Trans-Atlantic Free Trade Agreement

December 11, 2012

Trans-Atlantic Free Trade Agreement

Part A

The possibility of implementing a Trans-Atlantic Free Trade Agreement is a move that is sure to benefit all countries involved but if, and only if, it is a true free trade agreement. The Trans-Atlantic trade economy between the U.S. and the 27 countries of the European Union is the largest in the world and attributes to one-third of all trade. The Center for Trans-Atlantic Relations at Johns Hopkins University states that it produces $5 trillion in annual commercial sales, 54% of global domestic product and also supports 15 million jobs. In 2011, Europeans bought three times more U.S. goods then the Chinese totaling around $286.1 billion. Europeans also sold almost twice as many goods to the U.S. compared to how many they sold to China, totaling in approximately $370 billion. Investment flows decrease these figures tremendously. In 2010, U.S. direct investment in the EU reached $1.9 trillion, while the EU’s share in the U.S. was $1.5 trillion. An agreement between the United States and the European Union could possibly increase levels of trade, economic growth and create jobs. Increases from the trade agreement will be significant mainly because tariffs are already low between the United States and the European Union. Not to mention the fact that economic gains are higher when trade deals are made between economies that are already large however these increases could be even larger if there were no trade barriers. Tariffs on goods are relatively low compared to others countries averaging around 6%. According to the U.S. Chamber of Commerce, if the two create an agreement that excludes tariffs all together, than the U.S./EU trade is projected to increase by more than $130 billion within the first five years and produce a combined GDP of $180 billion. Trade barriers such as tariffs, regulations, and restrictions on investments decrease each country’s ability to maximize prosperity. Also due to the intra-industry structure of trade between the United States and the European Union, companies are trading internally with their affiliates or trading within the same sectors. Therefore, a huge impact on each economy is still feasible even if tariffs were simply reduced instead of eliminated due to the intertwinement of the trade system. The comparative advantages of the United States and the European Union are pretty much the same in most specializations. Reducing or eliminating barriers to competition will allow competitors to expand their trade. Also if you consider the current state of the global economy and the catastrophe of the World Trade Organization in the Doha rounds, it is quite apparent that alternative strategies are necessary to promote efficient trade policies.

Removing trade barriers could not only dramatically increase the size of the Trans-Atlantic trade but could also lead to an increase in job creation and higher wages. Therefore, the objective of policy makers should be to make a trade agreement that is not highly regulated. The option of eliminating tariffs is more feasible between the United States and the European Union because of how large and similar both economies. These advantages minimize the possibility of the Trans-Atlantic Trade Agreement becoming susceptible to some of the same pitfalls as NAFTA. The circumstances with

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