Introduction
The United States and European Union have long been close economic partners, with over $1.3 trillion in annual trade of goods and services supporting around 16 million jobs on both sides of the Atlantic
However, despite these deep economic ties, the U.S. and EU do not currently have a bilateral free trade agreement in place. Negotiations on a proposed Transatlantic Trade and Investment Partnership (TTIP) stalled in 2016 over key differences in positions on certain sensitive issues
There are compelling arguments on both sides of the debate about whether the U.S. should pursue a comprehensive trade deal with the EU at this time. Proponents argue it would deliver significant economic benefits, strengthen the transatlantic alliance, and help counter the rise of China. Critics worry about the potential downsides for workers, consumers and the environment. This essay will examine the key points on each side.
Terms
European Union
The “European Union” refers to the 27-member bloc that currently comprises the EU. The 27 members are: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden
Comprehensive Trade Agreement
The United Kingdom left the EU in 2020.
A “comprehensive bilateral trade agreement” between the United States and European Union would likely include the following key elements:
*Elimination or significant reduction of tariffs and quotas on goods traded between the US and EU. This would provide increased market access for exporters on both sides.
*Liberalization of trade in services, such as banking, insurance, telecommunications, etc. The agreement would open up services markets and ensure non-discriminatory treatment of foreign service providers.
*Regulatory cooperation and harmonization of standards to reduce non-tariff barriers to trade. This could involve mutual recognition of standards, alignment of regulations, and transparency in rule-making. Key areas would likely include food safety standards, chemical and environmental regulations, etc.
*Strong protections for intellectual property rights, including patents, copyrights and trademarks. The agreement would establish high standards for IP protection.
More specifics include —
Rules and disciplines on digital trade and cross-border data flows. This would address issues like data localization requirements, privacy protections, etc.
Liberalization of government procurement markets, allowing firms from both sides to compete for public contracts on a non-discriminatory basis.
Disciplines on state-owned enterprises and subsidies to ensure fair competition with private firms.
Sustainable development provisions related to labor rights, environmental protection, climate change, etc. The agreement would likely include commitments to uphold high standards in these areas.
Investment protections and investor-state dispute settlement mechanisms. This would provide guarantees and recourse for foreign investors in the event of expropriation or discriminatory treatment.
Institutional mechanisms for implementation, monitoring and dispute settlement. This would likely include committees to oversee the functioning of the agreement and arbitration procedures for resolving disputes.
Some examples of comprehensive bilateral trade agreements that include many of these elements are:
The US-Mexico-Canada Agreement (USMCA)
The EU-Canada Comprehensive Economic and Trade Agreement (CETA)
The EU-Japan Economic Partnership Agreement
Bilateral vs. Multilateral
A bilateral trade agreement and a multilateral trade agreement differ in the following key ways:
Number of parties involved:
A bilateral trade agreement is negotiated between two countries or trading blocs, such as the proposed US-EU trade deal.
A multilateral trade agreement involves three or more countries, often at a regional or global level, such as agreements negotiated through the World Trade Organization (WTO).
Scope and complexity:
Bilateral agreements tend to be more focused and limited in scope, dealing with trade issues specific to the two parties involved. They can be easier to negotiate since there are only two sides.
Multilateral agreements are usually more complex and comprehensive, covering a wider range of trade-related issues relevant to multiple countries. Reaching consensus is often more challenging.
Rules and standards:
Bilateral agreements establish rules and standards that apply only to the two signatories, such as market access commitments, regulatory cooperation, etc.
Multilateral agreements aim to establish common rules and standards that apply to all participating countries. These form the foundation of the multilateral trading system.
Discrimination and trade diversion:
Bilateral agreements are inherently discriminatory since they give preferential treatment to the two parties involved, potentially diverting trade away from more efficient producers in third countries.
Multilateral agreements, based on the WTO’s most-favored nation (MFN) principle, aim to reduce discrimination and ensure equal treatment for all members. However, they allow some exceptions for bilateral and regional FTAs.
Relationship to the multilateral system:
Some argue that bilateral agreements can build momentum for multilateral liberalization by demonstrating the benefits of opening markets.
