Tap Into the European Economy

President Barack Obama should make it clear in his speech that wrapping up a new U.S.-European Union trade deal will be a foreign policy priority for his second term.

Why the U.S. should want to increase its exposure to Europe, paralyzed by a financial and debt crisis, isn’t immediately obvious. Most economists nowadays tend to focus on how to boost trade with the fast-growing emerging economies, such as Brazil, Mexico and China. Yet trade between the U.S. and EU accounts for more than one-third of all global trade flows. More U.S. exports go to Europe than to China.

A U.S.-EU trade accord can unleash a huge untapped stimulus for both sides of the Atlantic, at a time when the U.S. and Europe are deleveraging. For Europe, trade liberalization could coax companies to boost their competitiveness, something that European politicians have been loath to do for fear of retribution at the voting booth. For the U.S., an increase in trade could spur sluggish job growth.

As with most agreements, the devil will be in the details. Tariffs between the U.S. and Europe are already low, so the greatest gains in a new trade deal will come to reductions in non-tariff barriers. There are a number of sticking points, particularly related to agricultural products, aircraft manufacturers and pharmaceuticals.

Still, the proposed agreement now has some powerful champions, including German Chancellor Angela Merkel and U.K. Prime Minister David Cameron. Business leaders and labor unions on both sides of the Atlantic favor a deal as well.

Take advantage of this momentum and get a deal signed this year.

The original version of this piece appeared on Bloomberg View on February 11th 2013.

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