Charles Kupchan is a senior fellow at the Council on Foreign Relations and a professor of international affairs at Georgetown University. Adam Posen is President of the Peterson Institute for International Economics.
Tess Vigeland (TV): Adam let's start with you - we've already been talking on the show about the part of the world I think the average American would assume our foreign policy should focus on - unstable areas like the Middle East - but really the economic relationship with Europe is hugely important, isn't it?
Can you give us a rough picture of just how much trade happens between the US and Europe - and why the US can't really afford to neglect that relationship?
Adam Posen (AP): The trade, and more importantly, investment in financial relations with Europe are bigger than any other relationship - save that with Canada and Mexico. This is partly just geographic logic, but it's more because our savings are wrapped up in their businesses, their businesses and savings are wrapped up in ours. You think of Chrysler/Fiat, which is a joint Italian-American company. You think of products in your store, Unilever, which a joint Dutch-Anglo company, is the biggest competitor to Proctor and Gamble - so half the soap you buy is from us and half the soap you buy is from them - and their banks are very big with us as well. So overnight lending between banks, which is what people in the financial sector worry most about - when that breaks down - that goes on on a huge scale between the banks in London, Paris, Frankfurt, with those in New York and elsewhere.
TV: I mentioned instability and of course right now there are large swaths of Europe that are facing economic challenges - you have Greece, Spain, Ireland, Italy, and on and on. So, can you make the argument that if things continue that way, you could have security issues?
Charles Kupchan (CK): Well I think we've already seen unrest, civil disobedience in almost all the countries that you talked about. But I think the light is beginning to flicker at the end of the tunnel. The EU has outlined a vision - of a banking union, of a fiscal union, of a set of steps to get them from what is still, I think, the dark days of the crisis - to a better place. They're not there yet. There are huge political obstacles ahead, in terms of realizing the deeper and more integrated union that is now on the table. But I think that at the beginning of 2013, one can at least see a pathway to a more stable and prosperous Europe - we could not have said that if we were in this room a year ago.
TV: There was even talk of the possible dissolution of the union. Well as that light flickers at the end of the tunnel, outgoing Secretary of State Hillary Clinton spoke recently at the Brookings Institution, and she outlined the need for a free trade agreement between the US and the EU. Adam Posen, as we heard earlier in the program, this idea has been batted around since the 1980's - anything happening right now to make you think an agreement could actually come to fruition.
AP: It's a little more likely now than it was a few years ago, and obviously when Secretary Clinton says something it carries weight. The Germans in particular, the German government, but a few other people have been more eager to do this than the US. That's partly because their economies are more dependent on trade than the US, and partly their politics are just more open to trade than the US. But I think there's a feeling growing that the rich countries of the world, the countries with high labor standards, the countries with strong regulations, should be joining together to make more of a coherent market - not even just to bring trade benefits directly - but to put them in a better bargaining position vis-a-vis China, or other emerging markets who have lower standards. And in particular, China has been able - not on a huge scale, but in meaningful ways - to play off the US and EU on trade issues against each other. So, the US tends to support Boeing as an airline manufacturer, and the Europeans tend to support Airbus. And at times China's been able to say, "Well, if you won't give us technology maybe the other one will," and create a very big ticket trade deal. It's kind of like when New Jersey and Delaware are fighting over a convention center - they sort of bid each other down to lowest common denominator. So, a lot of the free trade agreement could happen, but it's going to be motivated as much about the world around the US and EU as within the US and EU.
TV: Did you just compare the US and EU to New Jersey and Delaware?
AP: OK, New Jersey and Pennsylvania, I'll upgrade.
TV: Charles, what do you think? It took a long time to get the NAFTA free trade agreement passed - would we see the same sort of push back here?
CK: I don't think it will be easy, in the sense that the United States and Europe are both passing through a difficult time economically. And historically speaking, it's difficult to get trade agreements through during downturns - in part because you have people, let's say in the industrial midwest - who see free trade as a threat to manufacturing jobs, and that will affect the attitude of Congress toward this. On the other hand, it's clear that President Obama wants to use foreign policy as a tool to stimulate economic growth, and one way to do that is through free trade. The other thing I think is going on here is, that this is not just about economics - it's also about political and strategic ties. And in some ways, in the aftermath of Afghanistan, the NATO operation in Libya, folks on both sides of the Atlantic are saying, "What's the next big thing to keep the Atlantic community together?" And one answer to that is to deepen our economic engagement, through a free trade area - and I think that's a big piece of this discussion.
TV: I just want to return to the security question for a moment - the first term Obama administration saw NATO intervention in Libya, and I think that was widely viewed as a success - Libyan rebels taking down Muammar Qaddafi - are we likely to see more actions like that over the next four years?
CK: Well I think that the NATO operation in Libya was interesting, and a precedent of sorts in that Europe finally took the lead. And one American president after another has been saying to America's European allies, "why do we always have to hold the bag - why don't you guys get out in front?", and finally, in the Libya case, it was the Europeans who led the diplomatic effort, and then who flew the lion's share of the combat missions over Libya. I don't think it is going to set an example for the future, for a couple of reasons - one is that Libya was very close to Europe, and therefore Europeans could fly combat missions from bases - that it was easy to get there. When you talk about Syria or other places much farther away, it's much more difficult for Europe to carry out those missions - they don't have the assets that United States does. Secondly, I think this is going to be a period of what I would call "quiescence", or limited activism within the Atlantic community, because everyone is so focused on the domestic front. President Obama was really re-elected on "yes, it's time for nation building at home". So I don't think that NATO's going to be looking to pick any fights - the one issue that I think we all need to keep an eye on is Iran - and I think its completely conceivable that there could be a war against Iran in 2013. If that happens, it's going to be very divisive within the Atlantic community - for there isn't much support for that war in Europe.
TV: Adam, let me ask you to pick up on that - about these countries, both in the EU and here at home - needing to focus internally. That seems to be a question that's coming up a lot right now - given all these problems we need to solve here within our own borders - the economy, a government that seems incapable of making any big decisions - are we a credible leader in foreign policy?
AP: Certainly having a weaker economy, and as you point out, a lesser ability to come together and make decisions, makes one less credible on all your commitments. But I want to pick up on something Charles was saying, and in the spirit of what I think Secretary Clinton was trying to do, which is, there is a historical precedent - both in the US and in various European countries - that you use international commitments to put you on a stronger more disciplined path. You use international commitments to get you to look beyond your current problems. And so, in the pure literal resource sense - Charles mentioned assets - you know it's not like the US is going to go on a military spending or possibly even foreign aid binge in coming years. The idea that you can turn around and say "gee, we're going to have a free trade area with Europe, we're going to have to upgrade certain standards in the environment." These kinds of things can actually be a stimulus to a more positive economy. One of the things you can argue, in favor of what's happened in Europe recently - they have used external pressure to get Italy, to get Spain to put their house in order, and maybe international commitments can help focus the US congress and President in saying "don't squander our role in the world - you actually have to take care of business at home, because our role in the world matters.