Trade Talks Deal Could Double German Exports to US

The EU and the US are set to start negotiations on a trans-Atlantic free trade agreement in July. A deal could have huge benefits for Germany and the rest of the EU. But there would also be losers according to a new study.

If the United States and the European Union are able to come together on a far-reaching free trade agreement, Germany would be one of the greatest beneficiaries. Fully 181,000 new jobs could be expected and per-capita income would spike by 4.68 percent. That is the result of a study released this week by the Bertelsmann Foundation together with the Munich-based Center for Economic Studies.

The report found that all members of the planned free trade area would benefit from the deal, with the US emerging as the biggest winner. But European Union member states stand to make large gains as well.

The report comes as the EU and the US agreed on Monday to begin talks on the sweeping new deal next month. European Commission President José Manuel Barroso said on Monday on the sidelines of the G-8 in Northern Ireland that talks were starting and that it would offer "huge economic benefits" on both sides of the Atlantic. US President Barack Obama said that reaching agreement on a deal is "a priority of mine" and that he is "confident we can get it done."

According to the study, the Trans-Atlantic Trade and Investment Partnership (TTIP) would provide the greatest benefits to the US and to Great Britain. Gross domestic product per capita would rise by 13.4 percent in the US and by 9.7 percent in the UK. More than a million new jobs would result in America. That number would be 400,000 in Britain.

Rest of World Would Suffer

But the benefits would be felt across Europe, the study found, with average economic growth of 5 percent. The complete study can be read online here .

Still, the study makes it clear that the rest of the world would likely suffer as a result of a trans-Atlantic free trade agreement, including job losses and slower economic growth. Yet the overall effect of a deal, which would create the biggest free trade area in the world, would be a positive one, with global per-capita GDP rising by 3.3 percent as a result and the creation of an additional 2 million jobs. Both numbers take into account the inevitable losses that some countries will experience.

In theory, the study authors write, the TTIP could benefit even more countries were they to take on some of the regulations that may be included in the free-trade deal. Indeed, a far-reaching deal might encourage developing and emerging countries to reach a compromise on the Doha trade talks, which are currently in stasis.

For the study, researchers simulated the possible effects of the TTIP on 126 countries. The model they used allows them to see how the 2010 global economy would have looked had a free-trade agreement already been in place. They worked through two possible scenarios. The first assumed merely the disappearance of tariffs that are currently in place between the US and the EU. The second scenario envisions a much broader deal including the elimination of all barriers to trade , including varying quality and legal standards, different packaging guidelines and licensing procedures.

Doubling Exports

Under the first scenario, the TTIP would have a relatively small effect on the German economy: instead of the 4.7 percent growth resulting from a full deal, the mere elimination of tariffs would boost the economy by just 0.24 percent. Levies between the US and the EU are already at a very low level.

In addition to economic growth, however, trans-Atlantic trade between the EU and the US would grow rapidly. Germany would see exports to and imports from the US almost double, and American trade with crisis-stricken euro-zone countries like Greece, Italy and Portugal would increase by more than 90 percent.

Still, the news is not all good for Germany. Trade with its European Union partners would suffer because the advantages currently in place would disappear. Trade with France,  for example, would drop by 23 percent according to the study and by 40 percent with Britain. Trade with Italy, Greece and other EU member states suffering from the euro crisis would drop by around 30 percent. Such drops would be more than compensated for by increased trade with the US.

Germany would also see a 10 percent drop in trade with developing countries such as China, Brazil, India, Russia and South Africa. For the US, the drop would be fully 30 percent.

Limited Benefit for France

The study makes clear that there would be plenty of losers, particularly neighboring countries that are left out of the deal. Countries in North Africa and parts of Eastern Europe would see trade with the EU drop by some 5 percent. Mexico and Canada, for their part, would see per-capita GDP plunge by 9.5 percent.

Study authors point out, however, that benefits for the EU and the US would be such that they could afford to compensate those who lost out so that all would benefit. At the same time, some countries would be able to minimize their losses by eliminating some trade barriers currently in place -- essentially adopting some elements of the TTIP.

Within Europe, Sweden, Ireland and Spain would join Great Britain as the biggest beneficiaries of TTIP. France, on the other hand, would see its economy grow by just 2.6 percent due to its relatively low level of trade with the US.

Free Trade between EU and US -- Winners and Losers Long-term change in per capita income (in %)

Largest income winners Largest income losers
US + 13.4 Lebanon - 3.4
Great Britain + 9.7 Algeria - 3.5
Sweden + 7.3 Switzerland - 3.8
Ireland + 6.9 New Zealand - 3.8
Spain + 6.6 Norway - 3.9
Finland + 6.2 Iceland - 3.9
Malta + 6.2 Niger - 4.0
Estonia + 5.7 Malawi - 4.0
Latvia + 5.4 Botswana - 4.1
Denmark + 5.3 Panama - 4.2
Greece + 5.1 El Salvador - 4.4
Lithuania + 5.1 Guatemala - 4.4
Cyprus + 5.0 Honduras - 4.4
Portugal + 5.0 Barbados - 4.5
Italy + 4.9 Jamaica - 4.7
Bulgaria + 4.8 St. Lucia - 4.8
Germany + 4.7 Costa Rica - 5.5
Romania + 4.6 Israel - 5.5
Hungary + 4.4 Jordan - 5.5
Netherlands + 4.4 Chile - 5.6
Slovakia + 4.2 Japan - 5.9
Poland + 3.7 Belize - 6.0
Belgium + 3.6 Mexico - 7.2
Slovenia + 3.3 Australia - 7.4
Luxembourg + 3.0 Canada - 9.5
Source: Center for Economic Studies | Bertelsmann Foundation
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