Transatlantic Trouble

Recent revelations that the U.S. government had been spying on European allies continue to rile public sentiment on the continent, just as officials from both sides of the Atlantic sit down for talks in Washington on the Transatlantic Trade and Investment Partnership (TTIP), a wide-ranging deal that the Obama administration has been pushing as a key foreign policy initiative. If successful, TTIP would deepen the economic ties between North America and the European Union and represent the biggest trade deal in over two decades. But with public trust in the United States ebbing throughout the core countries of the European Union, President Obama will probably have to do more than simply downplay the scandal as a hyped-up, misunderstood policy detail.

Old school Atlanticists have long touted the wisdom of deeper economic integration between the United States and the European Union, which is already vast and significant. U.S.-EU trade in goods and services totals about one trillion dollars annually, with each side accounting for roughly a fifth of each other’s total global exports. Just as important, both sides of the Atlantic invest heavily in each another. U.S. Foreign Direct Investment in the EU totals about 2.1 trillion dollars a year, while the EU invests close to 1.6 trillion in the U.S., bringing the grand total to a little more than 3.7 trillion in investment per year. That’s real money. A bold trade deal could spur growth and boost confidence, providing a template for global trade talks as well as a much-needed success story for an Obama administration floundering with a deadlocked Congress.

A grand bargain would have a significant upside for Europe, where American engagement is sorely needed. If Europeans felt estranged from America during the Bush years, they have felt ignored by Obama. Ever since high-level negotiations on TTIP started at the beginning of 2013, there has been a sense of optimism in the countries of European Union that a free trade deal might help them get past the eurocrisis and the problems resulting from the common euro currency, a policy area where the United States has had little leverage.TTIP would add some economic growth, but more importantly, it could boost overall investor confidence that the European project is going forward, especially in southern Europe where foreign capital is needed most.

Another factor is the extraordinary rise of China and its “state capitalist” system, which has also been pushing both sides toward something big and bold. In a sense, TTIP can be seen as part of Obama’s “pivot to Asia” strategy, in which the U.S. wants to shift more strategic resources to counter China and its emergence as a dominant power in Asia.  But that not only means building up regional alliances in Asia, it also requires shoring up the basic values of openness, democracy, and markets that the U.S. wants to project outwards. The European Union trades an enormous amount with China as well, and European companies face the same types of challenges, like intellectual property theft, that American companies do. Despite all the differences over the years with regards to the War on Terror during the George W. Bush administration, no two zones of the global economy have as much in common as the good old transatlantic alliance when it comes to property rights, democratic rule, and the free exchange of ideas.

There are, however, still many hurdles to overcome. Growth in transatlantic trade has been anemic since the financial crisis of 2008-2009, partly due to the global downturn, partly due to competing subsidy and regulatory policies that obstruct commercial activity. Tariffs and non-tariff barriers such as subventions for agriculture and privileging domestic companies for government contracts exist on both continents and have long complicated trade negotiations; they are entrenched political interests in both political systems that are difficult to dislodge. Republicans, for all their anti-socialist rhetoric, join many red-state Democrats to support market-distorting farmland subsidies and protective tariffs at home. Within the European Union no country benefits from agricultural subsidies as much as France, which has traditionally thrown its weight around to keep the current system in place. And no government anywhere really wants to give up awarding contracts to domestic companies if at all possible.

Some of these issues are not really controversial from a policy perspective nor do they garner much public attention. Yet other substantive issues facing TTIP—sensitive topics such genetically modified organisms (GMOs) and data privacy—do enjoy a high level of public visibility in Europe.  The U.S. and EU have made progress in recent months to reach an agreement on sharing intelligence data for counterterrorism purposes, but European officials say that the NSA scandal has weakened public trust and thus the political will to do something bold. In Germany, where the Gestapo and the Stasi still loom large in the public imagination, politicians are falling over each other to distance themselves from cooperating with the United States or making any concession on data privacy. The Germans have been a driving force behind TTIP, but with general elections coming up in September, the NSA revelations have ignited a firestorm of indignation across the political spectrum, with Edward Snowdon being celebrated as an international hero.

No matter how much the Obama administration might like to paper over the spying scandal, it might not be enough for Europeans to deepen their commitment to more economic exchange with the United States, if the U.S. is seen as wantonly spying on them and their governments. European politicians won’t let TTIP fail as a form of protest, but they might very well make the calculation that now is not the right time to strike a deal, if the public outcry is too great. The challenges would have been tough enough in normal times—under the current circumstances an agreement might be impossible.

Indeed, the timing could not have been worse. It is perhaps ironic that the most laughable aspect of the NSA revelations, that the United States would actually waste its time spying on the Europeans, could have the biggest political consequence. 

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