This action might not be possible to undo. Are you sure you want to continue?
The U.S. Presidential Election and the Prospects for Transatlantic Trade and Investment
by Joseph Quinlan, Transatlantic Fellow, The German Marshall Fund of the United States* It is an open secret that many in Europe will not miss U.S. President George W. Bush when he leaves office in January 2009. Thanks mainly to the unpopular U.S.-led war in Iraq, the transatlantic partnership has been under constant strain for the past eight years, creating an atmosphere of disappointment and distrust on both sides of the Atlantic. Looking forward, there is a general sense in Europe that U.S.-European relations can only improve in the post-Bush era. This may be true with respect to U.S. policy toward Iran, Iraq, the Israeli-Palestinian peace process, and even global climate change. On these issues, U.S. unilateralism is expected to give way to a more cooperative and consultative approach under the next administration. However, it is on the economic front—where relations have flourished over the past few years—where the road could become rockier. This brief examines two key elements of the transatlantic economy. First, the transatlantic economy has thrived during the Bush presidency, notwithstanding numerous points of conten*
SUMMARY: Thanks to the U.S.-led war in Iraq, it is no secret that many in Europe will not miss U.S. President George W. Bush when he leaves office in January 2009. The transatlantic partnership over the past eight years has been under constant strain, creating an atmosphere of disappointment and distrust on both sides of the Atlantic. The “glue” of the transatlantic relationship has been its strong economic ties. This brief examines the transatlantic economic partnership on trade and investment and the prospects of whether or not that relationship will continue to flourish under a new U.S. administration in 2009 or whether there will be a new tide of protectionism.
tion between the United States and Europe. Second, while Europe pines for new American leadership, the front runner to the White House, democratic presidential candidate Barack Obama, has not been shy about touting his anti-trade credentials on the campaign trail. This is a worrisome trend since any move on the part of the United States toward greater trade and investment protectionism could undermine the transatlantic economy in particular and the world economy in general.
Looking back—the transatlantic economy has never been stronger
Notwithstanding multiple points of strain, the ties that bind the transatlantic economy together have grown stronger this decade. Since emerging from a cyclical slowdown in 2002, the transatlantic economy has enjoyed one of the strongest periods of growth and prosperity in decades. Transatlantic trade, investment, and foreign affiliate profits have soared over the past years, boosting employment, income, and corporate earnings on both sides of the Atlantic.
1744 R Street NW Washington, DC 20009 T 1 202 745 3950 F 1 202 265 1662 E email@example.com
Joseph Quinlan, a non-resident transatlantic fellow with the German Marshall Fund of the United States (GMF) since 2003, is a leading expert on the transatlantic economy and well-known global economist. His research centers on regional and global trade and investment flows. He regularly debriefs and advises senior U.S. congressional leaders on global economic/financial affairs on Capitol Hill, and has testified before the European Parliament on transatlantic trade issues. The views expressed here are those of the author and do not necessarily represent the views of GMF.
Economic Policy Program
Various metrics speak to an economic alliance that has grown stronger, not weaker, over the past few years. For instance, U.S. exports to Europe rose by nearly 50 percent between 2000 and 2007, while U.S. imports from Europe surged 62 percent. Transatlantic investment flows were also quite strong—U.S. investment stock in Europe rose 42 percent in the decade to 2007, while capital investment from Europe to the United States jumped 81 percent. Interestingly, despite all the hype about opportunities in the emerging markets, notably China and India, U.S. and European foreign investment remains concentrated in the transatlantic economy. Supportive of this trend is the relatively strong economic growth in the United States, boosting investment from Europe, and EU enlargement, which has attracted more and more investment from U.S. firms hoping to capitalize on business opportunities in one of the largest and wealthiest economic entities in the world. Not surprisingly, the greater the trade and investment between the United States and Europe this decade, the greater the level of foreign affiliate sales and profits. Regarding the later, foreign profits have soared this decade, with U.S. affiliate income in Europe more than doubling between 2000 and 2007; meanwhile, foreign affiliate income in the United States rose two-and-a-half fold over the same period. Owing to these trends, U.S. foreign affiliates in Europe and European affiliates in the United States have enjoyed a near-decade of prosperity, creating income and jobs for their workers, and wealth and value for their shareholders. ing engendered by the U.S.-led war in Iraq plunged transatlantic political relations to one of their lowest points in six decades, U.S.-Europe economic ties only grew stronger. Indeed, the “glue” of the transatlantic partnership this decade has been the deep and far-reaching commercial ties of the two parties, among the largest and thickest in the world. However, having survived the political and diplomatic stress placed on the relationship by the war in Iraq, the question now is whether or not the transatlantic economy can thrive under a new U.S. administration, one presumably less open and less amenable to free trade and investment, and globalization.
