U.S. the new market for Hungarian SMEs?

North America accounts for over one-fifth of world’s GDP – based on purchasing power parity rates from the IMF. It’s home for just 5% of the world population, but accounts for nearly 30% of global consumption and 15% of world imports.

On the other side of the Atlantic is the European Union, consisting of 27 member states and the largest economic entity in the world, representing one-fifth of world GDP and one-quarter of global consumption. In terms of trade, the EU is not only the largest exporter in the world, it is also the largest importer. It is a top supplier of goods to the developing nations and is the largest trading partner of each of the BRIC nations — Brazil, Russia, India and China.

While a high degree of market integration already exists between the United States and Europe thanks to existing trade and investment agreements, much more can be done by fusing the world’s two largest economies together. A free trade pact is not only about joining efforts to reduce tariffs, but would affect many other areas, like the harmonization of food safety standards and the standardization of a myriad of service-related activities in sectors such as aviation, retail trade, finance, maritime, procurement rules and regulations, telecommunications, and many others.

Without frontiers

The move towards a more barrier-free transatlantic market would also include product standardization, so that a car tested for safety in Bonn can be sold without further tests in Boston. Or a drug approved by the Federal Drug Administration in Washington is deemed safe and market-ready in pharmacies across the EU. Labeling and packaging requirements on both sides of the pond would be standardized, saving companies millions of dollars over the long run.

The end results are lower costs for companies, reduced prices for consumers, more aggregate demand for goods and services and, of course, faster growing GDP on both sides of the Atlantic.

Given that both parties are hobbled by massive debt obligations and chronic deficits, any growth strategy should have a net positive effect on the transatlantic economy. A free trade deal would help create jobs and income on both sides of the ocean and the more far-reaching the agreement is, the greater the impact on key sectors, notably in services where there is plenty of scope for further integration.

That said, a U.S.-EU free trade agreement would do more than trigger economic activity. It would help reinvigorate a critical bilateral relationship that has been badly frayed and fractured over the past decade. Indeed, the last ten years have been among the rockiest in decades for the transatlantic partnership. Solidarity and cohesion have been undermined by the increasing frequency of economic recessions. The U.S. dotcom bust and ensuing transatlantic recession in 2001, the U.S.-led financial crisis and the subsequent recession in 2008, and Europe’s sovereign debt crisis of 2010 – all of these economic shocks have taken a toll on both sides of the Atlantic, and eroded bilateral trust and cooperation.

Win-win

A study by the European Commission found that eliminating or harmonizing half of all the remaining tariffs and non-tariff barriers on bilateral trade could add up to 1.5 percentage points to growth over the medium-term for participants. The European Center for International Political Economy, meanwhile, estimates that a deal could boost U.S. exports to the EU by 17%, and EU exports to the United State by 18% over time.

“Hungarian exports into the United States might get a huge boost from the planned free trade agreement between the European Union and the United States, because many small- and medium-sized domestic enterprises will be able to enter the American market that are currently far away from that possibility,” Péter Dávid, Chief Executive Officer of AmCham, said in an interview with business daily Világgazdaság. “Cooperation would be easier and faster, less bureaucratic, with less financial burdens and more incentives.”