The Transatlantic Divide: How the United States and Europe Differ in Economic Policy

By Dullien, Sebastian | The International Economy, Summer 2007 | Go to article overview

The Transatlantic Divide: How the United States and Europe Differ in Economic Policy


Dullien, Sebastian, The International Economy


While globalization is perceived as a challenge both in the United States and in Europe, the policy debate in both regions differs widely with even the position of the fight and left sometimes reversed. Following standard stereotypes, it is clear that Americans are more pro-market than Europeans. Does not the old continent struggle with the consequences of its politicians continuously fiddling around with the free-market forces? According to the same cliches, part of the difference stems from the stronger leaning of Europeans towards the political left as the left worldwide usually pushes for stronger government interventions.

A closer look at current national policy debates reveals a much more nuanced picture. In some fields, such as free trade, it can even be argued that Europe is at the moment more free-market than America, with parts of the American left playing much more protectionist tunes than their European counterparts. And in other fields, the European left surprisingly takes positions which in the United States are today often associated with a certain breed of free-market Republicans.

While on both sides of the Atlantic challenges from globalization have been a dominant topic in economic policy debate, the reactions have been quite different. Both the European Union and the United States have experienced extremely strong growth

in Chinese imports over the past years, with the respective bilateral trade balances with China deteriorating sharply. In both regions, stories about the offshoring of thousands of jobs have featured strongly in the national media. On both sides of the North Atlantic, a very small portion of the toys or apparel sold is still made at home.

However, it has been mainly American politicians who have started to blame the rest of the world for the domestic industries' problems. Not only is Democratic presidential hopeful Senator Hillary Clinton (NY) regularly referring to the American middle classes' fear of having their jobs shipped abroad, Senator Jim Webb (D-VA) stated in his reply to President George Bush's State of the Union address that it is the duty of the U.S. government to "to insist that [the American workers'] concerns be dealt with fairly in the international marketplace." The unionsupported Economic Policy Institute even called for "a pause" in passing new trade agreements--something that would be unthinkable from a German union think tank. The U.S. Congress is now working on a number of broad trade and currency bills which again might threaten punitive tariffs against low-wage countries which actively manage their exchange rates.

In Europe, by contrast, there might be resistance to globalization as a symbol (as witnessed in the occasional tearing down of a McDonald's restaurant in France), or against foreign companies taking over domestic corporations and laying off parts of the workforce. However, resistance against foreign investment can also be witnessed in the United States, as seen in the current CF1US (Committee on Foreign Investment in the United States) renewal following the Dubai Ports World incident. And when it comes to simple trade in goods or services, calls for policy intervention in Europe have been extremely rare. In Germany the long period of job losses after the 200l recession gave rise to Hans-Werner Sinn's idea of the "Bazaar economy"--the claim that German industry was only expanding its export market share by outsourcing the production of intermediary inputs to low cost countries while destroying jobs at home. There were never calls for restricting trade or even having other countries adjust their exchange rates. Instead, the debate focused on domestic policy reforms to cope better with globalization.

The second surprising difference between the economic policy debate in Europe and the United States emerges when it comes to how agents from the different ends of the political spectrum position themselves with respect to public deficits and possible bubbles in asset markets. …

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