Protectionism made the Great Depression of the 1930s much worse. Although tariffs had already been rising during much of the previous decade, it was the Smoot–Hawley Tariff in the United States, and Britain’s principle of “home producers first, empire producers second, and foreign producers last,” that led to an almost complete disintegration of global markets. As a result, the volume of trade contracted by around 40 percent in the Depression’s initial years, returning international trade to its pre-World War I levels.
In the succession of crises starting in 2008, the world has mostly avoided such an outcome. Not even Donald Trump’s skepticism of trade has been enough to undo the non-discriminatory trade regime that was built painstakingly after 1945. Yet as of now, its future looks increasingly uncertain. The COVID-19 pandemic has given new salience to calls for a repatriation of supply chains for strategic or public health reasons. While that is a perfectly legitimate discussion, it is easy to imagine how an uncoordinated rush of governments to on-shore, say, the production of medical supplies or drugs would easily result in higher prices and less innovation.
The trading system built around the World Trade Organization (WTO) has been coming under stress for some time. The Trump administration has held up appointments of judges for WTO’s appellate body, effectively paralyzing one of the key functions of the organization. But even prior to 2017, it was clear that the “Doha Round” of global negotiations failed to produce an agreement on reducing non-tariff barriers to trade.
The limitations of the WTO system have led some to dismiss it as a failure. However, the idea that the United States can simply abandon the organization and “seek new arrangements and new rules, in concert with other free nations,” as Senator Josh Hawley (R-MO) suggests, has it exactly backward. First, free trading economies have to build such parallel structures, and only then might they contemplate whether the WTO remains needed and relevant for maintaining a level playing field and non-discrimination.
For the United States, a natural move in that direction would be an ambitious and far-reaching deal with its closest political and economic partners across the Atlantic: the European Union (EU) and the United Kingdom (UK). There is no need to start with a blank slate. Although the Transatlantic Trade and Investment Partnership (TTIP) was rejected both by Trump and by Europe’s conspiratorial anti-globalization left, the negotiations had been in an advanced phase by the time the Trump administration decided to shelve it. The talks, which went on since 2013, were not easy. However, most of the chapters were already being “consolidated,” including the ones on competition, technical barriers to trade, procurement, sanitary and phytosanitary measures, finance, regulatory cooperation, and rules of origin.
Although the EU appears as an unwieldy bureaucratic body, it has proven to be a fairly nimble negotiating partner, striking deals with a diverse array of economies. Partly as a response to Brexit, the previous European Commission went on a free trade agreement spree of sorts with new FTAs that have been signed or are still being negotiated with Canada, Japan, the Mercosur countries, and Vietnam, among others. With those experiences in fresh memory, navigating the intricacies of non-tariff barriers on both sides of the Atlantic ought to be easier than before.
Demagogues like to exaggerate the incompatibility between regulatory regimes on both sides of the Atlantic—hence the hysteria over chlorinated chicken or hormone-laden beef. In reality, however, the EU and United States are actually more alike when contrasted with countries where governments see the principles of open markets and competition as optional—if not as anathema. Differences between the United States and Europe certainly exist—and no trade agreement could possibly obviate them, as the mostly unsuccessful 1998 U.S.-EU agreement on mutual recognition illustrates.
Yet that does not mean that there is no low-hanging fruit to pick, either in the form of harmonization or mutual recognition. A U.S. company that sought to export a popular model of light truck to Europe, for example, had to create 100 unique parts and spend an additional $42 million on design and development, and perform rigorous tests on 33 different vehicle systems—“without any performance differences in terms of safety or emissions.” Surely we can do better than that. Or think about the mutual recognition of drug approval trials – processes that are extremely expensive, long, and duplicitous (on that, a modest degree of progress was already achieved last year). Would U.S. customers not welcome European airliners—Ryanair, say—serving U.S. domestic routes in a similar way that the Autonomous Parisian Transportation Administration (RATP) successfully competes with local bus operators around the world?
