Economic Revival And Transformation: Jobs, Growth, Trade

October 06, 2020
Transatlantic Task Force
9 min read
The transatlantic market has fallen into a deep recession as a direct consequence of the economy-wide shutdowns necessitated by the coronavirus and of the dramatic falloff in world trade.

The transatlantic market has fallen into a deep recession as a direct consequence of the economy-wide shutdowns necessitated by the coronavirus and of the dramatic falloff in world trade.

Experience with the economic downturn in the wake of the 2009-2010 financial crisis suggests that climbing out of this deep hole will prove a difficult, prolonged process. Over the next few years, domestic economic renewal will be an all-consuming priority for governments on both sides of the Atlantic.

The best fuel for reigniting growth will be renewed confidence based on a public sense of safety and hope for the future. This will require mitigating and eventually stopping the coronavirus pandemic. When consumers and business leaders no longer fear for their health and that of their communities, they will once again begin to spend, to invest, and to trade.

Recovery will also require a more resilient growth model built on a coordinated transatlantic effort to boost growth, jobs, and international commerce in a more sustainable and equitable fashion. Stimulus measures focused on renewable energy and low-carbon emission activities can generate more growth and jobs than traditional energy spending. The public favors such a course. A majority of Americans and Europeans already support prioritizing climate change in governments’ economic recovery after the coronavirus.13 So far, however, European Union and member states’ green, climate-related spending accounts for just 20 percent of stimulus expenditures, while the United States has devoted only 1 percent to such outlays.14

"Economic recovery and transformation will also require fiscal and monetary policy coordination and trade initiatives, with a focus on boosting key sectors of the future economy."

Economic recovery and transformation will also require fiscal and monetary policy coordination and trade initiatives, with a focus on boosting key sectors of the future economy. The U.S. Federal Reserve and the European Central Bank have already made unprecedented efforts in the face of the crisis, going to great lengths to shore up financial markets. But government spending measures have largely supported business cash-flow, household income, and employment to provide immediate relief from the impact of the downturn.15 There has been less focus on the future investment needed to fully restart the economy and reorient it toward a more sustainable, just growth path. And both the U.S. and European governments will need new sources of revenue to help pay for recovery.

In addition, the coronavirus pandemic lockdown measures have demonstrated the importance of digital technology and infrastructure in sustaining the economy. But Europe and the United States are ill-prepared for this future. One-in-seven American households16 and one-in-ten European households17 still lack broadband connection, excluding them from the digital economy. The rapidly changing digital landscape raises privacy issues. Consumer spending patterns, internet activity, and health records can all be mined for economic value. Industrial processes and services delivery are increasingly data based. But the U.S. and European governments have yet to agree on how best to regulate, tax, and protect the privacy of the information that fuels our digitally transformed economies.

Meanwhile, traditional trade, once a driver of the economy, has slowed dramatically, a victim of the economic crisis, but also a casualty of pandemic-related trade restrictions and recent trade disputes. Global supply chains, already under strain because of calls for local preference, have come under new scrutiny.

There is an urgent need to revitalize transatlantic and international commerce through bilateral and multilateral efforts. History teaches that this will not be possible without the joint leadership of the European Union and the United States, joined by the United Kingdom, Canada, and other transatlantic partners. They will be among the prime beneficiaries of any such effort because they share the world’s largest market.

A sustainable economic recovery that also addresses the environmental and competitive challenges that lie ahead on both sides of the Atlantic will require continued monetary policy coordination, greater fiscal policy cooperation, a realignment of investment priorities, and closer collaboration on tax, competition, and foreign investment policy. It will involve transatlantic coordination in establishing technological standards, which shape the market for the commercialization of innovation. The United States and Europe will also need to lead the way in creating more diverse, resilient regional supply chains to cushion their economies from external shocks while reviving some of their domestic manufacturing base.

"In the future there needs to be a return to offensive tradeliberalization initiatives and an updating of trade rules."

Moreover, in recent years defensive trade actions—tariffs and counter tariffs—have dominated the policy debate in the transatlantic market. A ruling by the Court of Justice of the European Union threatens the growing transatlantic digital economy by invalidating the U.S.-EU Privacy Shield that regulates transatlantic flows of personal data for commercial purposes. Since the failure of the Transatlantic Trade and Investment Partnership, efforts by Washington and Brussels to grow trade and investment through the reduction or elimination of tariffs and non-tariff barriers, as well as the harmonization of standards and regulations, have produced scant results. And the United States has increasingly turned to financial sanctions in pursuit of its foreign policy aims.

Meanwhile, on the multilateral level, the World Trade Organization is broken, both as a negotiating forum and as a dispute resolution mechanism. And the Organization for Economic Cooperation and Development has failed to resolve long-running disputes over digital and corporate taxation.

