Foreign Policy – The Second Coming – 10 Problems Obama Could Solve Right Now

Make a Trade Deal with Europe

By EDWARD P. JOSEPH

Published January 2, 2013

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Almost half a year after Europe’s central banker promised to do “whatever it takes” to keep the eurozone together, the continent is still in shambles. In November, the 17-member monetary union officially fell back into recession, again raising anxiety that Europe’s most indebted countries could succumb to a debt load that, even after successive “haircuts,” still exceeds 100 percent of GDP in Greece, Ireland, Italy, and Portugal. By the end of October, one out of every four Spanish workers was unemployed. Even Europe’s economic powerhouses have been affected by the carnage: Germany’s growth rate has fallen to an anemic 0.2 percent, while economic activity in the Netherlands contracted 1.1 percent in the third quarter of 2012. It’s no longer an exaggeration to say that Europe’s unresolved economic crisis is a multifaceted mess that presents the single largest threat to U.S. national security not named Iran, Pakistan, or al Qaeda.

So what can President Obama do for a divided continent that lacks the political maturity and institutional cohesion necessary to deal with its own crisis? The answer is to strike a comprehensive free trade deal with the European Union.

The potential is huge: Europe and the United States together make up the world’s largest and wealthiest market, with nearly 50 percent of the world’s GDP. Together, Europe and the United States account for more than 30 percent of world trade, and as importantly, they are each the other’s most important trading partner by far. In 2011, Europe purchased three times more U.S. goods than did China, while Europe sold more than twice as many products to the United States as to China. A free trade agreement would turbocharge that relationship, helping to bring Europe out of its current malaise. What’s more, a breakthrough on trade with Europe would act as a worldwide benchmark, getting Asian and other economies to adopt stronger regulatory and environmental standards. And while some sticky issues still stand in the way of a deal, the circumstances are as favorable as they ever have been.

Not long after the U.S. election, Secretary of State Hillary Clinton acknowledged “possible negotiations with the European Union for a comprehensive agreement” to increase transatlantic trade — an encouraging sign. But concluding a pact with Asian economies was Washington’s top trade priority in Obama’s first term. Now is the time to focus on the far more pressing, and promising, European trade arena. Unlike with Asia, a trade deal with Europe would be a rare win-win that wouldn’t antagonize the Democratic Party base. Europe already has high labor rights and environmental standards, removing the standard liberal objections to trade deals. Also, with its high labor costs, Europe is unlikely to take many American jobs under a free trade regime, providing more reassurance to U.S. labor unions. Meanwhile, with remaining tariffs eliminated and regulations harmonized, U.S. products and especially services would gain wider market penetration in Europe, while American consumers and businesses would benefit from lowers costs on European exports.

Trade deals can take years to negotiate, let alone gain congressional approval. Obama, however, wouldn’t even need a finally concluded pact ready to present to Congress to reap some of the benefits of a U.S.-EU deal. Even a coordinated, top-level announcement from the two sides expressing a shared commitment to reaching a comprehensive trade agreement this year would soothe world markets. Europe remains trapped in a vicious circle of austerity in the south, mistrust and dogmatism in the north, and institutional dysfunction at the core that makes Washington gridlock look like a minor traffic jam in comparison. Austerity remains the gospel in Europe, condemning the continent to low growth rates and skeptical financial markets, while borrowing rates remain stubbornly high. The prospect of a comprehensive transatlantic agreement is one of the few measures that could slice through the Gordian knot, stimulating much-needed growth without financial stimulus.

In June, U.S. and European negotiators issued an interim report reflecting progress in talks and identifying issues that stand in the way of an agreement, including liberalizing transatlantic e-commerce and digital services while protecting data. But even where negotiators have overcome obstacles, such as Europe’s aversion to hormone-treated beef, political leaders like Germany’s Angela Merkel may yet prove reluctant to make concessions that could anger and mobilize Greens and the left in an election year.

Obama can help overcome resistance in two ways: first, by reassuring European leaders that reaching an accord is a priority equal to the administration’s efforts in Asia; and second, by capitalizing on the president’s enormous personal popularity to make the case directly to European parliamentarians and voters. Given what’s at stake if Europe falters and the benefits that both sides stand to make, it’s a no-brainer.

 

Edward P. Joseph is visiting fellow at the Johns Hopkins University SAIS Center for Transatlantic Relations.