Europe's latest infatuation: the idea of TAFTA, a trans-Atlantic free trade area, is getting hot.

• Author: Schonberg, Stefan
• Position: Trans-Atlantic Free Trade Area

European trade politicians keen on "shaping globalization" (alias protecting unskilled European workers against global competition) are digging out an old idea: the establishment of a Trans-Atlantic Free Trade Area (TAFTA). In Germany, senior representatives of the Christian Democratic Union (CDU) are pressing Chancellor Angela Merkel to make a key topic of her forthcoming EU presidency. Politicians in other EU countries, members of the EU Parliament, and part of the financial press have been echoing the idea.

The possibility of establishing a TAFTA had been pondered intermittently in Europe in the past, above all during the heydays of free trade during the 1970s and 1980s. This time, the plan rests on defensive thinking: The mature western market economies are at risk, it is argued, of becoming outmanoeuvred by the state-directed economies of China and other Asian countries. These countries are not willing to play by the rules. Through currency manipulation, product piracy, violation of copyrights, and various forms of wage, social, and environmental dumping, they were rolling up western markets, resulting in unemployment and falling living standards. The democracies of North America and Europe could succeed only by jointly protecting the interests of their citizens against the "economic attacker states" of Asia. Transatlantic political and defense cooperation were not enough--it was also necessary to align the economic strategies. The "New Transatlantic Agenda," established in 1995, had not brought sufficient progress in this respect. The stumbling blocks were the bureaucrats on both sides of the Atlantic. Therefore, political guidance was needed in order to achieve a breakthrough with the aim of establishing a "transatlantic market" through 2015, for financial services and capital markets even already until 2010. An agreement would need to tackle tariff and non-tariff trade barriers and also include anti-trust policies and coordination in international trade policies without creating new supranational institutions or new legal systems.

On an abstract level, the idea of a TAFTA is not without charm: Both the United States and the European Union have entered into economic partnership agreements with the whole world, but not with each other, a somewhat strange situation given the common economic interests in many areas. Both are facing a range of similar economic problems, from the uncertain supply of energy to demographic developments...