Can US and EU Cooperate for Win-Win?

By Shlomo Maital   

         Win Win

   The world economy is emerging very slowly from the 2008-11 crisis, because of several doom loops.  Domestically, fiscal austerity programs to slash deficits lower demand and slow growth, causing even deeper deficits.  Globally, nations try to export their unemployment by limiting imports, and achieve the opposite (higher unemployment) when other nations retaliate and global trade slows.   According to the Wall St. Journal (Oct. 1 2012): 

“Global trade is stalling, dimming prospects that exports will buoy the U.S. economy in the coming months.  Trade rebounded after its collapse in the recession. Now several indicators of export activity are flashing red as Europe’s recession, anemic U.S. growth and the slowing Chinese economy damp exports world-wide.  The World Trade Organization just projected the global volume of trade in goods would expand only 2.5% this year, down from 5% last year and nearly 14% growth in 2010. A Dutch government agency, the CPB Netherlands Bureau for Economic Policy Analysis, estimates it fell outright in June and July.”

    Global trade expansion may be the only win-win way to restore growth and cut unemployment globally.  But how? Major nations shipped exports less than in 2011, last year. Only China, with an 8 per cent rise in exports, showed strong growth.

     America is trying to build a free-trade pact with Asia, the so-called Trans-Pacific Partnership (TPP).   At the same time, it is trying to build a free-trade pact with the European Union.  The EU sees itself shut out of the TPP game and hence wants its own free-trade pact with the U.S. But negotiations will be tough, because both the EU and US have ‘sacred cows’ they want to protect, and they’re not the same cows. A key stumbling block will be the protected agriculture in each.

    A lot depends on the success of the U.S.-EU pact.  A successful one could add half a percentage point of GDP growth for each nation.  This is huge.  For the U.S. it is nearly $750 billion, almost as large as the budget deficit. For the EU, it is even more, $800 b..  America’s trade deficit in 2012 was the same as in 2011: $728 b. It won’t decline, without a free trade pact.

  You would think that a win-win deal would be easy to attain. But alas, special interests may block it.  Because a big overall win-win always has some small losers, and they and their lobbyists may fight hard.   And voters, today, are even more wary and suspicious of ‘globalization’ than ever before.

   Good luck, US-EU.  Let’s see if reason triumphs over  politics.