Ties with Europe are America’s geo-economic base – EURACTIV.com
US President Joe Biden visited Europe this week amid signs that the transatlantic economy is proving remarkably resilient to the disruptions generated by Putin’s war on Ukraine, the pandemic, congested supply chains and energy price spikes, writes Dan Hamilton.
Daniel S. Hamilton is a nonresident senior scholar at the Brookings Institution and senior fellow at the School of Advanced International Studies at Johns Hopkins University. Together with Joseph Quinlan, he is the author of The Transatlantic Economy 2022, from which this data is taken.
Significantly, the United States has stepped in to become Europe’s largest supplier of liquefied natural gas (LNG). In February, US LNG deliveries to Europe even exceeded Russian pipeline deliveries.
The United States may not completely replace other energy-starved Europe’s other suppliers, but transatlantic energy connections are growing in importance as the United States becomes the world’s largest LNG supplier and American and European companies are leading the transition to competitive clean technologies. American companies in Europe have become a driving force in Europe’s green revolution, accounting for more than half of long-term renewable energy purchase contracts in Europe since 2007. European companies, in turn, are the largest foreign investors in the US energy economy.
US-European energy links are only one part of a remarkably robust and dynamic transatlantic economy. The latest data reveals that in 2021, trade in goods and services between the United States and the EU would have reached an all-time high of $1.3 trillion, 42% more than EU trade with China. Foreign direct investment (FDI) flows from the United States to Europe reached a record high of $253 billion, and US companies based in Europe are estimated to have earned a record $300 billion. European companies in the United States gained a record $162 billion and European FDI flows into the United States reached the highest levels since 2017, reaching around $235 billion.
Putin’s war reveals the impressive strength and resilience of the transatlantic economy. North America and Europe are not only bound by the NATO defense alliance; the two sides of the North Atlantic remain each other’s most important trading partners and geo-economic base. They can build on this base to isolate and punish Putin, tackle China’s competitive challenges, and capitalize on their deeply interconnected innovation ties to ensure they remain global standard setters.
The deeply intertwined $6.3 trillion transatlantic economy will be much better able to withstand the pain of sanctions than the Russian economy. The United States and Europe are both poised for solid economic growth in 2022, with the disruptive effects of the pandemic likely to fade, the impact of Russia’s isolation largely manageable and the knock-on effects of accommodating monetary and fiscal policies are contributing to lubricate economic activity. .
The transatlantic economy also generates the means for North America and Europe to meet the challenges emanating from China. In 2021, American companies earned about $300 billion from their operations in Europe, 23 times what they earned from their operations in China. America’s asset base in Germany is one-third larger than its asset base in all of South America and more than double its assets in China.
The total stock of American FDI in Europe is 4 times higher than American investment in the whole of Asia-Pacific, and the stock of European FDI in the United States is 3 times higher than that of Asia. US companies based in Ireland export five times more to the rest of the world than US companies based in China, and around 3.5 times more than US companies based in Mexico. Transatlantic R&D flows are the most intense between two international partners. In 2019, US companies in Europe spent $32.5 billion on R&D, or 56% of the total R&D conducted globally by US companies abroad. European companies account for two-thirds of all R&D spending by foreign companies in the United States.
Both sides of the Atlantic are also better positioned today due to significant steps they have taken to reinvigorate their partnership in 2021 after four tumultuous years. They agreed to provide vaccines to two-thirds of the world’s population. They agreed to rewrite the global tax rules. They agreed to join forces again to fight climate change, including through the Global Methane Pledge. They agreed to suspend mutual tariffs related to the ongoing Boeing-Airbus dispute for five years as they seek a final solution to the matter. They also agreed to lift US tariffs on European steel and aluminum and countervailing European tariffs on US products. And they created a US-EU Trade and Technology Council (TTC) to develop bilateral trade, investment and technology relations; avoiding unnecessary new technical barriers to trade; facilitate regulatory cooperation; and cooperate in the development of international standards.
This newfound sense of transatlantic unity is an opportunity for the US and EU to address lingering irritants in their own relationship. US concerns include the breakdown of the US-EU Privacy Shield governing transfers of personal data, protectionist impulses behind the Digital Markets Act, industry strategies to promote companies “champions of Europe” and the EU’s proposal for a carbon border adjustment mechanism, which could disadvantage non-European companies.
EU concerned about Biden administration’s efforts to toughen ‘Buy America’ rules, its proposals for electric vehicle tax credits and its decision to postpone but not resolve transatlantic tariff disputes American steel and aluminum companies. Unless coordinated, each side’s efforts to subsidize its semiconductor sector and other digital industries could lead to subsidy wars that only benefit China.
The good news is that these political differences, while very real, are now being played out in a context of transatlantic unity rather than division. Despite Vladimir Putin’s disruptive war, the macroeconomic and political backdrop for the transatlantic economy is generally quite positive for 2022. Real growth is slowing, but at above-average historical levels. The engines of growth are shifting from the public to the private sector, while employment levels remain high. Pre-pandemic production levels will be reached in many economies. Bilateral trade and investment flows are strong. There are bumps in the road to recovery, but the transatlantic partnership has bounced back in 2021, is showing resilience in the face of new challenges, and there is every indication that it will move forward again in 2022.