President Donald Trump met with the leader he once said was “ruining Germany” at the White House on Friday: German Chancellor Angela Merkel. In their first face-to-face visit, Trump and Merkel were expected to discuss a number of topics that concern Germany, the U.S., and the rest of the world: NATO, Russia, the European Union, refugees, and North Korea.

Merkel came to Washington with a business-centric agenda in mind. She was accompanied by top executives from BMW, Siemens, and other top German businesses that trade with the U.S. In a recent interview with a German newspaper, Merkel said she planned to stress to Trump the importance of the U.S. and Germany’s trade relationship. “I’ll make that clear,” she said.

But it wasn’t all business-as-usual, like this very awkward moment:

Photographers: Can we get a handshake?
Merkel (to Trump): Do you want to have a handshake?
Trump: *no response*
Merkel: *makes awkward face* pic.twitter.com/ehgpCnWPg7

— David Mack (@davidmackau) March 17, 2017

During a press conference that followed their two-hour private conversation, Trump and Merkel largely focused on areas the U.S. and Germany cooperate on–trade and defense. Trump praised Germany for its work-training programs. But echoing a point he repeatedly made as a candidate and early on in his presidency, Trump said Germany and other NATO members must “pay their fair share.”

Merkel agreed that Germany must do more to meet its commitment to the defense alliance–each NATO member is expected to pay two percent of its GDP per year, a mark all but the U.S. fall short of–and promised that she would make sure it does. The press conference was tense at times, which is hardly surprising, given the history of animosity between the two leaders.

At a campaign event last March, Trump said “the German people are going to end up overthrowing this woman,” in reference to Merkel and her open-door refugee policy. “I don’t know what the hell she’s thinking.” Trump has called Merkel’s refugee policy, in which she welcomed roughly a million refugees to Germany, a “catastrophic mistake.”

Some other notable snippets from the press conference:

• Trump said he is “not an isolationist,” but a “free trader” and a “fair trader.”
• Trump said immigration is a privilege, not a right.
• Merkel said globalization “ought to be shaped in an open-minded way but also in a very fair way.”
• When asked by a German reporter if he ever regrets his tweets, Trump said: “very seldom.”

With populist movements gaining traction in the U.S. and Europe–many with isolationist, anti-globalization, and anti-establishment elements–Germany is a valuable democratic partner for America, as it has been for decades. But Trump’s apparent embrace of anti-EU forces, and of Britain’s exit from the EU, has many U.S. allies questioning his commitment to the traditional western order.

One thing is clear: Trump still believes Trump Tower was wiretapped by President Barack Obama during the 2016 campaign. When asked about his claim, which has been struck down by U.S. intelligence officials and high-ranking Republicans, Trump said he and Merkel, who the NSA has reportedly spied on, “have something in common, perhaps.” Visibly taken aback, Merkel said nothing.

Alec Siegel

Alec Siegel is a staff writer at Law Street Media. When he’s not working at Law Street he’s either cooking a mediocre tofu dish or enjoying a run in the woods. His passions include: gooey chocolate chips, black coffee, mountains, the Animal Kingdom in general, and John Lennon. Baklava is his achilles heel. Contact Alec at ASiegel@LawStreetMedia.com.

The post Trump and Merkel Meet to Discuss NATO, Trade, and Russia appeared first on Law Street.

There is not a lot that Donald Trump and Bernie Sanders agree on in their current presidential campaigns, but one thing the two do seem to share is a general disdain for free trade. The notion of free trade has joined the lexicon of despised things in the United States right next to bank bailouts and tax breaks for the rich. The clearest evidence of this is all the candidates’ desperate efforts to move as far away as quickly as possible from free trade agreements like NAFTA and the Trans-Pacific Partnership.

But is this much ado about nothing? Is free trade really gutting the economy and costing millions of jobs as suggested? More to the point, what does free trade mean? Read on to learn more about what free trade is and to find out if it is really as bad for Americans as some argue.