In the future there needs to be a return to offensive trade-liberalization initiatives and an updating of trade rules. Trade precaution—public concern about the adverse impact of trade on health and the environment— not classic protectionism, may prove the most significant inhibition to any effort to expand international commerce in the post-coronavirus world. Addressing the public’s precautionary worries in the wake of the pandemic will require raising standards and reducing discrepancies between them, ensuring that trade liberalization is fair, reciprocal, and a race to the top, not a race to the bottom. This will best be left up to domestic regulators, not trade negotiators, and thus must include them in any effort from the start. It will also require deeper engagement with both the European and U.S. publics who are wary that rules and regulations that they once felt were part of their culture or were their sovereign right to decide will not be bargained away in the interests of international economic efficiency.

Only a joint effort by the two custodians of the international trading system has a chance of allaying such concerns and boosting international commerce.
With that objective, the Task Force recommends both transatlantic and multilateral actions.

On the transatlantic level:

Coordinate Economic Recovery Efforts: The United States and European governments should sustain their respective efforts to achieve a durable recovery of jobs and economic growth, avoiding a premature withdrawal of economic stimulus. They should closely coordinate stimulus reductions and the unwinding of government positions in companies in order to avoid competitive frictions. They should deepen antitrust policy cooperation to avoid anti-competitive practices as businesses restructure.  And they should coordinate the screening of foreign investment based on a shared understanding of what degree of government subsidy of foreign investors is permissible.

Boost the Transatlantic Digital Market: The United States and Europe should put the digital economy at the heart of the future transatlantic marketplace in recognition of the recession-induced changes in economic behavior and the transformative opportunities offered by digital technologies. They should pursue comparable regulation and investment in information infrastructure and new technologies to build a deeply integrated transatlantic digital market. As a priority, given the broad similarity between California’s Consumer Privacy Act and the EU’s General Data Protection Regulation, they should renegotiate the now invalidated U.S.-EU Privacy Shield to ensure protection of their citizens’ data without unduly inhibiting the digital economy.

Create Green and Blue Transatlantic Supply Chains: The United States and Europe should build greater diversity and resiliency in their regional supply chains for medical supplies and equipment, pharmaceuticals, telecommunications infrastructure, energy and grid resilience technologies, semiconductors, advanced electronics, and key raw materials among other things. As a first step, they should launch negotiations for a medical and environmental products trade agreement. This accord could include limitations or elimination of export restraints and tariffs on medical supplies and equipment, removal of barriers to trade in environmental goods and services, as well as alignment of regulations to encourage recycling and water and energy conservation. This effort should be open to all WTO members that have acceded to its commitments.

Limit Unilateral Weaponization of Finance: The European Union and the United States should agree to prior consultation on and limits to unilateral financial sanctions on third countries when such action will have an adverse impact on alliance partners.

On the multilateral level:

Resolve Disputes Over Digital and Corporate Taxation: The United States and Europe should set a firm and achievable timetable to conclude deliberations in the Organization for Economic Cooperation and Development on the nature and degree of digital and international corporate taxation to avoid friction as recession-strapped governments look for new sources of revenue. They should also redouble efforts to combat money laundering and other corrupt financial transactions that undermine public faith in governance.

Revive the World Trade Organization:

• Empower the new director general and the secretariat with the right of initiative.
• Reform the dispute settlement mechanism, with shorter deadlines for rulings and a higher standard of review to limit appeals.
• Agree on acceptable defensive trade remedies and a process for resolving such disputes.
• Create criteria for countries’ graduation from developing nation status and its attendant benefits.
• Launch more plurilateral agreements—accords between like-minded nations modeled on the preliminary accord between the EU, Japan, and the United States on subsidies—to negotiate rules for state-owned or affiliated enterprises, technology transfer and intellectual property, and digital trade, among other issues.
• Initiate multilateral negotiations to reorient national agricultural subsidies to support more carbon-sequestration farming practices such as no-till planting,  composting, methane capture, and tree planting

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13 Hauke Engel, Alastair Hamilton, Solveigh Hieronimus, and Tomas Nauclér, with others, “How a Post-Pandemic Stimulus Can Both Create Jobs and Help the Climate,” McKinsey and Company, May 27, 2020.

14 Kate Larsen, Pramit Pal Chaudhuri, Jacob Funk Kirkegaard, John Larsen, Logan Wright, Alfredo Rivera, and Hannah Pitt, “It’s Not Easy Being Green: Stimulus Spending in the World’s Major Economies,” Rhodium Group, September 2, 2020.

15 “Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience,” Organization for Economic Cooperation and Development (OECD), May 19, 2020.

16 J. Clement, “Number of U.S. Households with Broadband Internet Access 2000-2018,” Statista, August 25, 2020.

17 Joseph Johnson, “Internet Usage in Europe–Statistics & Facts,” Statista, February 10, 2020.