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The Transatlantic Economy 2009 - Jan. 2009
This is now an annual publication put out by the Center for Transatlantic Relations at the Johns Hopkins University. It is a detailed analysis of the trade and investment data of the US and Europe as compiled by the US Department of Commerce's Bureau of Economic Analysis (BEA) and the IMF. More details at the bottom of this article.
One thing the authors continually emphasize in their varying publications on the transatlantic economy is the straight forward but rarely acknowledged fact that - despite the rise of NAFTA, the 'rise of Asia', or the 'big emerging markets', - the United States and Europe remain by far each other’s most important commercial partners. The economic relationship between the United States and Europe is by a wide margin the deepest and broadest between any two continents in history - and those ties are accelerating. These two entities are committed to each other and no amount of petty political squabbling (now its Roquefort cheese vs. beef with hormones) will pull those bonds apart.
The investment figures for the Netherlands sometimes do raise more questions than give answers – especially the huge differences given by BEA for the preliminary figures for 2006 in July 2007 and more definitive figures given for the same year in July 2008. It makes one wonder with how much caution one should approach the preliminary figures given for 2007 in July 2008 (some $370 billion - a huge increase over 2006). For the Netherlands the 2006 preliminary figure was $215 billion and the corrected figure became $280 billion a year later. That’s a significant difference – a 30% increase. The data also raise concerns as to the conclusions taken in the comparative statements made in the executive summary and elsewhere in the remainder of the book – especially when the Netherlands is concerned. On the one hand – in notes on data and sources at the end – the authors state “investment data measure gross property, plant and equipment of affiliates” and, on the other hand, the investment data for the Netherlands reveal that over 68% of the US direct investment position (in 2007) is in “holding companies”.
The above observations and concerns were communicated to the authors by your editor. A prompt reply was received from Prof. Dan Hamilton, one of the authors. He stated:
"Thank you very much for your comment. I agree on the data issues. On the basic point about the Netherlands, we have made the point repeatedly in our various publications (would need to check again whether it is once again stated here in text) that NL plays such a key role because it is the entry point to the EU for so many US companies. But you are right to mention it, we do qualify the data in this way whenever we speak about it -- it does underscore a key role for the NL, however, even if all the investment does not remain in the NL."
The following are excerpts from the study as may be of most interest to those (like us at AmCham) concerned with the bilateral US-Netherlands trade and investment relationship. In several of the comparative statements your editor has added the NL share or statistic to that given by the authors.
- The financial crisis and attendant recession underscore the deep integration of the transatlantic economy. Notions of “decoupling” are mistaken and are likely to lead to serious policy errors. Never before have had Europeans and Americans a greater stake in each other’s economic success. Each has a substantial interest in the other’s ability to weather current difficulties and to emerge in sound shape from the crisis.
- Despite current difficulties, the transatlantic economy remains very strong on a secular and structural basis. We estimate that the transatlantic economy generates $3.75 trillion in total commercial sales a year and employs up to 14 million workers in mutually “on shored” jobs on both sides of the Atlantic. These workers enjoy high wages and high labor and environmental standards.
- The transatlantic economy remains the foundation of the global economy. Nonetheless, according to most recent data, the current economic crisis is having a major effect on transatlantic jobs, trade and investment. Recent data show:
- While U.S. foreign affiliate income earned in Europe rose 9% in the first half of 2008 from the same period in 2007, income earned by U.S. affiliates in Europe has peaked. Affiliate income of $47 billion in the second quarter of 2008 was down roughly 2% from its fourth quarter 2007 peak.
- The U.S. recession has taken its toll on the earnings of European affiliates operating in the United States. Between 2002 and 2007, affiliate earnings rose more than threefold, surging from $26.7 billion in 2002 to over $82 billion in 2007. In 2008, however, affiliate income was basically flat in the first half of 2008. Affiliate earnings of German companies in the U.S. in the first half of 2008 fell by 100%, earnings of British and Dutch companies in the U.S. fell by 20% and earnings of French companies fell 14%.
Transatlantic Investment: Driving the Transatlantic Economy
- From the start of this decade to mid-2008, Europe accounted for over 57% of total U.S. foreign direct investment, on par with Europe’s share in the 1990s and 1980s. Over this decade 6 of the top 10 U.S. investment markets have been in Europe.
- The top two global destinations for U.S. investment in this decade are the Netherlands and the UK. The U.S. invests more in either the Netherlands or the UK than in Canada or Mexico.