What is Free Trade?

Free trade does not mean that goods are given to other countries for free. It’s the idea that, for the sake of economic efficiency, tariffs, quotas, and trade barriers should be lowered or removed altogether, which economists argue will make goods cheaper for consumers. The process is aimed at improving efficiency by focusing on what is known as a country’s comparative advantage. Comparative advantage is the idea that a country should produce and export goods that it can make better, faster, and cheaper than other countries. By removing barriers to trade, two countries are left to compete with each other on their natural footing and whichever country can produce a good most efficiently has a comparative advantage for that good.

Comparative advantage is essential to free trade and is generally why economists like the concept of trade in general. Without barriers to trade, countries begin to specialize in products that they have a comparative advantage to produce, which ensures that all goods are made as efficiently as possible and lowering prices for everyone. The video below clarifies further what free trade is:

Globalization and Free Trade

Globalization and free trade are often seen as synonymous, but the two are not quite the same thing. According to the World Bank, “‘Globalization’ refers to the growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas in one global marketplace.” Put simply, it’s the increasing inter-connectedness of every country and person on the planet.

Free trade, on the other hand, is a major driver in making globalization happen. By eliminating things such as tariffs and quotas, countries are encouraging exchange and, as a result, more people are coming into contact with each other and new connections are being made, further integrating the global system. Free trade, then, is just one part of the larger globalization puzzle.

History of Free Trade

Globally

While the constant battle over free trade seems to be an American issue, this is certainly not the case. While earlier theorists may have touched on its concepts, it was Adam Smith who first articulated the concept of free trade in his book “The Wealth of Nations” back in 1776. David Ricardo later introduced the concept of comparative advantage in 1812. The idea of free trade was rapidly adopted by economists after that as the preferred method of economic interaction. It was also embraced by the British Empire who, as the world’s dominant power for over a century, used its power to spread free trade internationally. Today, there are several free trade blocs across the world most notably the European Union as well as Canada, Mexico, and the United States, all of which are part of NAFTA, the North American Free Trade Agreement.

Domestically

Free trade, while not an America invention, does have a long history in the United States. However, for much of that history, the inclination was to resist it. In fact, from the inception of the United States, economic leaders such as Alexander Hamilton advocated for protective tariffs to help the nascent nation’s industry grow, instead of promoting free trade. This movement continued with the number of goods and the size of tariffs fluctuating over time.

Beginning in the early 20th century, a series of events played a major role in altering this narrative. In 1913 the United States government adopted the federal income tax, which became the country’s new largest source of income, supplanting the money made from trade tariffs. With the new guaranteed revenue stream, the government could change tariff rates without fear of forgoing necessary income.

The second major event was the passage of the Smoot-Hawley Tariff in 1930. This tariff was unique because it united industries like agriculture and manufacturing around one policy. It was also unique in the sheer amount of opposition that it faced. The debate following the tariff was whether it directly caused the Great Depression or just intensified it. While common wisdom now points to the latter, the tariff reduced trade and produced reactive tariffs from other nations during the worst period of economic contraction in U.S. history.

The tariff quickly became unpopular and was a major issue during the 1932 presidential campaign when Franklin Roosevelt ran on a platform opposing it. Once elected, Roosevelt made good on his promise, virtually eliminating the effects of the tariff by 1934 through a number of laws such as the Reciprocal Trade Agreements Act. Roosevelt and his advisors had their eyes on a post-war future in which free trade would be the dominant philosophy at last.

Following WWII, the United States finally adopted its free trade stance. The United States was under pressure to support free trade because many other nations were desperate following the war and wanted greater access to U.S. markets. This move was codified by the creation of the General Agreement on Tariffs and Trade (GATT) in 1948. This organization later transformed into its current iteration, the World Trade Organization (WTO) in 1995. While the United States did not embrace free trade for much of its history, it was already benefitting from the concept. This is because the United States was such a large market itself that trade between states was a lot like free trade enjoyed by countries in places like Europe.

