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In With The New . . . Europe
They're with us in war, freedom, and economics.


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Larry Kudlow

Do not let the fog of war obscure the international trade figures just published by the U.S. Commerce Department. The statistics may be drier than sand but they reveal a fascinating tale of wartime politics and economics.

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Take a look at worldwide trade balances. No — not the so-called trade deficit, which is as phony as a $3 bill with an error factor that is larger than the deficit itself. Look at the exports and imports underneath the deficit. Imports tell us about the strength of our economy. Exports signal the strength of their economies — “their” being the rest of the world.

Overall U.S. imports of goods and services purchased from the rest of the world increased a sizzling 19.7 percent for the twelve months ending in December. That means we’re hot. Meanwhile, U.S. exports of goods and services sold to everyone else around the planet increased by 4.8 percent — not altogether bad, but not great either. So right out of the box it is clear that we are doing better than they are.

Let’s look at trade balances by region. First, western Europe — or more accurately, Old Europe, to use Donald Rumsfeld’s all-too-accurate phrase. U.S. exports to this fading old hag are down 15.6 percent. Pacifist Germany? Minus 11.9 percent. Egocentric and anti-U.S. France? Minus 13.6 percent. Are these guys playing with a thin deck or what? Their economics are just a wussy as their foreign politics.

How about our real friends in the Mediterranean sector of Old Europe? Well, U.S. exports to Jose Aznar’s Spain are up 27.6 percent. Silvio Berlusconi’s Italy? Up 16.1 percent. Their economies are as strong as their dislike for terrorism.

How about New Europe? U.S. exports to these freedom-loving and Saddam-hating nations in the central and eastern precincts are up 25.5 percent over the past twelve months. A tremendous performance.

American export trade to Poland is flat, and to Hungary slightly negative. However, the “other” category — which includes the Czech Republic, Slovakia, Slovenia, and the Baltics — shows an incredible 53.9 percent increase in goods and services purchased from the United States. This is the group that produced the Vilnius 10 letter of support for the United States in the war against Saddam Hussein. It’s a freedom-loving group that counts President Vaira Vike-Freiberga, also known as the Margaret Thatcher of the Baltics, among its members. Their economies are improving faster than the stunted wreck that is the Franco-German alliance.

Trade figures may not tell the whole economic story, but something good is surely going on in the former Soviet colonies. Just as they value their new-found democracies and political freedoms, they also seem to appreciate their newly established free-market economies and their liberation from Communist state controls.

This raises a logical question. Why not a transatlantic free-trade agreement with the willing members of old and new Europe? Those that wish to join such an agreement, one that could be anchored by a trade pact with the U.S. and Britain, should be free to do so. The European Union already has an internal trade arrangement that would not be impaired by a new transatlantic trade deal.

Of course, the French would never buy it, just as Monsieur Chirac blasted the Vilnius 10 letter supporting President Bush and the war against terror. He will do all he can to prevent a U.S.-New Europe trade deal. But the recently freed central and east Europe countries should have an option to forge even closer economic ties with the United States as a accompaniment to their desire to cement national security relations with America. It would also help liberate them from France’s overbearing influence.

Far-fetched? I don’t think so. There’s no reason why the broad-based coalition of the willing to fight terrorism and terminate weapons of mass destruction couldn’t be supplemented by an economic component. Think of it. A strong dose of freedom would be embedded in both tracks.

Mr. Kudlow is CEO of Kudlow & Co.



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