However, the proliferation of bilateral deals also risks creating a “spaghetti bowl” of overlapping rules that undermine the multilateral system. Critics contend that countries should prioritize WTO negotiations.
So in summary, while bilateral agreements like a potential US-EU FTA can yield economic benefits for the two partners involved, they are more limited in scope and impact than multilateral deals. Multilateral cooperation, while harder to achieve, establishes common rules and standards that strengthen the overall global trading system. The US and EU aim to pursue both tracks in parallel.
Pro
Boosting the U.S. Economy
One of the central arguments in favor of a U.S.-EU trade agreement is the projected positive impact on economic growth and job creation in the United States. While estimates vary, most studies find that eliminating tariffs and reducing non-tariff barriers through an ambitious deal would yield net gains for the U.S. economy, even if certain sectors face more competition
The Office of the U.S. Trade Representative under the Obama administration argued that the TTIP would “help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services.” It projected the deal would “promote U.S. international competitiveness, jobs and growth” by bolstering the already strong trade and investment relationship with the EU in a way that would “help boost economic growth and add to the more than 13 million American and EU jobs already supported by transatlantic trade and investment.”
An impact assessment by the European Commission estimated that an ambitious FTA between the U.S. and EU would raise total world income by €238 billion, of which €86 billion would materialize in third countries. It projected the deal would substantially benefit Eastern Europe and ASEAN countries, with no region expected to lose in terms of national income. The report argued the agreement would have an overall positive effect on low-income countries due to spillover effects, even if the composition of their trade with the U.S. and EU is different.
The report estimated an ambitious FTA would raise the wages of both skilled and unskilled workers in the EU and U.S., contrary to perceptions that trade mainly benefits the skilled. It projected EU wages would increase slightly more than U.S. wages overall. The analysis also found that “tens of millions of jobs are supported directly and indirectly by US-EU bilateral trade” and a comprehensive deal “could create new business opportunities worth hundreds of billions of euros, which will in turn support hundreds of thousands of new jobs on both sides of the Atlantic.”
Boosting US Competitiveness
A comprehensive bilateral trade agreement between the United States and European Union would deliver significant economic benefits and enhance US competitiveness in the global economy. By reducing tariffs and non-tariff barriers, a US-EU FTA is projected to increase access to European markets for US exports of goods and services
Studies estimate this would yield net gains for the US economy overall, even if certain sectors face more competition. Expanded trade opportunities are expected to support hundreds of thousands of new export-oriented jobs in the US. For each additional billion dollars of US-EU trade, an estimated 8,000 jobs are supported in the US.
In addition to boosting employment, a US-EU trade deal is projected to raise wages for both skilled and unskilled workers in the US The productivity and efficiency gains from increased economic integration would allow US firms to pay higher wages. An ambitious agreement is also an opportunity for the US and EU to establish cutting-edge global trade rules and standards in areas like regulation, labor, environment and digital trade
Aligning approaches between the world’s two largest economies would give the US greater leverage to shape the international economic order.
Ultimately, enhancing US economic strength and competitiveness through a US-EU trade pact is vital for America’s national security and global standing. Broadly shared prosperity provides the foundation for US international influence and legitimacy
As the US faces economic challenges from the COVID-19 pandemic and the rise of rivals like China, demonstrating the resilience of the American economic model through an equitable recovery is critical. Pursuing deeper trade and investment ties with like-minded partners in Europe is an important component of a national strategy to boost US competitiveness and leadership in the 21st century global economy.
Strengthening the Transatlantic Alliance
Advocates argue that beyond the direct economic benefits, deepening U.S.-EU trade ties would pay geopolitical dividends by reinforcing the transatlantic alliance at a time of strained relations and rising challenges from rivals like China and Russia. Closer economic integration could strengthen political unity and the combined weight of the U.S. and EU in shaping global rules and standards.
As the Bloomberg Editorial Board wrote in March 2022 after Russia’s invasion of Ukraine: “Russia’s invasion of Ukraine has reminded the U.S. and Europe that their alliance matters. Their united response to President Vladimir Putin’s assault on the international order should alert them to something else — that resilience depends on economic and financial cooperation and not just on formal security commitments. In that light, reviving stalled talks on a free-trade agreement is more urgent than ever.”