Trade Agreements

NAFTA

NAFTA or the North American Free Trade Agreement is an agreement between Canada, Mexico, and the United States that took effect in 1994. Unlike other free trade agreements, this did more than eliminate tariffs and quotas, it effectively synced the policies of the three nations. It was also notable because of the economic differences between the three countries. NAFTA faced a lot of criticism because it sought to create uniform trade laws among the three countries involved. As a result, countries ended up changing their laws to meet the agreement’s requirements even if the same policies had been rejected at a local level in the past.

Namely, while treaties are supposed to require a two-thirds majority to pass in the Senate, according to the Treaty Clause, NAFTA received only a simple majority–more than 50 votes–and was still able to be signed into law. The question at hand was whether NAFTA was a treaty or an international agreement, which would not require a two-thirds majority in the Senate. As a result, NAFTA it was challenged in court but the case was eventually dismissed. The constitutionality of NAFTA was also challenged for its binational trading panels, which review the enforcement of U.S. trade laws and could even override such enforcement.

TPP

The TPP or Trans-Pacific Partnership is another free trade agreement like NAFTA but on a much larger scale. In this case, the deal includes 12 countries bordering the Pacific Ocean, notably excluding China. This deal again has many of the traditional criticisms and promises. Unlike NAFTA, however, the TPP has not yet been approved by Congress and may face significant opposition given the current backlash toward free trade.

Read more on the Trans-Pacific Partnership and its potential impact on intellectual property rights.

The accompanying video looks at free trade and free trade agreements following the switch in focus to free trade following WWII:

Criticisms of Free Trade

While free trade has been lauded in the past by economists, politicians, the media, and corporations, it has also drawn a lot of criticism. Most of these criticisms center specifically on its effects–namely that while free trade promises to be the rising tide that raises all boats, opponents claim that it actually does the opposite. First, by reducing tariffs and other protective measures a country is not only eliminating its own trade barriers but is doing the same thing for another country. If the two countries were operating on equal footing this would not be a problem, however, that is generally not the case.

In the case of a developed nation, like the United States, it has the economies of scale to put less efficient, smaller operations out of business. This is what happened in Mexico as large American agricultural companies started competing with small Mexican farmers, forcing them from their livelihoods and leading, in part, to their migration to the United States. Conversely, in countries where workers’ rights and environmental regulations are less developed these too can be exploited. In these countries, companies can lower the cost of production and undercut advanced nations with stronger regulations and higher standards.

In this sense then, the notion of comparative advantage is turned on its head. Instead of rewarding the best producer it can reward the cheapest or the least concise. This problem alone would be bad enough, but the critique continues. During this process of racing to the bottom, free trade has eliminated jobs in wealthier countries that pay more and created them in less advanced nations that pay less. Unfortunately, these newly employed workers are not wealthy enough to buy more goods and the now unemployed workers in the developed country are also buying less. According to critics, instead of creating a mutually beneficial society, free trade has brought about reductions in trade.

A major issue is that comparative advantage is supposed to move laborers from unproductive endeavors to more useful ones. But instead of seeing their efforts refocused in a more prosperous industry, workers in developed countries typically have to find jobs in different sectors of the economy. In countries like the United States, many factory workers have lost their jobs due to international competition. But instead of getting a different factory job they tend to move to the services industry, which typically involves lower wages.

