The promotion of free trade, by creating jobs, also helps us tackle the fiscal crisis. Obviously, employed people pay more taxes than an unemployed person, and the additional economic activity generated by the increase in consumer spending also helps bring in revenue for the government. Even better, employed people do not require government assistance in the same way that unemployed people do.
The United States currently enjoys free trade agreements (FTAs) with more than a dozen countries, ranging from the immense NAFTA agreement with Canada and Mexico to the comparatively puny bilateral FTA with the Persian Gulf state of Bahrain. Agreements with South Korea, Columbia, and Panama are hopefully going to be ratified soon. These FTAs have already been a boon to the American economy, creating jobs and lowering prices across the board. But we need to be doing more. In particular, the United States should pursue an agreement with the European Union to create a Transatlantic Free Trade Area.
The idea of a Transatlantic Free Trade Area (TAFTA) has been floating around since the 1990s. The United States and the European Union are the world's two largest economies; indeed, together they comprise roughly half of global GDP. But their prosperity is currently threatened by the global fiscal crisis and by the economic rise of China and India. The former threatens to eliminate jobs dependent on government spending, while the latter has long been draining manufacturing jobs away from Europe and America to the cheaper labor markets of Asia. Europe and America need to work together to tackle the economic challenges of the 21st Century, and the creation of TAFTA would be the most important step.
The volume of trade already existing between the United States and the European Union is immense, totaling roughly a trillion dollars a year. This could grow even larger if existing trade barriers between the two sides were removed by a free trade agreement. Considering that wages and working conditions are roughly the same for both sides, the TAFTA could avoid disputes on such issues that have bedeviled FTAs in the past. The European Union has tougher environmental standards than does the United States, but hopefully that issue can be avoided in any FTA negotiations.
Right now, the average tariff each side imposes on imports from the other is less than 3%. This is not large by global standards, but it still represents a substantial drag on prosperity, especially considering the immense size of the US-EU trading relationship. The creation of a TAFTA could eliminate these bothersome tariffs, giving a shot in the arm to economic activity and thereby quickly creating jobs and lowering prices for people on both sides of the ocean.
Subsidies to favored industries has been the largest economic bone of contention between the two sides in recent years, especially when it comes to the rival aerospace firms Boeing and Airbus. These subsidies negatively interfere with the free market, make products ranging from agricultural produce to jetliners more expensive, and ultimately cost thousands of people their jobs. Negotiations to create a TAFTA would force the two sides to finally resolve these annoying issues and thereby would bandage up a wound that has been bleeding the economy for far too long.
Creating a TAFTA would eliminate tariffs and other trade barriers, as well as get rid of annoying and job-killing practices such as subsidies to favored industries. It would reduce prices on a wide variety of products for all consumers, which benefits everyone but especially benefits the poor. Already huge transatlantic investment between Europe and America would grow even larger, and the natural political alliance between the two would grow even stronger.
President Obama, pick up the phone and get the process started.