In a February 2024 analysis, Max Bergmann of the Center for Strategic and International Studies argued that “Europe might emphasize its importance in standing up to China” as a reason for the U.S. to prioritize trade ties. “While the European Union does not have an essential military role in the Indo-Pacific, it is a critical actor in addressing China on geoeconomic issues,” he wrote. “The EU market is massive, equivalent in size to either China or the United States, meaning U.S. sanctions and export controls are significantly more effective when done in tandem with the European Union.”
Containing Russia
Closer US-EU economic relations would bolster the transatlantic alliance and send a strong deterrence message to Russia. Russia’s invasion of Ukraine has reminded the US and Europe that their alliance is critical for upholding the international order against Russian aggression
Pursuing a comprehensive US-EU trade agreement now would demonstrate Western unity and resilience, increasing the combined economic weight and influence of the US and EU to counter Russia
Strong trade ties are essential to effective deterrence, as economic security underpins overall national security
If Russia perceives the US and EU drifting apart economically, it may be emboldened to further challenge European security. But an economically integrated transatlantic partnership would constrain Russia’s ability to sow division and project power in Europe. A US-EU trade deal would complement NATO’s formal security commitments with a powerful economic pillar
Containing China:
Enhanced US-EU trade ties would also increase the partners’ combined leverage to address the economic and technological challenges posed by China’s rise. The massive EU market, equivalent in size to the US or China, makes US policies like export controls and sanctions far more effective when done in concert with Europe
Aligning US and EU economic approaches through vehicles like the Trade and Technology Council would help “box in” China and shape the global economic landscape in ways that uphold Western interests and values
China has warned Europe against siding with the US in the growing US-China strategic competition. But the EU recognizes that it cannot be neutral in a systemic rivalry between democratic and authoritarian models. Europe’s interest lies in creating a stronger, more equal alliance with the US to gain leverage against China’s economic coercion and unfair practices. Integrating the US and EU economies more deeply would provide a powerful counterweight to China’s increasing global economic clout and predatory behavior.
Reducing Dependence on China for Critical Materials
Advocates contend that a trade deal reducing barriers between the U.S. and EU could help decrease reliance on China for critical raw materials and inputs, especially rare earth minerals essential for clean energy and high-tech manufacturing. This would support U.S. supply chain resilience and economic security.
In March 2023, the U.S. and EU were reportedly working to make European minerals eligible for tax credits under the Inflation Reduction Act in order to boost alternatives to Chinese sourcing. “Given the extremely high concentration of Chinese control over critical mineral extraction globally, strengthening our supply chains for critical minerals along with like-minded partners is vital for the growth of the clean energy economy,” a U.S. Treasury spokesperson said.
The U.S. is heavily dependent on imports for many critical minerals, with China accounting for a large share of processing capacity even for materials mined elsewhere. A 2020 Commerce Department strategy reported the U.S. relies 100% on imports for 14 critical minerals and over 50% for 17 others. “For example, 60% of the world’s cobalt is mined in the Democratic of Congo, and 80% of that supply is processed in China,” it noted.
Helping Developing Countries Through Regulatory Harmonization
Proponents say that common standards negotiated between the U.S. and EU as part of a trade deal could benefit developing countries by reducing regulatory compliance costs and facilitating their exports to the two largest markets. Given the combined economic weight of the U.S. and EU, bilateral commitments could set de facto global standards.
“If the United States and the EU can reach consensus on trade and regulatory issues, they may have an opportunity to jointly write global ‘rules for the road,'” a 2022 Congressional Research Service report said. “Such harmonization could benefit not only U.S. and EU firms, but also those in developing countries, which currently may face prohibitive costs in attempting to comply with differing regulatory requirements in the world’s two most important export markets.”
A 2013 European Commission study estimated that an ambitious U.S.-EU FTA would increase GDP in low-income countries by 0.20% and raise their national income by €1.6 billion, completely from indirect spillover effects. “It can reasonably be argued that the positive effects of a trade initiative between the two largest economies in the world are not at the expense of less developed economies,” it said.