Looking forward—U.S. protectionism represents a clear and present danger to the transatlantic partnership
With the U.S. economy presently expanding at a miserable pace, and with U.S. unemployment on the rise and consumer confidence at a multi-year low, the economy has taken center stage in the U.S. presidential election. Part of the blame for the ailing U.S. economy, not surprisingly, lies with foreign trade—a notably handy and convenient scapegoat in any election year. Hence, the free trade credentials of both Barack Obama and John McCain have come under heavy scrutiny as voters and the media try to discern the trade leanings of the candidates. In general, John McCain has long been a steady proponent of free trade, earning the “free trader” designation from the Cato Institute’s Center for Trade Policy Studies. As Exhibit 1 highlights, John McCain’s voting record on major U.S. trade initiatives has been consistently pro-trade. Accordingly, a McCain presidency would most likely reaffirm and continue America’s commitment to trade and investment liberalization, and in general, promote greater transatlantic ties. However, this is hardly a guarantee—the longer the U.S. economy muddles along in its current feeble state, the greater anti-trade pressure on any U.S. president, Democrat or Republican. An Obama presidency could be more problematic for the transatlantic economy based on Barack Obama’s voting record and campaign rhetoric. Regarding the former, since joining the U.S. Senate in January 2005, Mr. Obama has cast 13 major votes on selected trade bills, exhibiting a bias toward the support of trade barriers and subsidies.
“Having survived the political and diplomatic stress placed on the relationship by the war in Iraq, the question is whether or not the transatlantic economy can thrive under a new U.S. administration, one presumably less open and less amendable to free trade and investment, and globalization.”
All of the above is evidence that the United States and Europe have never been more embedded in each other’s economy than they are today. Even as diplomatic bicker-
Economic Policy Program
Voting records of U.S. presidential candidates, selected trade bills and career voting record (%) Trade Bill
CAFTA-DR TPA (2002) China currency sanctions Peru FTA Oman FTA Cuba travel ban Byrd Amendment (subsidies) Opposed barriers (%) Opposed subsidies (%)
N / N / Y Y N 36 0
Y Y Y Y Y / Y 88 90
Cooler heads also need to prevail in Brussels and other European capitols. Europe’s embrace of globalization—or the unfettered cross-border movement of goods, services, capital, and people—has been tepid at best, notwithstanding the multiple benefits from globalization (lower inflation, cheaper imports, rising exports, etc). A more protectionist tone from a new administration in Washington would likely engender a similar response or course of action from Europe, leaving the world economy dangerously exposed to a rising tide of protectionism.
The way forward
Source: Cato Institute Center for Trade Policy Studies, Free Trade, Free Markets: Rating Congress, various issues, http://www.freetrade.org/congress. Note: Y indicates a vote in favor of free trade. N indicates a vote against free trade. / indicates that no vote was cast.
Public opinion polls in the United States indicate that U.S. voters want “change” after eight years of Republican rule. Many in Europe feel the same way and are eagerly anticipating a new administration and a fresh start with its transatlantic partner. Expectations, however, should be tempered since the next president of the United States will be elected by a populace weary of foreign commitments and increasingly suspicious of the benefits of globalization, including cross-border trade and investment flows. Sensing the fragile mood of the country, the next president of the United States—Democrat or Republican—is likely to be less open and more inward-looking when it comes to global commerce, at least in the early stages. Most members of Congress have already sense this mood change and have themselves become more cautious and guarded when it comes to global trade and investment. This backdrop will hamper the next administration’s ability to complete bilateral free trade agreements and impede progress on such ground-breaking deals like the Doha Round at the World Trade Organization and region-specific deals like the New Transatlantic Marketplace.
On the campaign trail, meanwhile, the senator from Illinois has talked of amending the North American Free Trade Agreement (NAFTA), and has shown a bias toward using trade policy to promote U.S. labor and environmental standards overseas. Barack Obama has also talked of repealing incentives for U.S. companies investing overseas, and instead, has outlined policies in favor of encouraging investment in the United States. Delivering on his promises, if elected, could be made even easier for Mr. Obama if the Democrats end up controlling both the House and Senate, a strong possibility. This configuration—a Democratic sweep at both ends of Pennsylvania Avenue—could usher in a new era of trade and investment protectionism, a prospect that would hinder the growth and expansion of the transatlantic economy and unsettle the global multilateral trading system. In all likelihood, this is not what Europe has in mind as it gets ready to bid farewell to President Bush. Rhetoric and reality, of course, are two different variables. There is always a chance that, if elected president, Mr. Obama will adjust his stance on trade and investment—lest a more protectionist stance in the United States precipitates a run on the U.S. dollar and a rout of U.S. financial markets. With any luck, this unsettling scenario will be avoided and cooler heads will prevail in Washington.
“A more protectionist tone from a new administration in Washington would likely engender a similar response or course of action from Europe, leaving the world dangerously exposed to a rising tide of protectionism.”
In the end, the transatlantic economy—more out of
Economic Policy Program
benign neglect than by design—has prospered greatly under the Bush administration. Today, the transatlantic economy remains the largest and most dynamic economic entity in the world. However, whether the policies of the next U.S. administration will help or hinder the growth and prosperity of the transatlantic economy remains to be seen. If protectionist rhetoric in the U.S. translates into policy beginning in 2009, many in Europe will come to miss President Bush. About GMF The German Marshall Fund of the United States (GMF) is a nonpartisan American public policy and grantmaking institution dedicated to promoting greater cooperation and understanding between the United States and Europe. GMF does this by supporting individuals and institutions working on transatlantic issues, by convening leaders to discuss the most pressing transatlantic themes, and by examining ways in which transatlantic cooperation can address a variety of global policy challenges. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Bratislava, Paris, Brussels, Belgrade, Ankara, and Bucharest. For more information, visit www.gmfus.org.
This action might not be possible to undo. Are you sure you want to continue?