There is some empirical support for these criticisms as well, with workers in the United States seeing a loss of manufacturing jobs since their height in the 1970s, rising trade deficits despite free trade, and low or negative wage growth. The question then is why would anyone support a concept that hurts the American worker while rewarding countries with loose regulations and low wages? The answer and the primary culprits in the criticism of free trade are the people who run multi-national corporations. According to the critics of free trade, the process naturally benefits these people as it allows companies to cut costs by paying its workers less while facing fewer regulations. The following video details some of the effects of free trade:

Despite all of its criticism and shortcomings, free trade is not all bad. The concept of competitive advantage increases the efficiency in the global economy. Aside from that, free trade offers a number of other potential benefits including reduced inflation, economic growth, greater innovation, increased competition, and greater fairness. Proponents of free trade also argue that turning to protectionism now won’t really solve the problem and may even be impossible. Finally, although manufacturing jobs have left the United States, many of those who gain jobs in other countries have been lifted out of extreme poverty.

Conclusion

Throughout U.S. history, Americans have grappled with whether protectionism or free trade is in their best interest. While free trade means more markets it also means greater competition, especially from places where things such as workers’ rights and environmental concerns are less prevalent. And it means doing away with protections that may very well have helped the nation develop and become a dominant world power.

However, trade policies, like anything else, move in waves. For the majority of the nation’s history, this wave has crested with protectionism on top. In fact, it took the greatest depression and largest war in the history to finally create a global system that favored free trade. While the Bretton Woods agreement and other deals such as NAFTA or TPP have continued, free trade policies have never been universally accepted. In an election where it seems like voters and candidates can hardly agree on anything across party lines, the current backlash against free trade may bring people together for at least a brief moment.

Resources

WBUR: Free Trade Fact-Check: NAFT Becomes Campaign Issue

Common Dreams: What’s The Problem With ‘Free Trade’

Foundation for Economic Education: Free Trade History and Perception

World Bank: Globalization and International Trade

CATO Institute: The Truth about Trade in History

The Fiscal Times: Free Trade vs. Protectionism: Why History Matters

The Economist: The Battle of Smoot-Hawley

BBC News: A century of free trade

Public Citizen: North American Free Trade Agreement (NAFTA)

BBC News: TPP: What is it and why does it matter?

Reference for Business: Free Trade Agreements and Trading Blocs

Law Street Media: What’s Going on With The Trans-Pacific Partnership

Law Street Media: Trans-Pacific Partnership: Why is the IP Rights Chapter Receiving So Much Criticism?

Los Angeles Times: Court Rejects Challenge to Constitutionality of NAFTA

PR Newswire: Recent U.S. Supreme Court Decision Reinforces Doubts About Constitutionality of NAFTA Chapter 19 Panel System

Mercatus Center: The Benefits of Free Trade: Addressing Key Myths

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Michael Sliwinski

Michael Sliwinski (@MoneyMike4289) is a 2011 graduate of Ohio University in Athens with a Bachelor’s in History, as well as a 2014 graduate of the University of Georgia with a Master’s in International Policy. In his free time he enjoys writing, reading, and outdoor activites, particularly basketball. Contact Michael at staff@LawStreetMedia.com.

The post The Costs (and Benefits) of Free Trade appeared first on Law Street.

“Avengers: Age of Ultron,” the latest hit in the Avengers franchise, debuted in theaters recently and made more than $200 million in a single weekend. The surprising part however, is that it earned that $200 million outside the U.S., before the movie even opened stateside. The increasing globalization of the film industry is abundantly clear. But the changes in the film industry aren’t just reflected in the exports of American movies to foreign audiences. There are also many nations expanding into the industry. Read on to learn about the globalization of the film industry, and its worldwide ramifications.

The American Film Industry: Changes From Sea to Shining Sea

While Hollywood is facing greater competition from abroad in almost every aspect of the film industry, it is still the dominant player globally. In 2014, for example, the top ten most profitable movies were all made in the United States.

Hollywood has had to adjust to a changing customer base. Nearly 60 percent of the box office hauls taken in by these big productions came from abroad. This means that the success of the Hollywood movie industry is driven more by foreign markets than domestic. In fact, the number two market for Hollywood films, China, is predicted to surpass the American market by 2020.

