These estimates also indicate that if the U.S. were seen as a less predictable military ally, the expected trade creation of future bilateral trade agreements between the U.S. and other countries would decrease significantly. Table 1 presents the results of a scenario analysis in which we simulate the decline in trade after the conclusion of a hypothetical trade agreement between the United States and EU countries if the United States no longer credentially meets its NATO commitments. This scenario is motivated by Trump`s July 25, 2018 proposal to reduce “to zero” all tariffs on non-auto goods with EU countries in order to ease transatlantic trade tensions. In the first line, we cover total exports of goods from the US to selected EU countries in 2017. The planned creation of trade is in second place; This represents about 60% of the countries` total trade. Expected commercial creation, including the effects of Mars, ranks third; this is calculated as a trade creation multiplied by the probability of a trade agreement; The expected growth in trade without arms pact effects is calculated in a similar way (with likely reductions of about 20 percentage points). The expected decline in trade creation, if the United States is no longer seen as a predictable ally, is the difference between the bottom two ranks. Eichengreen, B, A Mehl and L Chiţu (2019), “Mars or Mercury Redux: The Geopolitics of bilateral Trade Agreements, BCE Working Paper No. 2246. Figure 2 shows the estimated probabilities of a trade agreement between the United States and some NATO members.
It starts with the premise that the United States will remain committed to its commitments to NATO (see the estimated probabilities, presented as dark gray bars, where the defense pact dummy is set at 1). It then assumes that the United States no longer respects its NATO commitments (see the estimated probabilities displayed as light gray bars where the defense pact dummy is set at 0). The likelihood of a successful conclusion of a bilateral trade agreement between the United States and the countries concerned is decreasing considerably. One possible explanation for this negative finding is that efforts to understand bilateral trade relations and alliance partnerships are disrupted by the existence of multilateral and regional trade agreements. Multilateral and bilateral trade agreements are correlated. Multilateral trade negotiations are also correlated with geopolitics, given that, since the Second World War, trade negotiations have often taken place between military allies, in particular with the aim of consolidating the relevant alliances. We look to the years leading up to the First World War to meet these challenges. Unless there has been a general agreement on tariffs and trade or the WTO, the confusing effects of multilateral negotiations and the current rules-based world order will be lacking.
In addition, the evidence from this period should be significant in determining the impact of economic factors on trade negotiations, provided that these economic factors have strengthened. Trade has increased and the number of trade agreements has increased (see Figure 1). During this period, military and strategic alliances also multiplied, with alliance politics playing an important role in virtually all analyses of the factors that exacerbated tensions before the First World War. For countries that are far from the U.S. — or that didn`t have a trade deal with the U.S. — the story is different. In some cases, such as Japan and Germany, which have benefited greatly from U.S. military protection, the probability of a decline is about 50 percent.
For the United Kingdom, this decrease is more than 40%. The decoupling of the United States from global geopolitical affairs and the pursuit of a trade policy focused on bilateralism and not multilateralism would significantly reduce the chances of concluding bilateral agreements. Figure 3 shows the difference between the two probabilities in Figure 2. The smallest relative probability decrease for Canada is about 20%. .