In Possible Trade Deal, US Would Fare Significantly Better Than EU, Where Intra-Europe Trade May Decline: Munich Report

on June 17 2013 8:53 AM
The euro zone saw a trade surplus after four months of gains.
The euro. REUTERS

The U.S. will benefit substantially more from a major EU-U.S. trade deal, which the two parties are set to start negotiating, according to a research paper released on Monday.

Done by University of Munich economic researchers under the Ifo Institute, the paper argues that trade reforms between the EU and the U.S. will result in diminished intra-European trade, and lesser EU trades with other countries, such as developing nations in emerging markets.

In the U.S., per capita income could rise about 13.4­ percent, if a comprehensive deal is struck, which abolishes trade barriers broadly, instead of simply removing tariffs, according to the paper.

“The U.S. gains substantially more than the EU,” according to the paper’s concluding summary. Ulrich Schoof, a project manager for the foundation commissioning the study, said this was partly because the U.S. won’t suffer from reduced domestic trade.

Still, a comprehensive trade agreement will boost wages and create jobs, according to the report. Europe is set to benefit, with hard-hit southern European economies, such as those in Italy and Portugal, benefiting more than average.

But according to a news release by the Bertlesmann Foundation, which commissioned the report, a potential EU-U.S. free-trade zone with 800 million inhabitants could cut income and employment in the rest of the world.

Canada, Mexico and Japan, traditional U.S. trading partners, would be especially hurt. “Additional losers would include developing countries, especially in Africa and central Asia,” according to the release.

In the EU, real income per capita could rise almost 5 percent on average, with the U.K. benefiting the most, at double that level of growth.

Schoof, from the Bertelsmann Foundation, said the report is the first to analyze the impact of a potential trade deal on more than simply the EU and the U.S., since it estimates outcomes in 126 countries.

He said that while diminishing intra-EU trade may not have a major economic downside, it could have political ramifications, weakening European unity.

“It is politically maybe a problem, because the single domestic market was an important binding instrument for European integration,” he said. “If that trade is reduced, then of course this instrument is weakened to some extent.”

More information on the study can be found here.

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