The World Bank has found that trade has been a powerful driver of poverty reduction in recent decades. From 1990 to 2017, it reported, “developing countries increased their share of global exports from 16 percent to 30 percent; in the same period, the global poverty rate fell from 36 percent to 9 percent.” While gains have been uneven, “overall, trade has generated unprecedented prosperity, helping to lift some 1 billion people out of poverty.”
Con
Risks to Workers and Labor Standards
Critics argue that past trade deals have contributed to job losses, wage stagnation and rising inequality by putting downward pressure on labor standards, even if they have increased overall economic efficiency. They say the U.S. should not further open its market without strong, enforceable commitments to protect worker rights and the environment.
U.S. labor unions and some progressive lawmakers have long opposed trade agreements they view as prioritizing corporate interests over workers and communities. When the Obama administration was negotiating the TTIP, the AFL-CIO labor federation warned it could “exacerbate rather than reduce the U.S. trade deficit in goods with the EU,” hurting manufacturing jobs. It objected to the inclusion of investor-state dispute settlement (ISDS), which allows foreign companies to sue governments outside domestic courts.
Opponents also raised concerns that regulatory harmonization could result in a “race to the bottom” in food safety, chemical and environmental standards rather than raising protections for consumers and the planet. They pointed to past U.S.-EU disputes over practices like the use of growth hormones in beef production and “chlorine washed” chicken.
Some analysts caution that the U.S. should be wary of making one-sided concessions to the EU without reciprocal market openings, especially in sensitive areas like agriculture and government procurement. They note the U.S. already has a goods trade deficit with the EU that has grown in recent years.
The U.S. has complained that the EU’s geographical indications (GI) protections for food and wine products unfairly restrict the use of common names by U.S. producers. The EU contends they are needed to protect regional specialties and prevent consumer confusion.
Differences over agriculture were a major sticking point in the TTIP talks, with the U.S. pushing for more access for its farm exports and the EU resisting changes to its restrictions on genetically modified crops and hormone-treated meat. France and some other member states insisted that audio-visual services be excluded from the negotiations to preserve “cultural diversity.”
The U.S. has also objected to the EU’s proposed digital services taxes and efforts to more strictly regulate American tech giants on antitrust and data privacy grounds. While the two sides reached a deal in 2021 to lift Trump-era tariffs on steel and aluminum and work together to address global excess capacity largely driven by China, the EU retained retaliatory duties on iconic American products like bourbon and motorcycles.
Lack of Trust and Transparency
The TTIP talks foundered in part because of rising public skepticism and opposition in Europe, amid concerns about U.S. motivations and the closed-door nature of the negotiations. Controversy over U.S. surveillance practices and European data privacy rules further eroded trust.
In 2016, after the leak of classified negotiating documents, Greenpeace Netherlands warned the deal “could open the door for corporate takeover, threatening our environment and health.” It said the texts showed “the EU position is very bad for the environment and consumer protection.”
A 2014 protest against the TTIP in Berlin reportedly drew up to 250,000 people. European activists collected over 3 million signatures on a “Stop TTIP” petition that called for transparent negotiations and said “we don’t want this huge trade deal to be agreed behind closed doors, because it would have a massive impact on our lives.”
Unbalanced Benefits and Leverage
Fueling Global Tensions with China
While advocates see a U.S.-EU trade pact as a way to counter China’s growing economic clout, some opponents worry it could provoke a destabilizing reaction from Beijing and fuel a new Cold War. They argue the U.S. should pursue a more balanced approach of engaging China on shared interests like climate change while managing differences through multilateral institutions.
In a 2015 book, Harvard professor Graham Allison popularized the concept of the “Thucydides Trap,” in which a rising power threatens to displace an established power, increasing the risk of war. He warned that “China and the United States are currently on a collision course for war” and called for “a surge of imagination” to escape the historical pattern.
Allison wrote that the U.S. “should encourage Chinese participation in institutions that set international standards and rules. On issues like climate change, nuclear proliferation, cyberterrorism, and financial stability, the United States will make little progress without China’s active cooperation.”
