Hands Across the Water

Can a trade pact with Europe help America tame China?

Few people, upon observing economic and social events in Europe in recent years, would conclude that a logical next step is for the United States to forge an economic and political union with the Old World. Richard Rosecrance, however, believes this is not only a sensible course but also essential for America’s future and the avoidance of war.

The United States, says Rosecrance, who directs the Project on U.S.-China Relations at Harvard’s Belfer Center, is in decline and can do little to reverse it. According to inexorable historical logic, “the scepter of primacy” is moving to China. Instead of doing anything about this, the United States “sits numb,” a “decadent” nation that, under President Barack Obama, has been “able to skate over the cracks in the pavement.” Meanwhile, China is the vigorous challenger marching toward global dominance.

For Rosecrance, this state of affairs threatens to spark a “new world war,” and he leans heavily on a parallel with the European alliances and power balancing of a century ago. He makes clear that China is the twenty-first-century incarnation of Kaiser Wilhelm II’s Germany in the belle époque.

Sept13-Rosecrance-Books
The Resurgence of the West:
How a Transatlantic Union
Can Prevent War and
Restore the United
States and Europe

by Richard Rosecrance
Yale University Press, 204 pp.

The only hope for a bright American future and for heading off this clash lies in a “new Western union,” first with Europe and then with Japan. Rosecrance draws a quick sketch of world economic history to develop the idea that bigger economic units are generally more successful than smaller ones in sustaining growth and living standards. Thus, countries must join together in larger economic unions. Geopolitically, a union of Europe and the United States would create an “overbalance of power” vis-à-vis China and hopefully deter any aggression on their part. Unless the two halves of the West come together, Rosecrance says, “they will both lose ground.”

As far-fetched as this idea sounds, a version of it is actually moving forward. In his State of the Union address earlier this year Obama called for a “comprehensive Transatlantic Trade and Investment Partnership” (TTIP) with the European Union, a free trade pact that he said would support “millions of good-paying American jobs.” European leaders, long interested in such an agreement, readily assented. In July negotiators from the United States and the EU met in Washington for the first round of talks on a deal that would eliminate tariffs and harmonize regulations on all manner of goods and services traded across the Atlantic, from cars to energy to pharmaceuticals to agricultural products. A second round of negotiations is scheduled to take place in Brussels in October.

Rosecrance doesn’t mention any of this in his new book, The Resurgence of the West: How a Transatlantic Union Can Prevent War and Restore the United States and Europe, which presumably went to press before Obama gave his State of the Union address. But the arguments he makes for a U.S./EU free trade zone are generally the same as those offered by the administration and other TTIP advocates.

The first argument is that such a deal would provide two comparably developed and already-intertwined continental economies a source of added growth that both desperately need. Despite its reputation as economically rigid, Europe has many world-beating industrial companies, is a key part of what some call the “new industrial revolution,” and is a hotbed of entrepreneurial enthusiasm. The EU also remains the United States’ largest and most important global economic partner. Since 2010, for example, during the worst years of the European financial crisis, over half of U.S. foreign direct investment (FDI) went into Europe. And while European FDI into the United States has fallen, it is still several times the amount that Europe sends into China. Since 2000, trade between the U.S. and the EU has risen 68 percent. American services exports to the European Union have more than doubled over the same period.

More commerce could potentially flow between the two by eliminating trade barriers. Tariffs between the U.S. and the EU, though relatively low, add 5 to 7 percent to the cost of goods and services. The need for American and European companies to comply with a maze of competing safety and environmental regulation in order to sell to each other adds another 10 to 20 percent. Eliminating tariffs and harmonizing standards—agreeing, for instance, that cars built in Europe that meet EU safety standards can be sold in the United States, and vice versa—could boost transatlantic trade by as much as $180 billion a year.

