The Stakes are Higher for the US in the Transatlantic Trade Deal

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Red Hook Container Terminal, Brooklyn
Red Hook Container Terminal, Brooklyn. Photo: Barry Yanowitz/Flickr.

The launching of the EU-US trade and investment agreement negotiations could be the best news coming out of the West for a very long time. If there is something for which the EU leaders will wait anxiously in President Obama‘s State of the Union address in early February, it is a green light for the process to begin. Given the depth of the eurozone crisis, the widespread understanding has been that it is the US who will be giving Europe a much-needed boost of confidence and morale. In reality, however, President Obama has higher political and economic stakes in getting the round started. It is not without a reason that his economic policy advisor speaks of sealing the deal on „one tank of gas“.

An important reason is that the US trade policy is in tatters and urgently needs to be revived in the current presidential term. The domestic political consensus has moved anti-trade almost to the point of no-return. The Democrats are ready to crucify anybody who says trade is good for the country. The Republicans are more open but in their perception there are free riders such as China who are abusing the system and need to be punished. Hence the threat of naming China a currency manipulator which was key part of Mitt Romney’s armoury in the presidentials.

At the same time, exports have been a powerful driver of growth in the US economy. They account for almost half of US growth in the recovery, much more than the average 12 percent in previous economic cycles . The Brookings „Export Nation 2012“ report found out that manufacturing was responsible for three-quarters of additional sales abroad between 2009 and 2010. The EU was a destination for the massive 243.5 bln USD of US exports of goods in 2012 (US Census Bureau figures). In spite of the crisis, Europe provides a more durable type of demand than the emerging economies, whose growing middle classes will mostly be after basic consumer goods in the next decade.

To improve the exporters‘ prospects, the US administration has moved on to agressively promote American firms. US ambassadors around the world have been instructed to shift to economic statecraft, which some of them have pursued with impressive zeal. Washington has done little, however, to improve the trade policy environment. In fact, President Obama has had little of a trade policy. No new initiative was launched during his first term-in-office. Obama had to renegotiate deals with South Korea, Panama and Columbia, agreed under George W. Bush, in order to appease the auto industry and labour unions. The Transpacific Partnership, Washington’s flagship project is not doing tremendously well and it is any case a project launched by Mr Obama’s predecessor. The Partnership has already been negotiated for two years and there is little indication that the end-game is near.

As his second term begins, President Obama has a narrow window of opportunity to give his trade policy a shot in the arm. Emotions have calmed down not only with the end of the electoral season but also with China’s shrinking current account surplus and independent analysis of RNB’s undervaluation. The latter showed that the beast is not as ugly as it was often painted. Political frictions will continue and Obama is not likely to be granted the fast-track Trade Promotion Authority from the Congress which Mr Romney would have won. However, the Republican-dominated House will be easier for Mr Obama to deal with given that suspicions on trade issues among the Democrats have gone through the roof.

In Europe, just as 2012 was about stabilisation, 2013 will be about a determined search for new sources of growth. The potential deal with the US features highly on that list. There is nothing to doubt the EU leaders‘ commitment. Chancellor Merkel made it the flagship of her 2007 EU presidency. That attempt faltered as the crisis unfolded but the determination is firmly there. In the meantime, the EU has had a very good run on trade policy. Even though it is a complex and slow-moving organisation, it has concluded a free trade agreement with South Korea and got it ratified faster than the US has been able to proceed with a similar package. It has also sealed a deal with Singapore and is close to the final accords in talks with Canada. It is the latter which has made US policy-makers think twice. NAFTA has shaped the American economy more than any other external factor. Canada is now one of the top destinations for US exports. If the EU concludes a free trade agreement with Canada, it arrives in Washington’s backyard.

All this means that an agreement with the EU is the right point to start for President Obama in order to kick-start his trade policy. It may help demystifying trade in the US debate since even labour unions support it. There is no-one in Washington who would expect the EU to be a rival power to the US in the future. The recently released National Intelligence Council‘s report makes this abundantly clear. A deal with Europe is also an opportunity for President Obama to improve his relationship with business . Surely, not everone will be happy. The National Pork Producers‘ Council for one has already written to the US trade representative to express concern.

Finally, there is nothing more tangible that President Obama can do at present to resuscitate his struggling relationship with Europe. The next years will see continued cuts in the defence budget and tense discussions with European partners over the US security umbrella. There is also the wider question about the future of Europe and whether it can stay united. The US, which used to have doubts about European integration, is now a staunch supporter. Phillip Gordon, the top US state department official, made his remarks about the risks of UK detachment from Europe at the right point in time in the debate when not everything has been lost yet. The EU’s trade deal with the US will be a powerful argument for the UK staying on as an EU member.

Reaching the agreement will not be a walk-over. The negotiations will be arduous since the list of issues to be covered is enormous, from services liberalisation and regulatory differences, to intellectual property and public procurement. Some early decisions will be of systemic importance, as to whether harmonisation or mutual recognition should be pursued in the regulatory context. It is that single transatlantic rule-book, a manifesto of faith in the liberal international economic order, which may turn out to be the most profound effect of the transatlantic agreement.

Paweł Świeboda is president of demosEUROPA – Centre for European Strategy. This article was originally published on the demosEUROPA website and is republished here with their generous permission.

For additional reading on this topic please see the following publications from our partners:

The Transatlantic Economy 2012 Part 1

The Translantic Economy 2012 Part 2

The Golden Opportunity – Is the Enlarged Europe Ready for the Transatlantic Free Trade Area?

For more information on issues and events that shape our world please visit the ISN’s featured editorial content and Security Watch.

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