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A free-trade agreement with Europe?

By David Ignatius,December 05, 2012

BERLIN

At a recent meeting of German business and foreign-policy leaders, one participant summed up an anxiety that’s almost palpable here: “Europeans have a sense of being left alone. You Americans don’t understand how much we need you.”

Europeans seem relieved that Barack Obama won reelection. (One German official wrote in an informal paper that his victory was “the best thing that could have happened to the U.S.”) But Europeans remain worried that the Obama administration’s famous “pivot” toward Asia will leave them abandoned at a time of severe internal economic and political trouble.

But a big idea is taking shape that could revitalize the U.S.-European partnership for the 21st century. It was the talk of Berlin and Hamburg when I was there a week ago, and there’s a similar buzz in Washington. The idea is free trade — specifically, a trans-Atlantic free-trade agreement — which I’ll optimistically call “TAFTA.”

Secretary of State Hillary Clinton tipped the U.S. hand on Nov. 29 when she said at the Brookings Institution, “We are discussing possible negotiations with the European Union for a comprehensive agreement that would increase trade and spur growth on both sides of the Atlantic.” She noted the “long-standing barriers to trade and market access” that would have to be removed to make any such deal possible, such as the European Union’s protectionist agricultural rules.

Clinton is said to envision an “economic NATO” — a comprehensive agreement covering trade in goods, services, investment and agriculture. Indeed, a joint working group of U.S. and E.U. officials is about to release a final report arguing for such a comprehensive deal.

Curious as to whether Clinton’s speech was just window dressing from a departing secretary, I asked the White House this week whether the TAFTA talk is real. The answer was yes: Obama is considering making a trans-Atlantic trade initiative an important part of his second-term agenda. Combined with the North American Free Trade Agreement in Latin America and the Trans-Pacific Partnership in Asia, this could create a global trading system that might be an enduring part of Obama’s legacy.

What’s appealing in particular about the trans-Atlantic initiative is that it could be a big job creator for economies on both continents that are still recovering from the effects of the recession. It would enhance trade and investment flows that are already powerfully established. There’s an estimated $2.7 trillion in cross-investment between Europe and America, and trans-Atlantic trade in goods alone totaled an estimated $674 billion in 2010. Trade between the United States and Europe isn’t a matter of sweatshop competition; labor standards in Europe are, if anything, higher than in the United States.

I like the idea of an “economic NATO” because it addresses fiscal problems through growth and expansion. The alternative “austerity pill” advocated by conservative Germans (and some American budget-cutters) is doomed to fail. Big, new spending initiatives are not a realistic growth strategy, either, given debt worries on both continents. To many economists, it’s a no-brainer: Expanded trade offers the best path to new jobs, markets and investment opportunities.

“The giant sucking sound just isn’t there with trans-Atlantic trade,” says Jennifer Hillman, a trade expert with the German Marshall Fund (GMF), referring to Ross Perot’s famous (and incorrect) prediction about the huge job losses that would result from NAFTA. And though Americans fear that Asian competition will cost jobs, they support more trade with Europe. In a 2010 Pew survey cited by the GMF, Americans backed greater trans-Atlantic trade 58 percent to 28 percent. (Disclosure: I am a GMF trustee.) Even the AFL-CIO is said to back the idea of a TAFTA agreement.

The benefits that might flow from a trans-Atlantic agreement are suggested in a February GMF report. It noted that a 50 percent reduction in non-tariff barriers (such as unnecessary or duplicative standards) could boost GDP by roughly $160 billion in Europe and $53 billion in the United States. Abolishing all tariffs could produce gains of up to $86 billion for Europe and $82 billion for the United States. European and American farmers will resist common agricultural standards, but an October GMF study notes there could be benefits for both.

The United States can powerfully reinforce its economic leadership by expanding trade with Europe’s battered economies — offering not financial bailout gimmicks but an initiative that opens markets and creates jobs on both continents.

Misplaced ideas about austerity shattered the global economy in the 1930s; surely America and Europe don’t need to repeat that mistake.

davidignatius@washpost.com