For all the talk of intensifying global South-South economic cooperation and a consequent aligning of strategic synergies, it is enhanced NorthNorth engagement which is being pushed in Western capitals. There is a reason why the ‘developed world’ has been bestowed its moniker ~ because it’s always about ‘economy first’ in those parts. An extensive report by economists Sanjay Patnaik and James Kunhardt published by the Brookings Institution recently, argues that US President Joe Biden could, in one fell stroke, reduce inflation, mitigate a recession, and strengthen democracy with a new USA-EU (European Union) free trade agreement (FTA). The idea is to build on the Barack Obama Administration’s efforts to establish the Transatlantic Trade and Investment Partnership (TTIP) to revive and complete an FTA.

This TTIP successor pact would, say the report’s authors, not only have the potential to significantly ease existing supply chain woes and reduce inflation in the medium-term but also increase economic growth on both sides of the Atlantic thereby reducing the risk of a prolonged recession in the USA and EU. A USA-EU free trade deal will, it ought to be underlined, amount to more than a sum of its parts. Such an agreement would, apart from accruing economic benefits for both sides, play a vital role in shoring up the drift which has of late appeared in the political-military aspect of the trans-Atlantic relationship.

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The strategic calculus of the West too will be anchored firmly if an FTA is in place, as regulatory harmonisation would build a more coherent counterweight to the Sino-Russian alliance even as it strengthens the coalition of democracies. Patnaik and Kunhardt point out that before former US President Donald Trump scuttled the TTIP and antagonised the EU by imposing tariffs on European goods, Mr Obama had made significant progress in negotiating an FTA after launching talks in 2013; Washington could pick up where it left off in 2016 by adopting the provisions settled by the initial 15 rounds of negotiations and renewing these talks.

The TTIP, it is estimated, would have effectively eliminated 98-100 per cent of tariffs, reduced nontariff barriers to trade with Europe by 10-25 per cent, and been the largest trade deal in history. The impact of TTIP on the US economy would have been overwhelmingly positive ~ wages for skilled workers would have increased, exports would have spiked, and millions of American jobs would have been created. The deal would have also spurred broad economic growth by increasing US GDP an estimated 0.2-0.4 per cent, or about $75 billion annually, and EU GDP would have gone up by 0.3-0.5 per cent, or about $64 billion annually.

In the wake of the Ukraine war, a key benefit of a free trade deal for the developed world would be the easing of inflationary pressures by streamlining trade between nations, thus increasing the supply of goods, and reducing prices. The economic logic of this argument cannot be faulted. It is now a matter of political will; if neither side is overly greedy and/or hypernationalistic as the Trump Administration was, it will prove to be a win-win for both America and Europe. In the process, the steady diminishment of the West’s power may be significantly arrested.

A version of this story appears in the print edition of the September 6, 2022, issue.