Transatlantic trade is the world’s largest single standing commercial relationship. Together, the United States and Europe represent approximately half the world’s economic output. However, the value of transatlantic trade is only one third the amount of global trade, which indicates there is significant potential for improvement. On the other hand, one can also be concerned that Europe’s debt crisis will make transatlantic trade less attractive for the US.
The question is, will the US now seriously shift its attention to the emerging markets in the BRIC countries. The answer is clear, the US neither will nor can ignore Europe and transatlantic trade. The three main reasons being: 1) the size of the European market, 2) Europe’s high standard of living, and 3) Europe’s open markets. This combination of economic size, wealth and openness provides the framework for stable and profitable earnings required by multinational enterprises.
With regards to market size, in spite of common perceptions, Europe remains the world’s largest economic entity, representing nearly 22 percent of world output in 2010. China’s global share of world output, 14 percent, remains well below Europe’s. In terms of foreign direct investment (FDI), the US and Europe are bound together by mutual investments. Of America’s overseas stock of FDI in 2010, over half of the total, 56 percent, was sunk in Europe. Meanwhile, European firms accounted for nearly three fourths (75 percent) of total foreign direct investment in the US in the same year. All told, some $5 trillion in commerce takes place between US and European firms and their affiliates each year.
The second reason the US will not ignore Europe is the EU’s average income, which according to the World Bank amounted to $31,676 per capita in 2010. By comparison, China at $7,536 per capita, ranks number 95 in the world. And with a per capita income of only $3,582, India ranks number 124 – far behind the Dutch average of $42,475. Thirdly, the World Bank recently estimated that the level of free trade among the EU-27 is higher than anywhere else in the world (Asia included).
There are compelling reasons to focus on how to increase transatlantic trade and better capitalise on its full potential. Recently, a study from the European Center for International Political Economy showed that the US and the EU can strengthen their combined GDP by $180 billion over five years by removing the remaining taxes/duties (tariffs) on trans-atlantic trade.
Therefore, I encourage the Danish EU presidency to take the lead and introduce a ‘zero tariff zone’ for transatlantic trade. In this way, Denmark can contribute effectively to future growth in the European economy. Furthermore, since it is principally much easier for Danish companies to enter the US market than the markets in BRIC countries, transatlantic trade should also be an integral element in the Danish government’s growth policy.
The author is the executive director of AmCham Denmark