The Global Economy Is Counting On A U.S./Europe Trade Deal
By Gary Shapiro
Our international leaders are finally getting serious about global free trade – and not a moment too soon. Earlier this month, the United States and the European Union began talks on trade, after almost two years of preparation. Establishing a U.S.-EU free trade agreement is crucial for the global economy, and will strengthen businesses of all sizes, opening up the global market to competition and innovation.
Trade between the United States and the European Union countries now accounts for almost half of global economic output. The 28 member states of the EU are by far our biggest trading partner. If the Transatlantic Trade and Investment Partnership (TTIP) comes to fruition, it will be the biggest trade agreement in history. Establishing this free trade agreement could add $420 billion per year to the global economy and create some two million jobs.
Sadly, negotiations have been a long time coming, what with sensitive areas like our own “Buy American” initiatives and Europe’s aversion to genetically modified (GMO) crops. Two other big areas of contention are financial regulations and France’s film industry protections. And the recent revelations about the United States eavesdropping PRISM program may have started the U.S. on a weak footing.
Under current trade laws, tariffs between the U.S. and the EU are relatively low – less than three percent on average – but both sides impose formidable non-tariff barriers (NTBs). These barriers include customs procedures and behind-borders regulatory restrictions. Free trade negotiations aim to eliminate tariffs altogether, and to slice NTBs. Eliminating tariffs and cutting NTBs by just 25 percent could boost the U.S. GDP by .8 percent, according to the U.K.-based Centre for Economic Policy Research. Strong trade relations with Europe could boost U.S. and EU economic growth by more than $100 billion annually. In other words, free trade could be just the jump our economy needs to accelerate recovery, not just in the U.S., but globally.
In particular, a free trade agreement would boost competition and strengthen businesses, especially small businesses. According to the 2013 Small Business Exporting Survey, these businesses account for 98 percent of exporting firms and 33 percent of exporting value in the U.S. Yet 69 percent of these businesses struggle with international trade due to foreign restrictions. Free trade would offer expanded markets for their products, the ability to import raw material, a less burdensome regulatory environment to allow for innovation, and a more streamlined process for customs, licensing and inspection.
Businesses in the tech sector especially would benefit from a free trade agreement with the EU. According to TechAmerica, computer electronics products accounted for $59.5 billion in trade between the United States and the European Union in 2012. As I have written before, free trade eliminates barriers to innovation and lowers the cost of raw material for startups, which in turn gives consumers access to lower cost electronics.
Removing government barriers to trade will necessarily expose businesses to fiercer competition, but it will also remove regulatory hurdles now imposed by governments. Granted, competition has to result in winners and losers, but this will strengthen the economy and force businesses to prove they can compete on a fair and level playing field. Those businesses that can compete in the global arena will be the stronger for it. Competition is the backbone of a free-market economy – but no business of any size should have to compete in an international arena that picks winners and losers through burdensome and inconsistent regulations.
The U.S. and the EU hope to reach a finalized agreement by November 2014. The deadline is tight, and many significant issues will have to be worked through. We can only hope leaders of all the involved nations will be able to work out a deal. It will take compromise and open-mindedness on all sides, but it can and must be done. Our global economy is counting on it.