Comments Submitted to U.S.-EU High Level Working Group on Jobs and Growth

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The path to economic growth and prosperity is not something readily planned from above but rather is “discovered” by experimentation and experience. Markets are a discovery process – it is not evidence a priori which polices do or do not foster growth and employment. The two primary models are the “harmonization” model of seeking to “standardize” rules between those seeking mutually beneficial trading partners and the “competitive” model which seeks to have each party experiment with rules to determine which are superior. Which approach is superior is not always clear. The “harmonization” approach can easily morph into a “cartelization” path – enriching some within the two blocs but harming the overall economies of both. The “competitive” model can needlessly increase the transaction costs of trade.

In this context, let me discuss the question raised in this proceeding. I have some sympathies for both paths; however, as will be obvious, my belief is that the “harmonization” approach is far less likely to advance economic growth. Politics is too uncertain a process to allow top-down rules to become dominant.

Remove Tariffs

The U.S. and the EU are formidable trade partners that represent about 50 percent of the world’s GDP. While the U.S. and the EU have dramatically reduced tariffs on goods and services imported to their countries, the countries should agree to eliminate remaining tariffs to spur growth and opportunity.

Eliminating tariffs would create significant economic growth and enhance consumer welfare for both partners. In terms of exports, it has been estimated that getting rid of tariffs on merchandise trade between the EU and the U.S. would increase EU exports to the U.S. by up to $69 billion, while U.S. exports to the EU could increase by up to $53 billion. There would be substantial gains in both economies – GDP in the EU could rise from $58 billion to $85 billion, while U.S. GDP could increase from $59 billion to $82 billion.

In a free-trade lesson the U.S. should study, in November 2011 Canada announced that, to help spur the economy, it was eliminating tariffs on imports that Canadian manufacturers use. Tariffs would be cut on about 70 items, the latest in government moves to get rid of all tariffs by 2015. Already Canada has abolished tariffs on more than 1800 items — relief that is expected to add about $423 million annually to its economy.

Important too should be the recognition that tariffs on imports are in reality added taxes on the foreign goods and services that consumers and businesses purchase. Trade laws should consider the consumer impact. Consumers benefit from imports that may reduce their costs, increase their choices, provide new technological advances. Eliminating tariffs can provide major “tax cuts” that can help stimulate the economy.