On 30 August 2016, the European Competition Commissioner, Margrethe Vestager, announced that ‘Ireland granted undue tax benefits up to EUR 13 billion to Apple.’ Those benefits distort competition within the European marketplace and so the Commission instructed Ireland to recover the unpaid taxes. This announcement ignited a storm of protest from Apple and from the Irish government. It also sparked a wider debate about how multinational companies are taxed and about whether some form of tax harmonization is essential to the functioning of Europe’s internal market. Although some general principles have emerged from the conversation, the deeper implications of the controversy remain unclear. The debate here is less about the treatment of a single company than about the way European governments have tried to promote regional development and how the United States has relied on multinational corporations to exert influence in the wider world.
The United Kingdom is going to leave the European Union (EU). The facts being created on the ground all point to that conclusion. Nevertheless, it is still worth pointing out that that a British exit from the EU (or ‘Brexit’) is a bad idea. There are many reasons Brexit is bad. The most important is that the campaign for leaving the EU rested on a fundamental misunderstanding of international trade.
The British vote to leave the European Union (EU) is the first step toward formal disintegration that the West has experienced. The closest parallel is France’s decision to step outside the integrated military command structure of the North Atlantic Treaty Organization (NATO) in 1966. But France remained a member of NATO; that decision was more like Britain’s opt-out from the single currency or Schengen, even if the shift of NATO’s headquarters from Paris to Brussels made it seem more dramatic. By contrast, the British have now decided that they do not want to take part in the EU and that they want to renegotiate their relationships with the rest of the world on a case-by-case basis. The West has not gone through anything like this since the end of the Second World War.
The British referendum is based on (at least) two bad ideas. The first is that the popular legitimacy of a referendum can restore the sovereignty of the British parliament. The Leave campaign believes they can take power from Brussels and give it back to Westminster. That is a fantasy. The British parliament will be more constrained and less effective if the UK leaves. The second bad idea is that referendums are more democratic than acts of parliament (which is the kind of decision that brought Great Britain this far in its relationship with Europe). By giving the people the chance to speak their mind on a yes-or-no (in-or-out, remain-or-leave) question, we can discover what they really want. That is not how people work. Real people prefer trial and error. Real people also like to delegate responsibility for making complicated decisions. This matters because the two bad ideas combine to make the worst of all possible worlds. Britons who vote to Leave will discover that they have made a terrible mistake only to learn that there is no easy way to fix it.
Free trade is welfare enhancing. Interdependence requires cooperation. Central banks should be politically independent. And the United States is the indispensable world leader. These are the certainties we used to offer graduate students in international relations. Now they are all aflame.
The U.S. Presidential elections represent a stark choice between a competent if unexciting continuation of the status quo and an emotional – perhaps even terrifying – break with the past. Moreover, the results of the contest will be felt far beyond the borders of the United States. On 17 and 18 March, I was invited by the United States consulate in Milan to participate in a series of events to explain the ongoing elections. The audiences were mostly Italian but there were some others mixed into the groups as well. My goal was give some sense of how the U.S. elections are going to have an impact on the outside world. That impact will be both direct and indirect. The direct effects will come through the change in U.S. foreign policy. The indirect effects will come through the change in economic policy. I outlined the two issues in turn. Then I offered some thoughts on the future of U.S. global leadership. The bottom line in all three cases is very similar: Americans must choose between the familiar and the unknown – and the world must accept the consequences.
Trade policy is in trouble in the United States right now primarily because it is not ‘trade policy’. Instead, U.S. President Barack Obama has framed his trade agenda around parallel agreements on regulatory cooperation that should make it easier for transnational enterprises to distribute their manufacturing processes across national borders without facing redundant regulatory requirements or losing control over intellectual property rights. This regulatory cooperation is a good idea and yet the devil is in the details. Unlike a more ‘traditional’ trade negotiation over tariff schedules and market access, both the aggregate and the distributive consequences of this type of agreement are more subtle. Worse, the language used to describe both the process of negotiation and the agreements themselves is largely impenetrable. Worst of all, these are negotiations where fundamental principles are involved.