It is good news that the United States and the European Union have confirmed that they are going to start formal talks about a new free-trade agreement. That President Barack Obama announced the move in his State of the Union address reflects a profound personal evolution on the issue. As a presidential candidate in 2008, he was a populist critic of free trade. But today, as he struggles to revive a sluggish economy while also cutting the U.S. deficit, he is a convert to its potential to open up markets and generate jobs. Recent assertions that the Obama administration wants Britain to stay in the EU — presumably to push the case for economic liberalization — suddenly make a lot of sense.
If the talks prove successful then they might validate David Cameron’s strategy toward the EU. Critics say that his constant demands for reform threaten to isolate Britain. But his toughness also has the potential to compel Europe to liberalize in a way that benefits the entire EU and makes the case for Britain staying in. Trade between the EU and the US is worth an estimated 393 billion pounds annually and removing tariffs is predicted to generate an extra 115 billion pounds within five years for both sides. Although much of the talk is about the rise of China, America and Europe still generate over half of global economic output. If they can strengthen their market position by working together rather than against each other, Cameron’s argument against EU protectionism will be demonstrated to be both economically and politically savvy.
Optimism must be cautious. The last round of world trade talks broke down when agreement could not be reached on agricultural import rules, and agriculture is likely to cause trouble in these discussions, too. But it is encouraging to see the U.S. and the EU understand that, in principle, free trade is a vital motor of growth.