The Transatlantic Trade and Investment Partnership (TTIP) does not represent the first attempt by the United States and European Union to intensify their bilateral relationship by building a more deeply integrated economic zone. But for several reasons, this initiative is likely to be more successful than previous efforts.
First, globalization has lost some of its momentum. After impressively dynamic growth, many emerging markets such as China and India have slowed down recently. Second, rapid economic development has increased economic inequality, which has sharpened political tensions in places like North Africa, Turkey, and Brazil. Political instability leads to economic uncertainty and generates additional transaction costs for doing business. As a consequence of lower economic benefits and higher transaction costs, globalization is no longer the powerful generator of growth for the United States and European Union that it once was. Third, economic recession in the United States and Europe has been followed by a weak and slow recovery, with persistently high unemployment. And finally, the euro crisis is not yet over, with Southern Europe still affected by high debt and high youth unemployment rates with tough austerity measures dramatically lowering household incomes.
Under such circumstances, economies on both sides of the Atlantic desperately need a new agenda for growth. TTIP could work at least partly as a substitute for globalization and a new engine for prosperity. According to a study by the Centre for Economic Policy Research, TTIP could bring economic gains of about €119 billion to the European Union and €95 billion to the United States each year, increasing annual disposable incomes for a family of four by about €545 in the EU and €655 in the United States. These gains would not be at the expense of the rest of the world. Overall, exports would increase 6 percent in the EU and 8 percent in the United States. According to the Ifo Institute in Munich, TTIP would create up to 110,000 new jobs in Germany, a total of 400,000 jobs in the EU, and 100,000 jobs in the United States, assuming the agreement amounts to substantial reductions in non-tariff barriers. According to a Bertelsmann Foundation study, job gains in the United States could be even higher, with a net employment increase of almost 750,000.
Furthermore, TTIP has the potential to become much more than another trade liberalization effort. The goal is to eliminate all impediments in bilateral trade in goods and investments according to the principle of origin. For the trade in services, the aim is to obtain improved market access and to address the operation of any designated monopolies and state-owned enterprises. However, the main opportunity comes with investment, which drives the transatlantic economy in contrast to the trade-driven transpacific economy. A liberalization of investment activities would allow U.S. and European firms to more efficiently construct their value chains. They would more easily be able to exchange ideas, skills, and knowledge across the Atlantic and better profit from economies of scale. This would bring more than just static cost savings as in the case of trade, allowing for new forms of production and processing that stimulate growth rates.
A final reason for TTIP’s importance is that it could become the nucleus of a new Western liberal order. For decades, globalization has spurred economic development, growth, and improvements in the standard of living for millions of people around the world. However, the social and environmental costs of rapid economic changes have been neglected. These challenges and the shift of political power from the North Atlantic to Asia, Latin America, and Africa necessitate the restoration of a rules-based international order. TTIP could help assert transatlantic leadership on trade policy, and advance a rules-based system of global economic governance that reflects the shared values and interests of the Atlantic area, possibly extending to financial services, environmental standards, and corruption. Eventually, TTIP should act like an open club. Perhaps, one day, it could consider inviting new members that are willing to accept a set of shared norms and values.