.

 

So why was the Treaty of Rome so significant? Born out of the European Coal and Steel Community, which had been formed just six years earlier, the treaty established four key institutions, namely the European Commission, the Council of Ministers, the European Parliament and the European Court of Justice. Together, they made up the European Economic Community, which was then in time to become the European Union. The reasons for the treaty, however, were not just of an economic nature but of a political one as well. The Second World War was still very much alive in every country’s memory in 1957. Five of the six founding member countries had been under German control during the war. An economic fusion of the six countries, should not only foster mutual cooperation and understanding but make a new war in Europe economically impossible alltogether. Meanwhile, the rising menace of the East and the start of a Cold War with the USSR made a political alliance seem even more important to Western European leaders.

 

Today, the European Union has its own problems to deal with. A growing trend of populism and protectionism gives fuel to the ember of anti-European sentiments all across the continent and by triggering Article 50, the UK has become the first ever nation to declare actually wanting to leave the EU. Still, the celebrations on March 25th – and the many pro-European demonstrations that accompanied them – show that the overall mood in Europe remains a positive one, one of unity and hope for the future. The fact that there were only 27 of the formally still 28 leaders of the EU present in Rome to celebrate could not sour this mood either. No birthday cake for you Mrs. May.

 

Should Robots Pay Taxes?

 

A worker produces goods at a factory and in return receives a monthly income. Part of that income the worker then has to pay back to the state in the form of income taxes, social security taxes etc. If the factory now chooses to replace that worker with a robot, doing the same amount of work, should the robot then not be taxed the same way? At first glance the idea might sound peculiar. A robot does not generate any personal income, nor does it have to rely on social security. Still, the idea has been prominently featured from a variety of sources over the last couple of months. Bill Gates advocated the concept in a recent interview, a similar proposal for a law made it to the European Parliament but got ultimately rejected and French politician Benoit Hamon declared the robot tax as one core part of his platform as the presidential candidate of the Socialist Party. So what’s the big idea?

 

Of course the proposed tax ultimately would be one not paid by the robots but by the companies deploying them. The generated money, according to Gates, could then be used to finance job training and job transitions for replaced workers, especially into fields where humans, as opposed to robots, are still particularly well suited for such as caring for the elderly or working with kids in schools.

 

A first law proposal for implementing such a tax got rejected by the European Parliament earlier this year on fear that robot taxation could impede innovation and consequently actually hurt European employment. The Frankfurt-based International Federation of Robotics welcomed the lawmaker’s decision, stating that “…the idea to introduce a robot tax would have had a very negative impact on competitiveness and employment.” Still, the Parliament did agree on a resolution to call onto the European Commission for further EU-wide legislation to regulate the rise of robots, including an ethical framework for their development and deployment. “The EU needs to take the lead on setting these standards, so as not to be forced to follow those set by third countries,” the parliaments statement reads.

 

Ultimately, it remains to be seen whether the positive effects of robot taxation could outweigh its potentially negative impact on innovation. But even if the robot tax might not be the right instrument for the job, an ever more rapid advance in automatization makes one form or another of robot regulation in the near future seem inevitable.

 

Could Trump Target European Scooters and Cheese Next?

 

Donald Trump ran his presidential campaign on a highly protectionist economic agenda, promising the American people to negotiate better trade deals, bring back jobs to America from overseas and protect domestic markets by imposing hefty import taxes and consequently decreasing the U.S.’ trade deficit. We have talked before about why especially the last part of such an agenda would almost certainly not work for the United States, still even after having been elected president, there seem to be no signs of Donald Trump choosing a more open approach towards trade.

 

After a recent public hearing by the United States Trade Representative, it now seems that Trump might have found a new potential focus for his policies as his administration is considering introducing a whopping 100 percent import tariff on about 90 European products. The full list of products, that for the most parts targets meats and other agricultural products, contains such goods as the well-known French Roquefort cheese, Perrier and San Pellegrino mineral water but also Italian Vesper scooters and – weirdly enough – hair clippers.

 

The real reasons for this rather extreme consideration, however, go back further than Donald Trump’s election as president. Rather, Trump’s threat shall act as a leverage for his government in a conflict that has been waging between Washington and Brussels for over 20 years now. At the bottom of it lies the EU’s refusal to let American farmers export beef, treated with growth hormones, into the EU. While this conflict seemed to had reached a settlement under President Obama by allowing the US a quota of 50,000 tons of hormone-free beef per year to be exported to the EU, many American farmers have been less than happy with this deal and it appears that President Trump has now taken it upon himself to “reach a better deal” for the US, albeit through rather extortionate means. Whether the EU will defer to strong-arming like this is questionable.

 

China and US: Still the Biggest Trade Partners of the EU        

 

On matters of international trade, the EU still does most of its business with China and the US. And the two big partners are leading by far, as new statistics by Eurostat show: In 2016, the EU conducted 17.7 percent of its international trade in goods with the US (worth €610 bn) and 14.9 percent with China (equivalent to €515 bn). With regards to trends in EU international trade, the share of the US has risen again, after it had continuously fallen until 2011. Even more impressively, China’s share in trade with the EU almost tripled within the last 17 years, from 5.5 percent in 2000 to this year’s share of 14.9 percent.

 

EU Trade Radar

Source: Eurostat. EU top trading partners, 2000-2016, News Release 51/2017

 

Both, China and the US, are far ahead of Switzerland, which ranks third with a share of 7.6 percent in EU international trade, followed by Russia (5.5%), Turkey (4.2%) and Japan (3.6%). Opposite to China, the Russian and Japanese share almost halved by 2016, whereas the Turkish and Swiss share remained rather stable.

 

Within the EU, Germany has been the main destination for intra-EU exports in goods for 16 member states and was also the main partner for imports in goods: for seven member states, more than a fourth of their imports came from Germany. Yet, the biggest share of German exports went to the US, whereas most of its imports came from its close-by neighbor, the Netherlands.

 

Also, most of exports in goods from Ireland, Malta and the UK went to the US. Overall, intra-EU exports amounted to 64 percent of the member states’ exports, which is equivalent to a total of €3 110 bn of goods. The EU member’s imports from other member states amounted equally to 64% and therefore represented a total of €3 029 bn. The ranks of countries which export the most within the EU are dominated by mainly central and Eastern European states, such as Slovakia (85% of Slovakian exports went to other EU member states), the Czech Republic (84%), Hungary (81%) and Poland (80%). Similarly, the member states that received most of intra-EU imports were Estonia (82%), Latvia (81%), Slovakia (80%) and the Czech Republic (79%).

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