Genetically Modified Foods and Food Safety
A US-EU trade agreement could lead to increased imports of genetically modified (GM) foods into Europe, which many Europeans oppose due to health and environmental concerns. Studies have shown GM foods can pose risks like toxicity, allergic reactions, and unintended genetic changes
*The biotech industry has created organisms not produced by nature that are being released into the food supply with negligent regulation and no labeling, preventing informed consumer choice
*An agreement forcing Europe to accept unlabeled GM foods from the US would undermine food safety standards.
Multilateral Solutions vs Bilateral Agreement
Pursuing a bilateral US-EU trade deal could undermine the multilateral trading system centered around the WTO. Multilateral agreements, while harder to negotiate, provide more comprehensive and wide-ranging economic benefits. The US and EU should focus on reforming and strengthening the WTO rather than pursuing a separate bilateral deal that could create competing trade spheres and divert trade away from other partners
Undermining the Buy America Act
A US-EU agreement could undermine domestic preference policies like the Buy America Act, which requires the government to prefer US-made products in its purchases. This policy is important for supporting US manufacturing and jobs
Eliminating Buy America provisions would force US producers to compete directly with European firms that may have lower costs due to labor, regulatory or currency advantages, leading to outsourcing. Preserving Buy America ensures tax dollars support domestic industry.
Risk of Privacy Loss
A US-EU agreement could jeopardize consumer data privacy on both sides of the Atlantic. The EU has much stronger data protection rules than the US, and many Europeans fear a trade deal would allow US tech giants to undermine these protections
The US may push for unrestricted cross-border data flows and limitations on privacy regulations in the agreement. This could expose private information to commercial exploitation without adequate oversight.
Increased Reliance on Fracking
A US-EU trade deal would likely increase European reliance on imports of US shale gas produced through hydraulic fracturing (fracking). While this could help diversify Europe’s energy sources, many oppose fracking due to its negative environmental impacts such as groundwater contamination, methane leaks, and earthquakes
Additionally, investing in long-term gas infrastructure could slow the transition to cleaner renewable energy sources. The EU should minimize its support for fracking.
Job Loss
There are several arguments that free trade can negatively impact jobs and poverty levels, especially in certain regions and industries.
Job losses in import-competing industries. When trade introduces lower cost international competitors, it can put some domestic producers out of business, leading to job losses in those industries
The Economic Policy Institute notes that in the U.S., more jobs have been displaced by imports than created by exports in recent decades as trade deficits have risen.
Uneven impacts across regions and workers. While trade can create jobs in exporting industries, the gains and losses are often unevenly distributed. Some regions and types of workers may disproportionately face job displacement
The EU’s own impact assessments have shown that trade liberalization will cause “large-scale redundancies” in the EU and declines in employment in certain sectors.
Downward pressure on wages. Increased competition from lower-wage countries can put downward pressure on wages for less-skilled workers in developed economies
Disruptions for developing economies. Rapid trade liberalization can disrupt traditional industries in developing countries before new export sectors are established. For example, the proposed Euro-Mediterranean Free Trade Area is predicted to cause a near collapse of manufacturing in several North African countries
European Strategic Autonomy Good
European strategic autonomy (ESA) refers to the European Union’s capacity to act independently in strategically important policy areas, without being overly dependent on other countries, especially the United States. ESA originated in the defense and security domain, with the goal of enabling the EU to take autonomous military action and defend Europe without relying solely on the US and NATO. However, the concept has expanded to encompass reducing dependencies in areas like trade, technology, energy, and upholding democratic values
Calls for ESA have increased in recent years due to uncertainty about the US commitment to European security, especially during the Trump presidency, as well as the need to respond to an increasingly hostile geopolitical environment marked by the rise of China and Russia’s aggression. The COVID-19 pandemic also highlighted Europe’s vulnerabilities in global supply chains.
Proponents argue ESA is necessary for the EU to defend its interests and values in an era of heightened geopolitical competition, and that a more strategically autonomous Europe would actually strengthen the transatlantic partnership. They say ESA is about increasing European capabilities to be a better partner to the US, not divorcing from the alliance.
So in this context, some disruption in US-EU relations, with Europe asserting more independence, may be seen as positive by ESA advocates, as a way to spur the EU to take on more responsibility for its own security and reduce its strategic dependencies.