Zero Tariffs Across the Atlantic
As both the U.S. and European Union struggle to conjure the right combination of fiscal and monetary tools to rein in deficits while boosting economic growth, they risk overlooking trade policy. If the two powers want a noninflationary way to inject more dynamism into their economies, there is one quick step they could take: agree to eliminate all tariffs in trans-Atlantic trade.</br></br>While tariffs are already low between the U.S. and the EU, the enormous size of their economic relationship -- $600 billion 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.</br></br>According to a report by the Brussels-based European Center for International Political Economy, a trans-Atlantic 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. And while Doha is facing serious obstacles to its completion, a "Trans-Atlantic Zero" deal could be signed quickly. The issues that have held up bilateral trade pacts in the past -- social, labor and environmental standards -- should not matter between the U.S. and EU, which share roughly similar ways of organizing their societies.</br></br>Since one-third of trans-Atlantic 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 trans-Atlantic firms respond to the rise of Chinese, Indian, Brazilian and other emerging-market firms without resorting to protectionist measures.</br></br>Whatever other policies emerge from Brussels and Washington, trade liberalization can only add to the economic potential of America and Europe. So why have we heard so little about it in the debates on either side of the Atlantic, even from leaders who have championed freer trade in the past?