The second argument is more strategic in nature: by creating the world’s largest trade zone, the TTIP would in effect let America and the EU set ground rules for global trade. As it stands now, when Western countries accuse China of unacceptable economic behavior—currency manipulation, dumping, turning a blind eye to piracy of intellectual property—there’s not much they can do. They can charge Beijing with violating WTO rules, but cases brought to the WTO are costly and take forever. Or they can slap a tariff on Chinese goods, but no one country, even the United States, has an economy so big that the threat of limiting access to its markets is enough to necessarily change China’s behavior. A combined U.S./EU free trade zone, however, would be another matter. By creating probably the largest economic unit in world history—fulfilling the dreams of centuries of imperial strategists—the United States and Europe will pressure China not only to behave better but also to reform itself politically.

For all the big think in his book, however, Rosecrance devotes a mere three pages to the mechanics of getting economic unification done. It would begin with Congress approving fast-track trade authority for the president, followed by an American-European customs union (no tariffs), then reform of all non-tariff barriers such as subsidies and labor restrictions. Finally, a “single external tariff would construct barriers against the rest of the world.” Voilà!

The negotiators in Brussels and Washington will be relieved to hear that their task in negotiating the TTIP will be this easy. These might be the right milestones, but, in reality, there are immense commercial and political barriers to overcome. Will the Europeans ever accept genetically modified foods designed by Monsanto? Will Silicon Valley or national security hawks accept tougher EU-style privacy protections? And will Republican lawmakers support fast-track authority for a treaty negotiated by Barack Obama?

Rosecrance subscribes to the fall-from-grace theory of American political history—the virtuous and unified Founding Fathers “thought cooperation would always be forthcoming,” but “gaps in the constitutional system” and our own contemporary depravity have conspired to ruin their vision. Does he think a prospective transatlantic union will transcend political dysfunction?

Problematically, then, while Rosecrance spends most of his time on the economic dimensions of a union with Europe, he goes much further in his thinking than anything coming out of official Washington. At several points he mentions economic “and political” (emphasis mine) integration. How feasible is this? What are the political consequences of, as Rosecrance puts it, an “intermixture of sovereignty”? An idea of this scope deserves to be accompanied by a realistic and politically astute plan for making it happen, which is absent from this book.

For Rosecrance, such integration is a matter of when, not if: it “will happen,” and, once it does, the U.S. and Europe should approach China about joining in a formal capacity. At that point, China will have no choice but to cooperate. Rosecrance seems optimistic that China can be brought into this union. After all, China is highly economically interdependent with the rest of the world. It is, for example, “totally dependent on the U.S. Navy to secure the sea lanes to the Middle East and provide access to desperately needed oil.”

Only on the penultimate page, however, does Rosecrance slip in that the rule of law and protection of political liberties might be preconditions for China to join in a tariff bloc. Since Greece, Spain, and Portugal all moved from military rule to democracy and EU membership, it should be easy, right?

In the last two years, China has reacted angrily to Obama’s “pivot to Asia,” especially his administration’s efforts to finalize another large trade deal, the Trans-Pacific Partnership (TPP), with several Asian and South American countries, which China perceived as an attempt at encirclement and exclusion from a large trading bloc. China eventually said it was looking into whether it might be interested in the TPP, but its initial response must at least raise the question that it could react similarly to the TTIP. The great-power realist in Rosecrance recognizes this. Global production chains are, in theory, a barrier to war, but “history suggests that rising nations partly disregard their interdependence.”

Can a transatlantic economic and political union achieve all that Rosecrance says? Can it stimulate the European and American economies, attract Japan, deter Chinese aggression, eliminate “warfare among great powers,” and overcome political dysfunction in the United States? That’s a lot to hang on a trade deal, even the biggest in history.

To its great credit, even if it doesn’t speak in such grand terms, the Obama administration has taken the first step by launching negotiations over the TTIP. With the Doha round of global trade talks failing and Chinese investment creating a “string of pearls” around the south Pacific and Indian Ocean, tighter economic links with Europe may be the best—Rosecrance would say only—way to build a new set of rules that enhance American power and constrain Chinese influence. Getting there, however, will be far from easy.

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Dane Stangler

Dane Stangler works at the Kauffman Foundation in Kansas City, is a senior fellow at the Progressive Policy Institute, and is a senior adviser at GEN Global.