The economist heads the Center for Foreign Trade at the Ifo Institute and is Professor of Economics of Globalization at the LMU Munich.
(Photo: ifo Institute)
Berlin Finance Minister Christian Lindner’s (FDP) proposal for a new trade agreement between the EU and the USA has met with approval. The head of the Ifo Center for Foreign Trade, Lisandra Flach, considers a new edition of TTIP to be “economically extremely helpful”. Should China, for example, side with Russia and possibly fail as an economic partner in Europe, the short-term consequences would be drastic. But: “A new TTIP could cushion China’s decoupling.”
However, the economist considers a new edition to be politically unlikely, not only because of the protectionist attitude of the USA. The German traffic light coalition only wants to conclude new trade agreements in combination with high environmental and social standards. “If it always sets such high standards that no agreements are ever reached, nothing has been achieved. Then the strategy also becomes protectionism.”
Read the interview here:
Ms. Flach, what would a European-American trade agreement bring?
A trade agreement would be extremely helpful economically. The US is the most important trading partner for the EU and vice versa. A new edition of TTIP would therefore be a win-win situation. And it would be a clear signal of the strength and determination of the western world. In 2020, China concluded the largest free trade pact of all time with the Asia-Pacific Agreement, while there has been no progress in the EU on trade for years.
The decoupling from Russia also raises the question of whether we can rely on China as a trading partner in the long term. Could increased trade with the US compensate for an end to economic ties with China?
Not in the short term. Isolation from China would be a heavy blow for Europe because supply chains would collapse in droves. But after some time, a trade agreement with the US could significantly mitigate the consequences. Not all, of course, but many trade flows could be diverted. A new TTIP could cushion China’s decoupling.
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But isn’t Europe dependent on Chinese imports?
The ties between China and Europe are very close, and an abrupt decoupling would therefore have very negative consequences. But especially when we look at critical goods, we are less dependent than many think.
Three quarters of the critical goods that Germany imports come directly from Europe. This includes metals such as copper or nickel, chemical products, electronics or motors. Only three percent of the critical goods come from China, while seven percent come from the USA. A reduction in trade barriers through a new agreement could make it manageable for Europe to forego the three percent from China.
Do you think a new edition of TTIP is realistic?
No, I think that’s unlikely for political reasons. US President Joe Biden may have been perceived as a great hope when he took office. But when it comes to trade policy, he is similarly protectionist as his predecessor Donald Trump.
The events in Ukraine may also have changed Biden’s view of the world.
The war certainly increases the chances of a new TTIP. But it would probably have to happen even more for the US to make such a U-turn in trade policy.
Could a slimmed down version of TTIP increase the odds?
Basically yes. But the question is how something like this is supposed to work. Trump had suggested introducing the agreement only for certain economic sectors. But that would not be compatible with the rules of the World Trade Organization (WTO).
Incidentally, the EU would also have to lower its agricultural tariffs – which is likely to meet with massive resistance from the farmer lobby. More than the Trade and Technology Council (TTC) between the USA and the EU, which started a few months ago, is probably not possible at the moment.
In addition, the German government would probably expand a new agreement. The traffic light coalition only wants to conclude new trade agreements in combination with high environmental and social standards.
This is generally a commendable idea. The government just has to be careful not to overdo it. If it always sets such high standards that no agreements are ever reached, nothing has been achieved. Then the strategy also becomes protectionism. Therefore, a new edition of TTIP seems unlikely to me, not only because of the USA.
The future of the agreement with Canada, which has only come into force provisionally so far, is also unclear. The Federal Constitutional Court has now dismissed the last lawsuits against Ceta. Should the government ratify the agreement now?
That would be desirable. Trade between the EU and Canada has already increased significantly. But ratification would, above all, clarify outstanding legal issues. This would make investments much easier in particular.
More: TTIP new edition: Lindner calls for a new free trade agreement with the USA