- U.S. investment in either the Netherlands or the UK in this decade has been greater than total U.S. investment in South and Central America, the Middle East and Africa.
- The Netherlands’ share of U.S. investment in Europe has increased from around 15% in the 1990s to nearly 23% this decade.
- U.S. investment in the BRICs (Brazil, Russia, India, China) totaled $57.6 billion from 2000 to mid-2008, on par with U.S. investment in Germany, only 30% of U.S investment in the Netherlands, and 14% of total U.S. investment in the EU.
- On a historic cost basis, the U.S. investment position in Europe was 16 times larger than in the BRICs and 3 times larger than in all of Asia in 2007.
- U.S. firms invested $26.4 billion in China between 2000 and mid-2008, less than U.S. investment in Belgium and less than half of U.S. investment in Ireland - and only 22% of U.S. investment in the Netherlands.
- The Netherlands and the UK rank as the most important markets in the world for corporate America with it comes to global earnings. The Netherlands represented roughly 13% and the UK 9.6% of total affiliate income over the 2000-08 period. Ireland ranked third in the EU, accounting for 6.2% of global affiliate earnings. China, in comparison, accounted for just 1.7% of U.S. affiliate earnings in the decade to mid-2008.
- Europe accounted for 62% of total foreign assets of corporate America.
- U.S. assets in the UK totaled $2.8 trillion in 2006, roughly a quarter of the global total and more than total U.S. assets in Asia, South America, Africa and the Middle East.
- U.S. assets in the Netherlands ($996 billion) were the second largest in the world in 2006. America’s sizable asset base in the Netherlands reflects the host nation’s strategic role as an export platform/distribution hub for U.S. firms doing business in the rest of the European Union. To this point, more than half of affiliate sales in the Netherlands are for export, namely within the EU.
- French, German, Dutch and Swiss affiliates sold more services in the U.S. in 2006 than American affiliates sold in France, Germany, the Netherlands and Switzerland.
- Roughly 30% of U.S. exports to Europe, and 43% of U.S exports to the Netherlands, in 2007 consisted of related-party trade.
- Despite stories about European companies moving to cheap labor markets in Eastern Europe or Asia, most foreigners working for European companies outside the EU are American. European majority-owned foreign affiliates directly employed roughly 3.6 million U.S. workers in 2006.
- European firms employed roughly two-thirds of the 5.3 million U.S. workers on the payrolls of majority-owned foreign affiliates in 2006.
The top five employers in the U.S. were firms from the United Kingdom (908,000), Germany (664,000), France (497,000), the Netherlands (445,000) and Switzerland (416,000).
Concluding remarks of Chapter 1 - A Year of Living Dangerously: The Transatlantic Economy and the Global Economic Crisis
The bottom line: the transatlantic economy remains very strong on a secular and structural basis. We estimate that the transatlantic economy continues to generate close to $3.75 trillion in total commercial sales a year and employs up to 14 million workers in mutually “onshored” jobs on both sides of the Atlantic. These workers enjoy high wages and high labor and environmental standards. In addition, we continue to espouse the view that the transatlantic economy remains at the forefront of globalization—meaning that the commercial ties between the U.S. and Europe are deeper and thicker than between any other two continents. This is evident from this survey, which paints a picture of continuing prosperity for both parties.
The most recent data, however, point to a transatlantic economy in flux and under a great deal of recessionary strain. 2009 is likely to be a “year of bad news,” in the words of German Chancellor Angela Merkel.
In the near term, transatlantic economic prospects will closely mirror those of the global economy. That is not surprising given that the transatlantic economy is the largest economy in the world, and highly integrated and intertwined with the rest of the globe. In this context, the United States and Europe reaped major rewards as the transatlantic and global economy boomed over the past five years. The downside is that the current deceleration in global growth has not spared the transatlantic economy, and has already dampened transatlantic jobs, trade and investment. The upshot: the transatlantic economy will end the decade roughly where it began—deeply integrated, and in recession. It will truly be a year of living dangerously.
Source: The Transatlantic Economy 2009 - Annual Survey of Jobs, Trade and Investment between the United States and Europe. Authors: Daniel S. Hamilton and Joseph P. Quinlan, Center for Transatlantic Relations, Johns Hopkins University, Paul H. Nitze School of Advanced International Studies. Available for purchase or free download via: http://transatlantic.sais-jhu.edu