At least Barack Obama shows a capacity to learn from his mistakes on trade policy.  The Europeans apparently have changed their minds about trade wars after warning Obama away from the “Buy American” restrictions in Porkulus.  Nicolas Sarkozy likes them so much, in fact, that he’s willing to start one within the EU:

French President Nicolas Sarkozy’s protectionism has enraged the European Union — and Germany in particular. Ironically, German Chancellor Angela Merkel was on a protectionist tone of her own until recently. The European Union should be speaking with a common voice in the downturn, but France and Germany are doing little to help. …

Last week Sarkozy upped the ante, saying: “We want to stop moving factories abroad, and perhaps we will bring them back. If we are to give financial assistance to the auto industry, we don’t want to see another factory being moved to the Czech Republic.”

Czech Prime Minister Mirek Topolanek, who was beside himself with rage, promptly announced a European special summit.

Sarkozy’s remarks proved, once and for all, that protectionism is alive and well in the EU. Moreover, there is no doubt that protectionism reduces Europe’s economic output. As we know, there are no winners in a protectionist race.

This calls into question the EU itself.  The European Union started off as a common market, then grew in fits and starts into a quasi-governmental institution.  At its heart, though, the EU exists to provide an single market that can compete with the US and other regions rather than each other.  If they start building protectionist walls within the EU, why have an EU at all?  Why have a common currency?

In fact, the Euro turns out to be a crucial component of the dispute.  Both Germany and France unilaterally modified their monetary policies to rescue their bank systems, without gaining EU approval first (and for that matter, so did the Irish).  Part of this came because the EU simply hasn’t responded well to the economic and banking crisis, but that stems from the top-heavy characteristics of the EU as a quasi-government.  They’re practically built to avoid quick action, and in a severe recession, that model simply won’t work, at least not politically.

Der Spiegel blames the Germans for starting this, with their own subsidy program for domestic automakers.  That prompted Sarkozy to do the same, only more baldly.  Germany under Merkel has given protectionism a new life in Europe at the moment that the EU claims it wants Western nations to coordinate monetary and spending policy for maximum effect.

If the EU touches off an internal trade war, the US had better be prepared to quarantine it to the Continent.  Obama learned the lesson quickly, and perhaps he can tutor our other trading partners.  If not, expect the EU system to collapse entirely, and the Euro along with it.

Tags: Barack Obama