In response to this changing environment, Hollywood is increasingly relying on big-budget blockbusters. These movies have been particularly marketable specifically because of their simple plot lines, which often avoid nuanced or culturally specific stories that might get lost in translation. Additionally, Hollywood often adds extra scenes to movies released in other countries, sometimes featuring actors from those countries, in order to make them more relatable. This has meant making changes to movies, too. For example, in the remake of “Red Dawn,” the nationality of the invading soldiers was changed from Chinese to North Korean in order to avoid alienating the Chinese movie audience.

Foreign Film Industries: The Veterans

Although Hollywood, as a result of globalization, is facing stiffer competition abroad, there has long existed a traditional foreign film industry. The center of this industry is located in Europe

European Film Industry

While every country in Europe makes movies, five countries in particular make up 80 percent of the market: France, Germany, the United Kingdom, Italy, and Spain. The industry itself is also massive in scope, including 75,000 companies and 370,000 workers across Europe.

In addition to the number of people involved, Europe is also home to some of the most prestigious events in cinema. Perhaps the most famous is the Cannes Film Festival in France. This event has taken place nearly every year since 1946, with filmmakers from all walks of life competing for the coveted Palme d’Or prize for the best film in the competition.

Despite the success of the film industry in Europe, it has struggled to deal with foreign competition, particularly Hollywood. As of 2013, 70 percent of the European film market was dominated by American films. This is in stark contrast to a much smaller 26 percent coming directly from European sources.

But as Hollywood has made efforts to keep its industry relevant, so has Europe. One of the most prominent attempts has been through the LUX competition. Seeking to address one of the most glaring problems in Europe’s film industry–distributing and dubbing movies in all the languages spoken in Europe–the films involved in this competition are sub-titled in 24 different languages so as to be accessible to a wide audience.

Film Industries Down Under

Australia and New Zealand also have prominent film industries. While Australia is currently dealing with losing out on some projects because its tax credits are not competitive enough, there is a strong tradition already in place. For example, “Star Wars: Revenge of the Sith” as well as the “Matrix” trilogy were both filmed there.

The New Zealand film industry is strong and thriving. This has been the result of two forces. First, home-grown production of films such as “The Piano,” which won three Oscars in 1993, has helped promote the industry. There has also been a rise of recognizable talent coming out of the country, including director Peter Jackson. Like Australia, New Zealand has also been the location of major Hollywood productions such as “Avatar,” “King Kong,” and “The Last Samurai” to name just a few.

Rising Stars

Other countries are continuing to create voices of their own through national film industries. Three of the most successful countries in creating major movie industries of their own have been India, Nigeria, and South Korea.

India

Although Hollywood is the most profitable film industry worldwide, India’s is the most productive based on its sheer number of films. India’s film production is so prodigious that it has earned a nickname of its own: Bollywood, in reference to the city of Mumbai. In fact, India’s industry is so expansive that the Bollywood moniker is really only applicable to Mumbai–other regions and cities have film industries of their own that have spawned similar nicknames, such as “Kollywood” and “Sandalwood.”

While the Indian film industry has been a compelling force for more than 100 years, it has seen a huge jump in growth recently. From 2004-2013, gross receipts tripled and revenue is estimated to reach $4.5 billion next year. With those kinds of numbers, India’s film industry promises to continue its upward trajectory in money and influence.

Nigeria

The Nigerian film industry also produces more films per year than Hollywood, and it has the similar nickname “Nollywood.” Nigeria’s films are often lower-budget productions that are released directly to DVD and often not even filmed in a studio. Nonetheless, the Nigerian film industry is influential enough regionally that neighboring countries fear a Nigerianization effect on their own cultures.

The Nigerian film industry is so popular that the World Bank believes that with the proper management it could create a million more jobs in a country with high unemployment levels. The film industry in Nigeria already employs a million people, making it the second-largest employer in the country behind the agricultural sector. Still, for Nigeria to be on the same level as Hollywood or Bollywood, many issues would have to be addressed, in particular the high rate of film pirating. The video below explores Nollywood and its impact on Hollywood.

