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EU and World Economy

EU and World Economy

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08/03/2010

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The EU and America in the world economy
Speech by Peter Mandelson at the German Marshall Fund
Washington DC, USA, 17 June 2005
Summary
In this speech, Peter Mandelson notes a defensiveness to free trade in Europe and Americathat "if it builds into protectionism or isolationism, will threaten our prosperity and theinternational trading system we have laboured to build."“Both in the United States and Europe economic certainties are being eroded. Manufacturingand trading patterns that have shaped the global economy for decades are shifting…In thespace of a decade, India and China have emerged as challenging, dynamic competitors. Thecase for open trade needs to be made again and again.”Commissioner Mandelson argues that this new situation “demands active political responsesbut not protectionism …The US and Europe today have to make the political choice tocompete. To recognise where we are up against the laws of comparative advantage. Tomove up the value chain and to bear the costs of retraining and adjustment. The rise of China and India is a clarion call to reform and greater competitiveness, not a cause for retreat and introspection.”Mr. Mandelson argues that the EU and the US also have to make a case for free trade that is“almost a moral one”: that “open trade can deliver real development for the poorest. It is infact the single most effective tool for ending poverty and achieving sustainable development.”Commissioner Mandelson concludes: “Our goal should be a transatlantic partnership of principle to tackle the shared global challenges of our time, between a strong internationalistAmerica and a more united and effective Europe.”------------------I am happy to be in Washington today. I welcome the invitation of the German Marshall Fundto share with you my thoughts on Europe, on transatlantic relations and on the need for astrong and open global trading system. I am pleased to see that my friend Grant Aldonashas found a new home here after leaving the Commerce Department.
What is happening in Europe?
I imagine that most of you have followed recent events in Europe with a mixture of interestand bemusement. The triumphant achievement of enlargement one year ago has given wayto the political uncertainty generated by the referenda in France and the Netherlandsrejecting the new Constitutional Treaty.I am not sure I would have dignified this treaty with the badge of a full-blown Constitution,that had to be put to referenda in our Member States. And fundamentally, Europe is nodifferent for the freezing of the ratification process, although there are many bits of the Treatythat would have – and, I hope, will yet – make the EU a more effective and efficientorganisation. In the meantime, the powers of the EU remain unimpaired, and the rights of its
 
2citizens unchanged, and, I am pleased to say, the authority of its Trade Commissioner unchallenged.The Constitutional treaty has run aground not on its particular merits or demerits, but rather on domestic political dissatisfactions and also a sense that the European Union is uncertainin its direction. By many, the EUs virtues and accomplishments are simply taken for granted.Its contribution to the continent’s peace and prosperity discounted, or not understood.This situation does not spell crisis. But it is crying out for clear, strong political leadership.The fact is, far from falling apart, Europe is living in a time of unprecedented prosperity. Butfor many in Europe, it feels like an insecure place. Listening to the debates before the votes,especially listening to the young, who voted against the treaty in massive numbers, you werestruck by a profound anxiety about unemployment and economic insecurity. I sense a similar public anxiety here in the United States. How we should respond to that anxiety is essentiallythe subject I want to address today.But first let me reiterate that I am confident that the EU will overcome its present difficulties, just as it has overcome past problems. We may need to pause and gather our forces beforemoving forward again. But I am sure we will do so. The answers to our own problems inEurope are in many ways the same answers to the wider problems that Europe and Americaface together in the global economy.
A new protectionism?
Both in the United States and Europe economic certainties are being eroded. Manufacturingand trading patterns that have shaped the world’s economy for decades – at least as seenfrom industrial Europe or Ohio or Michigan or North Carolina - are shifting.In the space of a decade, China and India have emerged as challenging, dynamiccompetitors. Industries are moving to Central America and Asia. There is a fear on bothsides of the Atlantic that we have somehow given away too much in the name of free trade.Traded old certainties for cheaper clothes or cars. Now, if this defensiveness builds intoprotectionism or isolationism, it will threaten our own prosperity and the international tradingsystem we have laboured to build since the end of the Second World War. We have to helppeople understand why.The case for open trade needs to be made again and again. It is the foundation of our prosperity. Our late twentieth century prosperity was built on it. Our twenty first centuryprosperity will be founded it. Protectionist policies might save a few jobs in the short-term,but at the cost of economic competitiveness in the long term.The progressive removal of quotas and tariffs through the GATT unlocked a tide of prosperitythat has never risen higher in human history and which – if we manage it right – can nowreach into every part of the global economy. Growth continues in the United States andEurope today, despite the loss of manufacturing jobs to China and white-collar jobs to India.Real wages are up, and inexpensive goods from Asia are holding down inflation and helpingpay checks go further than ever before.On the other hand, people do not realise the costs of protectionism. According to the WTO,consumers and governments in the developed world still spend 350 billion dollars a year supporting agriculture alone. Recent, textiles liberalisation will in time save every Europeanfamily two or three hundred dollars a year in the cost of clothes. The WTO estimates textileliberalisation could save more than 2 billion dollars a year for Europeans and 8 billion dollars
 
3a year for poor consumers in the developing world. But, on the way, it may also cost workersin France or Italy - or North Carolina - their livelihoods.And that is the crux of our problem. The benefits of trade liberalisation are widely spread andonly vaguely appreciated. The costs are borne by a vulnerable – and vocal – few, who maybe hit very hard.Yet if we protect those jobs from the realities of global competition every one of us pays too,in lost savings. And ultimately, the people we are trying to help also pay for it because theindustry of which they are a part falls further and further behind the global competition. Wedo not help industries by sheltering them, we chain the weight of future obsolescence to their ankle.This situation demands active political responses, but not protectionism. We are not inert,passive recipients of whatever the global economy throws at us. We need to promotedynamism and innovation in our economies: to develop new areas of comparative advantagebased on scientific innovation and human creativity. This is the central policy theme of thenew European Commission, of which I am a member, with its “Lisbon Agenda” for jobs andgrowth.This economic dynamism is more urgently needed in Europe than America – I readily admit.We need greater flexibility and efficiency in our product, capital and labour marketsThis means investing in the futures of those affected by globalisation by providing training,increasing productivity and investing in research and development. Not protecting today’s jobs, but equipping today’s workers to do tomorrow’s jobs.We also need to take a pragmatic, progressive, humane approach. Open trade is a longgame – the benefits accrue over economic cycles but often to the cost of individuals affectedimmediately, today, by change. Our task is to set out the longer term vision so as to makethe short term pain at least understandable as our policies try to manage change andadjustment. This was the philosophy I pursued in the recent agreement with China to settemporary, transitional limits on the growth of Chinese textile imports to Europe. I do not callthis managed trade, but it is intervention – carefully chosen – to manage the short termimpact of sudden shifts in trade flows.As advocates of open trade, it is instructive to remember our own history here. During therise of America throughout the 1800s, Europe prospered. Why? Because new technologiesbounced back and forth between us. We didn’t block it or impede it through fear of economicchange.The telephone was invented by Alexander Graham Bell in Boston in March 1876. It showedup in Britain just six months later. Thomas Edison started operating an electric power stationin London in 1882: New York got its own just eight months later.Similarly the US and Europe today have to make the political choice to compete. Torecognise where we are up against the laws of comparative advantage. To move up thevalue chain and to bear the costs of research and development, retraining and adjustment.The rise of China and India is a clarion call to reform and greater competitiveness, not acause for retreat and introspection.
Trade and development
We must also remember that we, in Europe and America, are not the most vulnerable. Theimpact on weaker developing countries is much greater and more urgent. The second great

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