Sunday, September 17, 2006
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Will there be a TAFTA?
This week the Economist has an excellent survey by Pam Woodall of the global economy, and the increasingly powerful effects that the developing world are exerting on prices, wages, and interest rates:
Last year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution....Be sure to check out the podcast interview with Woodall, conducted by the dulcet tones of one Megan McArdle. Woodall thinks what's happening now will be "bigger than the industrial revolution."
One obvious implication to draw from the survey is that the relative (though not absolute) economic power of the US and EU will decline over time.
How will Washington and Brussels respond? The Financial Times' Bertrand Benoit offers one intriguing answer:
Spurred by concern about China’s growing economic might, Germany is considering a plan for a free-trade zone between Europe and the US.When I was in Berlin this summer I met with a few Bundestag and industry officials who were quite keen on the idea. The fact that Merkel is considering this suggests that the idea has gotten more traction in recent months.
There are many reasons to believe that TAFTA will never get off the ground. What Europe thinks should go into a free trade agreement is a bit more modest than what the U.S. thinks should go into one. I simply can't see agriculture included into any TAFTA. I can't imagine that France would ever let it go forward. Anti-Americanism on the continent could be enough to scotch it.
And yet, the idea is very intriguing. Even if it takes ten years to negotiate, the combined weight of a TAFTA in terms of both market size and rule-setting behavior would be formidable.
Developing....posted by Dan on 09.17.06 at 02:21 PM
Please. I hope this happens, or at least the dialogue. Both Europe and America need to remember how much they rely on each other. It's not enough for them to dismess us as barbarians or us to dismiss them as fading away. We are too linked.posted by: ElamBend on 09.17.06 at 02:21 PM [permalink]
Why do we still need bi-lateral and multi-lateral agreements since we already have WTO? Please illuminate. Thanksposted by: c on 09.17.06 at 02:21 PM [permalink]
All very interesting - is it relevant / what does it mean that the 'absolute' power of the EU and US will not decline?
I'm an english economist working in Lesotho, which is full of Taiwanese-run textile factories. On the plane here yesterday, there was an old Taiwanese woman reading the Chinese version of Friedman's "The World is Flat." I asked her about it and she said it was one of the best and most important books she has ever read.
I dont know about flat, but the world never felt so small for me as in that moment...posted by: George Lee, Lesotho on 09.17.06 at 02:21 PM [permalink]
The primary beneficiaries of reducing or eliminating import tariffs are the citizens of the country reducing the tariffs. The U. S. would benefit the most from reducing import tariffs regardless, yes, I said regardless, of what the other countries did! We have it within our own power to set up a unilateral free trade zone with the entire world! This would benefit our own citizens the most.posted by: Tom Adams on 09.17.06 at 02:21 PM [permalink]
The condition for TAFTA to work is that it is an open club. The transatlantic zone can only be a nucleus, where other democratic market economies can associate.
There would be economic gains, to be sure.
But in essence its a political project - the liberal West reasserts its position vis-a-vis the challenge of autocratic state-centred economies like China and Russia, and invites others to join: India, Japan, Brasilia etc.posted by: Ulrich Speck on 09.17.06 at 02:21 PM [permalink]
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