What do you see as the impact of a U.S.-European trade deal? Do you think it would be successful in countering China’s rising economic power?

Thomas F. Stephenson (Ambassador to Portugal, 2007-2009)

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Economic theory and history strongly suggest that a broad based U.S.-European trade deal would significantly benefit the economies of all countries involved.  There will, no doubt, be some temporary sector losers in a wide open trade deal, but over time the net positive impact for the country economies as whole will far outweigh any single sector setbacks.  The huge challenge for those trying to negotiate a broad based trade treaty, however, will be combating the constituencies who believe their economic interests will be negatively impacted at least temporarily.

We are already seeing certain sectors trying to carve out exceptions for their industry or subset of an industry.  In Europe where agricultural subsidies and special protections are deeply ingrained in the culture, it will be very difficult to accept true free trade.  U.S. agriculture has its own long history of price supports, other subsidies, tariffs, and excise taxes that those lobbying for our farmers will be highly reluctant to give up.  We’ve recently seen a request for a “cultural exclusion” for Europe meaning that the film industry and some related sectors are insisting upon some protections and exclusions. Various member countries of the EU are also requesting protection for their utility sectors and defense industries.  As we begin serious negotiations, no doubt many other requests and rationalizations for special consideration and protection will come to the fore.

It is difficult to be optimistic that a full and robust trade deal will emerge from the negotiations that are about to ensue.  Local politics and self interest, unfortunately, are more likely to dominate the discussions as opposed to good policy prescriptions both here and within the EU.  It will be very difficult for the EU itself to effectively represent its member states in these pending trade negotiations as many individual countries have very specific exclusions about which their citizens are particularly sensitive.  This doesn’t mean we shouldn’t try to come up with a reasonable trade deal, but it does mean that all participants will need to do everything they can to have everything on the table at the beginning of the process and only very reluctantly agree to any exclusions.

With regard to the impact of a trade deal on China’s rising economic power, it strikes me that anything that increases the economic well being of the U.S and Europe can only be a positive in impacting the relative position in the world order of the west.  Meaningful increase in trade between the U.S. and European countries  would make all of our economies less dependent upon trade with China.  China has its own set of economic challenges including declining labor cost advantages relative to other developing economies in southeast Asia and a rising need for access to natural resources to fuel their growth.  Trade between China and the west is a good thing for all involved, but less dependency on such trade for the U.S. and European economies is certainly an important plus.

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