The US Should Negotiate Trade Agreements with Both the UK and the EU

I recently testified at a joint subcommittee hearing held by the House Foreign Affairs Committee about prospects for a US - UK free trade agreement (my written statement is here).  I focused on the possible content of the agreement.  In my view, the lengthy – and so far unsuccessful – US trade negotiations in the Pacific region (the TPP) and with the EU (the TTIP) are an indication that perhaps we have expanded trade agreements to cover too many issues.  If we want the US - UK trade negotiations to be completed any time soon, we need something more modest, focusing on trade liberalization and doing less global governance.

One issue I did not cover in my written statement, but which came up in the questions during the hearing, was how the US should approach its trade negotiations with the EU after Brexit.  Everyone seemed to agree that the US should pursue a free trade agreement with the UK as soon as permitted (although there are disagreements about when that can occur).  But what should happen to the ongoing trade negotiations with the EU?

The Trump administration has not made any official statement on its view of the TTIP, but there are a couple worrying signs.  First, the Financial Times notes the Trump administration’s preference for bilateral trade deals, and quotes Peter Navarro, the head of the White House National Trade Council, saying that he thinks the TTIP is a multilateral deal:

The new president says he prefers bilateral trade deals rather than the broad multilateral accords pursued by Barack Obama, his predecessor. Mr. Trump last week also withdrew from a 12-country Pacific Rim deal negotiated by Mr. Obama. 

“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr. Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.”

While this is not a definitive statement of US policy, it may suggest reluctance among some people in the Trump administration to continue the negotiations with the EU.

In addition, Inside US Trade reports that someone in the White House has been contacting individual EU member states about bilateral trade talks:

Several EU member states believe that Trump administration requests to negotiate bilateral deals with individual countries – requests that have been rebuffed in deference to the European Commission – stem from White House advisers acting without secretaries and full staffs at key agencies that might have influenced the U.S. approach, EU sources said.

Because member states have ceded the competence to negotiate trade deals to the Commission, they have told the Trump administration they cannot work on bilateral deals, these sources said.

Member states have greeted the Trump administration’s requests in mixed ways, with some chalking them up to the administration’s unfamiliarity with the EU system of government and others viewing them as an affront to the European Commission’s competence over trade policy.

This may be a simple misunderstanding, but it also may be a conscious effort to undermine the EU.

Whatever you think of the EU as a force for trade liberalization (you may like its internal free trade; you may not like its agriculture subsidies), I think it is clear that the US government should let the EU and its member states decide how they want to participate in world affairs.  If the UK wants to leave the EU, and negotiate its own trade agreements, that is fine.  If all of the other EU members want to stay in the EU and participate in trade negotiations as a single entity, that is also fine.  Thus, the US should definitely negotiate a trade agreement with the UK.  But the US should also continue its negotiations with the EU, and not get hung up on the question of whether a deal with the EU would be “bilateral” or “multilateral.”

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