Trump-EU olive branch a laudable first step in a long process

President Trump and European Commission President Junker agreed Wednesday to launch discussions on resolving trade disputes, creating new opportunities for market openings and reforming the World Trade Organization (WTO).  

The meeting of minds sparked hope that these massive economic partners can move to a positive agenda to build a more prosperous transatlantic marketplace and strengthen international best practices.

There is a lot to be done before we know if the truce announced by Trump and Junker on tariffs and the new talks will produce successful results.  

{mosads}We know from previous U.S.-EU trade negotiations that it will take hard work and patience to get to agreement, but it is a big positive step that these immense investment and trading partners are moving toward a “win-win” agenda. 

Stepping back from the brink of costly conflict should add valuable energy for producing near-term progress on tariff reductions and market openings (Trump and Junker cited liquified natural gas and soybeans as openings for U.S. products) as well as establishing a productive process for working through the difficult tasks of reducing non-tariff barriers, including differing U.S. and EU standards and bureaucratic processes.

First, it is important to recall that the U.S.-EU economic relationship is about much more than trade. In fact, trade is less important than the truly massive investment relationships that link Europe and the United States.  

The transatlantic economy generates $5.5 trillion in commercial sales a year and employs up to 15 million workers on both sides of the Atlantic Ocean.

Roughly 60 percent of U.S. companies’ total foreign assets are in Europe, and sales inside Europe by U.S.-owned companies topped $3 trillion in 2016 — greater than total U.S. exports to the world of $2.2 trillion. Europe accounted for roughly 60 percent of foreign assets in the U.S. in 2016.  

Those European-owned assets were valued at an estimated $8.2 trillion, and sales by European-owned companies in the U.S. totaled $2.4 trillion: more than triple U.S. imports from Europe.

Second, trade in goods and services is important and can expand and perhaps rebalance by eliminating tariff and non-tariff barriers.

The U.S. and the EU are each other’s largest trading partners. U.S. goods exports rose to a record $284 billion in 2017. However, the EU sold the U.S. an estimated $146 billion more: This is what President Trump seeks to address.

When we look at services, however, the U.S. has a trade surplus of $67 billion with Europe. The U.S. and the EU are the two leading service economies in the world, and many barriers remain across the Atlantic, which is why Trump and Junker highlighted expanding services trade for joint attention.  

In addition, the transatlantic digital economy and bilateral research and development flows are arguably the most intense in the world. So, the U.S.-EU economic relationship is about jobs for the future as well as today.

Taking forward the agenda agreed by Trump and Junker will not be easy. Junker needs to get the blessing of all the EU member states for the work agenda that the two leaders discussed.

The U.S. and European teams then need to re-plow the complicated terrain that both sides worked on without final success in the Transatlantic Trade and Investment Partnership (T-TIP) negotiations from 2013-16 and earlier in the Transatlantic Economic Council.

These experiences suggest that reductions in non-tariff barriers require enhanced regulatory policy coordination, for example, which will demand much creativity to respect regulatory decision-making processes on both sides of the Atlantic.  

Learning from past talks, including from the opposition mounted to T-TIP on both sides of the Atlantic, however, the U.S and the EU can focus on what is achievable and still brings significant benefits.

The potential benefits remain substantial. Both sides can lower costs for businesses and provide a greater variety of goods and services, bringing more innovative products at lower prices to the U.S. and EU consumers while preserving high-standard protections.  

Given the massive investment on both sides of the Atlantic, even marginal cost reductions and efficiencies are likely to have big impacts in terms of sales and jobs.

Well-crafted agreements can open new opportunities for small and medium enterprises to enter the transatlantic marketplace, which is now weighted toward larger firms.  

A good negotiation should also create significant new openings for service industries, even though this will demand difficult changes on both sides of the Atlantic (for example, on professional and financial services).

A series of studies have looked at the potential effects of reducing tariff and non-tariff barriers across the Atlantic, with most finding a modest gain in overall GDP from a relatively ambitious agreement (0.3 to 0.5 percent of GDP).  

Much of the gain would be from reducing non-tariff barriers according to these studies, but significant gains in consumer prices would also come from reducing remaining auto tariffs, which is an area President Trump highlights. 

“Getting to Yes” across the Atlantic would have additional benefits. If the U.S. and the EU agree to new standards, norms and approaches, others in the world (namely, China) will take note and see value in adopting those approaches.

Setting international best practices will be a plus for U.S. and EU companies in third markets. Across the Atlantic, there would be new opportunities for wider market expansion with North American Free Trade Agreement partners Canada and Mexico (who both have trade agreements with the EU), with other European partners, such as Turkey and Switzerland, and if Brexit concludes, the U.K.  

The commitment to work together to reform the World Trade Organization can not only help fix the sclerotic practices of that organization but could potentially help give new life and direction to the global rules-based trading system.  

Energetic U.S. and European cooperation vis-à-vis China’s poor practices would add more clout to U.S. unilateral efforts. 

None of this will be easy, but we should applaud and encourage the work ahead. This is a valuable opportunity for the U.S. and the EU to boost their economies as well as to shape global best practices and norms. 

Earl Anthony Wayne, a former senior U.S. diplomat and economic official, is a nonresident senior fellow at the Atlantic Council and a public policy fellow at the Woodrow Wilson Center.

Barbara C. Matthews is an Atlantic Council nonresident senior fellow and former U.S. Treasury Department attaché to the European Union.