Europe and the U.S. continue to be mired in the economic doldrums. In the second quarter Europe’s GDP grew a paltry .2% over the prior quarter. Euroland’s economic locomotive Germany stalled at an anemic .1% growth. Across the pond the U.S. eked out .3% GDP growth. June U.S. and European unemployment rates were a stubbornly high 9.2% and 9.4% respectively. A truly alarming 45.7% of Spaniards under 25 are unemployed.
To date misbegotten fiscal and monetary efforts to spur economic growth have had limited success.
Trade matters and enriches both parties. The EU accounts for 17.6% of total US trade in goods, with Germany, the U.K., the Netherlands, France and Italy being 5 of America’s top 15 trading partners.
While transatlantic tariffs are relatively low, they could be lower. In “Zero Tariffs Across the Atlantic” the U.S. Chamber of Commerce’s Peter Rashish contends eliminating transatlantic tariffs would boost GDP and the competitiveness of American and European firms. Roughly a third of transatlantic trade is between branches of the same firm. Eliminating tariffs would boost their competitiveness, and also that of any transatlantic firm using inputs imported from across the Atlantic. In “A Transatlantic Zero Agreement: Estimating the Gains from Transatlantic Free Trade in Goods” ECIPE’s Fredrik Erixon and Mathias Bauer forecast in five years total US and European GDP would be increased by from $181 to $250 billion.
While one can quibble with Erixon and Bauer’s assumptions and the magnitude of the benefits, it is unassailable eliminating tariffs would increase trade, GDP and the competitiveness of many American and European businesses.
Why hasn’t it happened?
First many free traders are invested in promoting global multinational trade liberalization through the glacial Doha trade-negotiation round of the WTO. To the contrary, material bilateral deals benefit the parties and spur action by those fearing being left out.
Additionally, somebody has to take the political lead. Ideally the leader of the Free World and world’s largest economy would step up to the plate. If, and it’s an heroic if, President Barack Obama were to invest political capital in eliminating transatlantic tariffs a majority of Congressional Republicans and enough Democrats would support it to ensure passage. But notwithstanding squirrely rhetoric supporting free-trade, Obama’s record is one of hostility to free trade. He opposed free trade deals when he was in the Senate and is still stonewalling negotiated agreements with Colombia, Korea and Panama, each of which if given a vote, with a majority of Republicans and enough Democrats would pass. Obama blocked trade agreements to appease his union allies, hurting an already battered economy, consumers and US allies.
Perhaps given continued bleak economic performance Obama will have a Damascene conversion on trade and champion a transatlantic free-trade zone. Optimism breathes eternal.Author : Eric Grover