This article is part of our special report Free Trade for Growth.
A transatlantic trade agreement can give new hope for growth and a more positive agenda in the devastating eurocrisis, writes Raymond Gradus.
Raymond Gradus is a professor of economics at VU University Amsterdam and director of the Research Institute for the CDA.
In the last week of June, the Economist cover read 'Protectionism Alert'. Despite all nice words of, for example EU Commissioner Karel de Gucht, on free trade as an engine of growth, the real account is more worrying.
There has been a paralysing discussion on China’s trade restrictions on importing US cars for a long time. But also imposing trade restrictions as the “Buy American” clause implemented by the Obama administration sends a dangerous signal and creates uncertainty among investors, particularly in times of recession.
And we all know the outcome: long-term disadvantages of protectionism strongly outweigh any short-term benefits of protectionism. But also in Europe the perspectives for free trade are narrowing as anti-trade and anti-Europe politicians get more appeal. Nevertheless, there are many avenues to explore the internal market. Especially, a further liberalisation of services will boost trade inside and outside Europe.
Although with the upoming US elections it will be difficult this year, nevertheless there are some positive signs for trade higher on the agenda as someone close to Republican Mitt Romney’s ideology put forward the urgent need for a new trade agreement between the US and Europe.
Republicans have always been a supporter of free trade. But also Barack Obama and his Democratic party know that a new trade agreement between Europe and the US is necessary, because it stimulates job growth at the medium term. Economic research by, for example, the OECD points out that the reduction of existing non-tariff and regulatory trade barriers could lead to GDP growth of up to 3.5% on both sides of the Atlantic.
Although tariffs in this part of the world are already very low, eliminating tariffs on imported goods would, according to research by the European Centre for International Political Economy, increase exports between the United States and Europe by 17% in the coming years.
Due to the huge volume of Transatlantic trade of more than €460 billion a year, gains from removing these barriers would be substantial. Therefore, we should strongly advocate a breakthrough in Transatlantic economic relations and support those working on a new trade agreement.
Hopefully, eliminating tariffs and non-tariff barriers between Europe and the US should be viewed as a valid first step towards a Transatlantic free-trade agreement. But more important, the economic and political message of a free trade agreement between both sides of the Atlantic will be large.
Creating a Transatlantic market with harmonised regulations will boost trade all around the world as common standards will act as global regulatory standard-setters. In addition, it gives a clear political message that free trade should be on the top of the agenda again and gives prospects for economic growth and jobs in time, where they are needed so badly. And with the devastating euro crisis it can give new hope for growth and a more positive agenda in this part of the Atlantic.