A Transatlantic Free Trade Zone: Pros and Cons
November 2006
German Chancellor Angela Merkel calls it a “fascinating” idea. Should the World Trade Organization’s Doha Round of international trade talks fail, she says, she would support a transatlantic free trade zone between the United States and the EU to counterbalance the rapidly growing economic might of the Asian states. To present alternate sides on this important issue, The Atlantic Times is publishing an essay by Gabor Steingart, author of the bestseller “Weltkrieg um Wohlstand” (“World War for Wealth”) and Berlin bureau chief of the newsmagazine Der Spiegel, who supports this initiative. We are also publishing a rebuttal by Otto Graf Lambsdorff, former German minister of economics and honorary federal chairman of the free-market FDP party.

We Need A ‘NATO’ for The Western Economy.
By Gabor Steingart

Who in Germany betrayed Europe? The Liberal Democrats. In 1957, together with industrial associations, the Free Democratic Party rejected the Treaties of Rome, the foundations of today’s European Union. Therefore, Europe’s roof-raising celebrations took place without the Liberals, something that, even today, must be regarded as a political disgrace.

In other words, the species that considers itself the most free-thinking of all proved, in the hour of historic decision, to be narrow-minded. The nascent European Union, consisting initially of six states, seemed to these anti-Europeans an infernal spawn, because they feared protectionism directed against the United States and Eastern Europe. A stoic Konrad Adenauer and an unrelenting Charles de Gaulle finally pushed their integrationist Europe through, against the resistance of its subsequent beneficiaries.

We could ignore history. But the Liberal Democrats of today try to oppose a new idea of western integration – the transatlantic free trade zone.

The idea of a transatlantic free trade zone was the child of John F. Kennedy. His “Grand Design” was based on the realization that military cooperation within NATO would not, in the long run, suffice to weld the West together. He died, his idea failed. Today, this kind of new Western pact still makes sense, especially as an appropriate response to the challenge from the Far East. The rise of China as a new global economic power could change the world more profoundly than the Soviet Union was ever able to.

A closer look reveals that the distortion have already begun. Global trade might be free but is certainly not as peaceful as the images of colorful container fleets would suggest. There was one sort globalization before the entry of China and India into the world economy and another one afterward. The earlier period was one of competition among free societies. With the entry of China, a directed economy whose labor forces equals that of the United States and Europe put together, the rules of the game have changed.

In the Western part of the world, the emergence of Asia is leading to a drop in the price of labor. For most workers and low-level employees, globalization today has become a risk rather than an opportunity. In America, industrial wages have stagnated for the past quarter century. In Europe, 20 million people are officially unemployed. America is facing a mass of working poor, Europe has people who are poor and jobless.

Many still believe that only goods are traded on the world markets. Yet if the goods could tell the story of their manufacture, they would make it clear that those production processes are based above all on social values. That refrigerator from China was made along the lines of Manchester capitalism – with no unions, no social safety net, and no environmental considerations worthy of the name. It looks like a refrigerator made by AEG in Nuremberg; it just costs a lot less.

We should finally wake up and see that, in the world war for prosperity, a rival has emerged that uses the full array of state protection. China’s economy is irrigated by a banking system that functions on principles other than those of profitability. Tariffs seal off entire industries like a high wall. Foreign companies’ intellectual property is expropriated blithely and without compensation. China’s monetary policy works like a huge export subsidy because it keeps the prices of goods to be sold abroad artificially low. More than any other country, China knows how to talk about market economics while operating as a directed economy.

It was disputed for 50 years but today every school kid knows: without NATO there would be no free Europe today. Had the Atlantic Alliance not resolutely demonstrated, updated, and sometimes augmented its fighter-bombers and armored divisions, Soviet Communism would have expanded westward instead of imploding. At the end of the Cold War, even the last of the skeptics had acknowledged the lesson of history that the dove had survived because, up on the battlements, the eagle stood guard.

The world war for prosperity requires a different, but no less paradoxical response. The vexing part, which cripples the West’s determination, is the soundlessness of the opponent’s approach. Asians are the friendliest aggressors in all history. Free unions are not banned, but neither are they permitted. The environment is extolled as a treasure worth saving while it is cannibalized like a junk car. Child labor is condemned and tolerated. To protect Western inventions, there are extensive laws that, unfortunately, are not enforced. Everything we consider important – the social framework of daily work, for example – the Asian elite just politely smiles at.

In the absence of a referee to enforce global rules, this attitude should encourage the West to play a bit rougher. The West thinks it sells machines, cars and airplanes. But, as a free extra, it is also selling a piece of itself.

What NATO represented in the age of military threat to the West, a transatlantic free trade zone could accomplish in the face of this economic challenge. Two economic zones, the EU and the U.S., perhaps with Canada, would counter the waning of their respective economic might by joining forces. The new message to the Far East would be: The West is still interested in the price of goods, but also in the way that price is achieved.

“Peace in Freedom” was NATO’s motto. “Prosperity with Values” would be the goal of a transatlantic free trade zone, and one of these values would be the earnest wish and demand that this prosperity be available to all. In our western society, everybody has the right to make a mistake. But on the other hand everybody has the duty to learn from his own mistakes. This is what the market-liberals should do now.