Peter Matheson

Economic Counsellor

Part of Partners in Prosperity

13th March 2013 Washington DC, USA

Trade Partnerships – a stimulus everyone can agree on

My Ambassador had an op-ed in op-ed in USA Today last week on the case for the EU and the US striking a free trade deal. I thought I would develop some of the economic arguments underpinning the strong case he made.

Economists often propound the benefits of free trade in terms of numbers, sometimes supported by graphs or textbook theories. But it’s helpful to be reminded of the real world phenomenon that gives rise to those numbers.

By and large, economics tells us that people prosper the most when they are able to transact with others in a marketplace, buying or selling goods and services at prices which are acceptable to both sides and not manipulated by Government. Consumers get access to the goods and services they want and producers receive revenue in return for providing that good and service.

Indeed, one of the strengths of the US is that it represents a huge marketplace of many consumers and businesses and that large market fosters huge dynamism. In the US, millions of transactions have (purchases) taken place literally millions of times since you started reading this.

A successful Transatlantic Trade and Investment Partnership (TTIP) would extend on that principle. It would allow consumers and businesses on one side of the Atlantic to transact with businesses and consumers on the other side of the Atlantic, free of some of the inhibitions that hamper trade and investment right now. The result would be a huge transatlantic marketplace of 800 million consumers.

The TTIP would make US goods and services cheaper in European markets. It would do that by removing or lowering artificial barriers like import charges or regulations that are very expensive to comply with yet yield little or no benefit to the quality of European life.

They would make it easier for US businesses to sell things they already sell in the US without having to adapt or adjust it to meet European rules or technical requirements.

This would encourage European consumers to buy more goods and services from the United States. In the US, it would create more business activity and mean companies had to hire more workers to handle all the additional business. More US exports, more US growth, more US jobs. So far so good.

But the process would not stop there. American businesses would now have access to a bigger marketplace over which to consider investments and innovations in new products. That would give them more incentive to invest money in innovations, new technologies, cutting edge goods and more customer focused services.

The Trade partnership not only makes it easier for US businesses to sell more of today’s goods and services to Europe – it also helps to create and sell more of tomorrow’s goods and services. Consumers in both the US and Europe benefit from that process: they have better quality things to enjoy at even more competitive prices. So both households and businesses are winners.

In the 1950s, the US economy was greatly strengthened by the development of the intrastate highway system. This was because that system provided the means for US states to trade more easily with one another.

As a result, US GDP growth accelerated and stayed elevated for many years, generating millions of jobs and income throughout the country – not just in some states at the expense of other states but across the nation. The same principles would come into play through the success of the TTIP – it would put millions of consumers on both sides in touch with millions of businesses on both sides and be a real shot in the arm for business and jobs.

At a time when all our economies are still healing from the challenges of recent years and when policy debates around the world are so fierce and polarised, isn’t it nice to focus on an idea that people of all sorts of different ideological backgrounds can agree on? And doesn’t that give us a very good reason to get on and do this?

About Peter Matheson

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury.…

Peter Matheson has been Economic Counsellor at the British Embassy since the beginning of May 2009. Before arriving in DC, he worked on the macroeconomics side of the UK Treasury. Principally advising Government Ministers on the economic forecast and related macroeconomic developments. He also worked for a period for the Scottish Government on economic issues.