At a time of a global economic downturn, the economic imperative for a deep liberalization of trade is obvious. More significantly still, bringing much of the North Atlantic space to a broad agreement over trade and investment rules would be an important geopolitical marker. China is using the rules-based trading system to its advantage: gaining access to foreign markets while jealously protecting its own firms. A range of domestic practices, including subsidies and forced technology transfers, make it impossible for foreign businesses to compete in China on a level playing field. One reason why the Chinese government has been able to avoid accountability is a lack of concerted action by governments of leading market economies.
Whether or not the WTO is the best forum to hold China accountable for such practices, it would certainly not hurt if economies in the North Atlantic space, accounting for roughly half of the world’s GDP, reached an agreement on economic policy practices that are acceptable and those that are not—and if that agreement formed the basis for access to European and U.S. markets. The agreement could also provide a framework for strengthening the resiliency of certain supply chains. The argument for on-shoring, after all, is not that every country should be producing its own medical supplies or drugs but that dependence on unreliable or rogue actors should be reduced. The best way to do so is to deepen our ties with like-minded, well-governed economies.
A trilateral “TTIP+” would have the added benefit of addressing the problem of the UK’s future relationship with EU. As of now, the UK-EU negotiations seem to have reached a dead end. Simultaneously, the UK is seeking a free-trade agreement with the United States and it is conceivable that an appearance of a U.S.-UK deal will be struck before the November election. Yet the value of a hastily concluded, superficial agreement signed in the Rose Garden, with no chances of getting through Congress, is rather low.
A few weeks before the Brexit referendum, President Barack Obama warned the British that they should not expect a bilateral trade deal with the United States should they decide to leave the EU—instead, TTIP was a priority. In retrospect, the perspicacity of his intervention seems questionable, but the episode reflected a deeper truth: namely, that Brexit, a U.S.-UK trade deal, and TTIP were not three independent and separable issues. The more tightly bound by EU rules the UK is, for example, the less flexibility it has to make concessions to the United States—and vice versa.
Whatever one’s view of the UK’s decision to leave the EU, getting the future economic and political relationship between the two right should not be an adversarial process. Neither is it one that ought to be separated from the U.S. role in leading (or not leading) the West. That alone justifies bringing the three sides to the same negotiating table in order to create a genuine Atlantic marketplace, generating both prosperity and asserting the West’s status in the world. It is of course conceivable that for reasons of inertia and already existing economic ties, the UK would seek a deeper form of economic integration with the EU than with the United States. A TTIP+ would in no way preclude that. Still, as of now, the more salient question is whether there is going to be a deal at all after the transition period. Abandoning the current solipsistic approach toward Brexit in favor of one that sees it as an opportunity to build a new North Atlantic marketplace could provide a way to break the current deadlock.
If devised as an open agreement, the TTIP+ would also provide a new instrument of the West’s engagement with the broader world. In the 1990s and the 2000s, the prospect of joining the EU and NATO played an important role improving governance and rule of law in Eastern Europe. But that process has stalled even in places that could be thought of as natural candidates for future enlargements, such as the Western Balkans or Ukraine. Offering deep market access simultaneously to U.S., UK, and EU economies in exchange for satisfying a list of economic and non-economic criteria, including quality of democracy and rule of law, could have a similar civilizing effect—without nearly the same political commitments for Western nations as entailed by future EU and NATO enlargements.
Most importantly, however, the purpose of the trade agreement is to tie the hands of our own politicians. When left unchecked, the logic of concentrated benefits and dispersed costs makes protectionism—including its more unconventional forms, such as the EU’s misguided musings about “data sovereignty”—a tempting option. With the nationalist right and the anti-globalization left simultaneously seeking to undo the foundations of the West’s prosperity, it is incumbent on responsible leaders on both sides of the Atlantic to curb those instincts. A “TTIP on steroids,” binding together economies from Estonia, through the UK, all the way to Washington state, would be an important step forward.