South Korea

South Korea also has a strong film industry, although it doesn’t have a catchy nickname. While it does not generate the volume of films of Bollywood or Nollywood, it does have the advantage of being the go-to destination for entertainment for much of Asia, particularly China and Japan. South Korea’s movies resonate both domestically and regionally because they often play on historical conflicts that affected the region as a whole. The film industry there also received a boost when a law was passed stating that at least 40 percent of films shown in South Korea had to be produced there, forcing local companies to step up and fill the void.

What does film industry globalization mean?

Money

One of the most obvious implications of globalization is financing. Several major Hollywood studios including Disney have bankrolled films in Bollywood. This is in an attempt to harness the massive potential audience there. Financing is a two-way street however, and when Hollywood struggled for funds following the 2008 recession it received loans and financing from Indian sources.

Culture

Another implication is cultural. In many countries, the government has posted quotas or imposed tariffs on foreign films to limit their dominance domestically. These laws are aimed specifically at American movies. One of the motivations for these rules is the competition American films provide. In basically every domestic market worldwide, Hollywood movies have a larger share than the domestic industry. Secondly, movies are seen as cultural pillars, so leaders are interested in preserving, and even promoting their own culture over that of a foreign entity like the one presented by Hollywood.

Like financing, cultural considerations also have a return effect on Hollywood. In order to attract more foreign viewers, Hollywood movies have simplified story lines and included more actors from different locales. In effect, Hollywood has had to become more diverse and open in order to appeal worldwide. This effect may actually dilute any would-be American cultural overload as well, as these movies are incorporating more global cultures in order to be competitive.

Globalization is a give and take. There has been a long-standing fear of globalization leading to Americanization; however, as the film industry has shown, for American filmmakers or any others to be competitive globally their themes and characters must be global, too. Additionally the invasion of Hollywood movies has also encouraged many domestic industries to build up their own audiences and industries that had been neglected before.

Conclusion

Hollywood has long dealt with issues, ideas, and events that have stretched the world over, and it is now dealing with competition as diverse and far reaching as the topics of the movies it produces. The Hollywood film industry had remained the dominant player in the industry by leveraging foreign markets. Globally this has also meant the incorporation of more films and actors from traditional markets such as Europe. It also means the rise of movies and stars from non-traditional markets as well. Thus the globalization of the film industry has meant many things to many different people, but what it has meant to everyone involved from production to consumption is greater access and opportunity. Hopefully, the global film industry will continue along this path.

Resources

Arts.Mic: Three Countries With Booming Movie Industries That Are Not the U.S.

BBC: How the Global Box Office is Changing Hollywood

Vanity Fair: Avengers Age of Ultron is Already a Huge, Hulking Hit at the Box Office

Business Insider: The Highest Grossing Movies of 2014

Grantland: All the World’s a Stage

Law Without Borders: The Intersection of Hollywood and the Indian Film Industry

Los Angeles Daily News: Why TV, Film Production is Running Away From Hollywood.

European Parliament Think Tank: An Overview of Europe’s Film Industry

BBC: Australia Film Industry Hurt by Strong Currency

International Journal of Cultural Policy: Cultural Globalization and the Dominance of the American Film Industry

UN: Nigeria’s Film Industry a Potential Gold Mine

Festival De Cannes: History of the Festival

100% Pure New Zealand: History of New Zealand Screen Industry

Michael Sliwinski

Michael Sliwinski (@MoneyMike4289) is a 2011 graduate of Ohio University in Athens with a Bachelor’s in History, as well as a 2014 graduate of the University of Georgia with a Master’s in International Policy. In his free time he enjoys writing, reading, and outdoor activites, particularly basketball. Contact Michael at staff@LawStreetMedia.com.

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