NCPA - National Center for Policy Analysis

Give Free Trade a Chance

August 31, 2011

As both the United States and the European Union struggle to conjure the right combination of fiscal and monetary tools to rein in deficits while boosting economic growth, they risk overlooking the role that trade policy can play.  If the two powers want a non-inflationary way to inject more dynamism into their economies, there is a one quick step they could take: agree to eliminate all tariffs in transatlantic trade, says Peter S. Rashish, vice president for the European and Eurasian departments at the U.S. Chamber of Commerce.

  • While tariffs are already low between the United States and the European Union, the enormous size of their economic relationship -- $600 billion (416 billion euro) in trade and $2 trillion invested by companies in each other's markets every year -- means that even small steps could yield significant gains in prosperity.
  • According to a report by the Brussels-based European Center for International Political Economy, a transatlantic zero-tariffs initiative would increase combined U.S.-EU gross domestic product by $180 billion within five years.
  • That's more added growth than either would receive from the completion of the Doha Round of multilateral trade talks.

Since one-third of transatlantic trade occurs between branches of the same firm, eliminating tariffs on that trade would cut costs for both American and European companies and make them more competitive in global markets.  That could help transatlantic firms respond to the rise of Chinese, Indian, Brazilian and other emerging-market firms without resorting to protectionist measures.

Source: Peter S. Rashish, "Give Free Trade a Chance," Wall Street Journal, August 19, 2011.  Fredrik Erixon and Matthias Bauer, "A Transatlantic Zero Agreement," European Centre for International Political Economy, 2010.

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