GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

The U.S. economy needs jobs. Given Washington’s budgetary constraints and the near exhaustion of monetary policy, economic growth must come from renewed investor confidence and more consumer spending.

Desperate to spark such a revival, businesses are looking to expand markets. Now that Congress has finally approved the free-trade agreements with Colombia, Panama, and South Korea, deepening commercial ties with Europe—America’s largest export market and the most significant foreign investor in the United States—makes sense to a lot of executives even when Greece is on the brink and worries over Italy’s debt are making the euro zone jittery.

Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce, noted that “the chamber is proposing we undertake negotiations to eliminate all tariffs on goods traded across the Atlantic; another to ensure compatible regulatory regimes; and additional agreements to address investment, services, and procurement barriers to commerce.”

The National Association of Manufacturers has begun internal consultations about a NAFTA-E.U. free-trade agreement. The U.S. Coalition of Service Industries backs a transatlantic free-trade area in services. The TransAtlantic Business Dialogue advocates the establishment of a barrier-free transatlantic market.

Europe is catching the eye of the leading presidential contenders: Despite sounding hawkish notes on China, for example, GOP candidate Mitt Romney favors such a euro deal.

Senior Obama administration officials believe that now is the time to begin a serious discussion with the Europeans about some sort of transatlantic trade and investment initiative. The U.S.-European Union summit scheduled for Nov. 28 may be the place it begins.

The payoff from this effort could prove significant. A 2010 study by the European Center for International Political Economy in Brussels estimated that elimination of all E.U. tariffs on U.S. goods would boost American exports to Europe by $53 billion. That’s not going to turn around a $14 trillion U.S. economy, but to put that number in context, it would exceed the likely benefit to the United States from either completion of the Doha Round of multilateral trade talks or the Trans-Pacific Partnership now under negotiation.

Such efforts are certainly not new. Brussels and Washington have been attempting to harmonize regulatory standards since 1995, with little success. So why is there renewed interest now?

• New sources of growth are desperately needed by the electorally challenged Obama administration.
• The Doha Round is dead and there are no prospects for growth-generating multilateral trade liberalization in the near future.
• The E.U. already has a free-trade deal with Mexico and is negotiating one with Canada. Soon Canadians and Mexicans will be able to buy things more inexpensively from Europe than from the United States.
• Washington and Brussels need to work together to protect themselves from unfair Chinese trade practices and in setting new technological standards.
• And the window of opportunity to do something is closing. A decade from now both Europe and the United States will trade more with China than with each other, and the incentive to integrate the transatlantic market may be lost forever.

Of course, the politics of some sort of transatlantic trade and investment initiative will not be easy. Trade has long been a toxic issue in Washington. But the trade agreements recently under debate—such as the deal with Colombia—have been with low-wage countries with abysmal labor conditions. The American public has justly worried that import competition from these nations could undermine living standards in the United States.

Europe, however, poses no such problems. Hourly compensation is 39 percent higher in Germany than in the United States and 20 percent higher in France, according to the U.S. Bureau of Labor Statistics. So it is little wonder that a majority (58 percent) of Americans think that increasing trade with Europe would be good for the country, according to a Pew Research Center survey in late 2010.

Organized labor is also open to the idea. “Increasing trade with Europe,” said Thea Lee, deputy chief of staff at the AFL-CIO, “would be a question of being able to set higher standards on labor and the environment, investment, and regulation.”

One potential stumbling block: U.S. farm interests have long worried that any trade deal with Europe might imperil subsidies for American farmers. More recently, European health and safety standards have blocked sales of U.S. poultry, beef, and soybeans.

One option would be to exclude agriculture altogether. It accounts for less than 5 percent of transatlantic trade. Another approach would be to assume that the distortionary effect of subsidies will fade over time, as both Brussels and Washington tighten their belts under budgetary pressure. Non-tariff barriers—such as differences over how to treat genetically-modified organisms—could be consigned to slow-track negotiations under the assumption that transatlantic thinking on these issues will converge over time.

Don’t expect an announcement of free-trade negotiations with Europe anytime soon. But there is more interest now than at any time in the past two decades.