Two ways US and Europe can boost their economies

Chances for a deal are better than ever. A working group of high ranking US and EU officials is evaluating the feasibility of such a pact, which would remove remaining barriers to trade and investment flows. Tariffs would be greatly lowered or swept aside and compatibility between standards and regulations would be harmonized.

This will require effort. Consider, for instance, differences in agricultural standards for genetically modified food, in product-safety requirements, data privacy, and restrictions on foreign investment. But the effort is worth it. Although hurdles to transatlantic trade are already relatively low, the sheer size of this marketplace – nearly half the world’s gross domestic product – ensures that even small improvements would produce significant gains.

A study for the European Commission found that eliminating or harmonizing half of all remaining non-tariff restrictions on transatlantic trade would add 0.7 percent to the size of the EU’s economy and 0.3 percent to America’s by 2018. Lowering or eliminating the last tariffs would bring even more benefits.

Compared to the economic effects of fiscal cliff or eurozone negotiations, these numbers may be relatively small, but they should not be dismissed. And a potential US-EU trade agreement would provide benefits beyond the immediate economic realm.

Much like the transatlantic relationship itself, economic ties between the continents are often taken for granted as the focus on both continents slowly shifts to emerging markets such as India, China, and Brazil. Yet, at least for the time being, Europe and the US remain each other’s most important economic partners. At a time when Europe is focused inward and the US is “pivoting” to Asia, a  renewed comprehensive economic partnership would give US-European relations a new purpose.

And because both economies account for a third of all trade flows, a trade agreement between the US and Europe would have global consequences. It could set a new aspirational standard for future trade deals – for instance, by putting upward pressure on other countries to adopt US-EU standards on intellectual property rights.

Remaining obstacles to the negotiations on a Transatlantic Free Trade Agreement may be tough to clear, but they are by no means impossible. It is high time for the United States and Europe to finally create this piece of good news.

Peter Sparding is a transatlantic fellow for economic policy at the German Marshall Fund of the United States. The views are the author’s alone.

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