EconoGraphics

The United States is the world’s largest recipient of global foreign direct investment (FDI). On a current-cost basis, the US FDI stock was more than three times larger than that of the second largest destination country in 2014, the most recent year from which statistics are available. Despite the current fragile global economy and great political uncertainty, foreign investment in the United States remains strong. Total FDI stock in the United States grew an average of 6 percent annually from 2009-2014. Meanwhile, FDI in the US in 2015 reached a record of $348 billion, rebounding from 2014 ($172 billion), and well above 2013 inflows ($201 billion).

The United States and Europe are each other’s primary source and destination for FDI, with the US providing the largest source of third-country FDI in the European Union (EU) on the basis of stock and flow. In 2015, the FDI net inflow accounted for 2.1 percent of US gross domestic product (GDP) and 3.4 percent for the European Union.

“Although investments from many emerging markets, such as China, have risen considerably on a percentage basis, the EU will continue to be the main source of FDI to the United States for the foreseeable future,” said Andrea Montanino, director of the Atlantic Council’s Global Business & Economics Program.

US affiliates of companies from the twenty-seven EU member states produced $132 billion in goods exports in 2014. These European companies stimulate research and development (R&D) in the United States, spending nearly $24 billion on R&D and accounting for 8.5 percent of the US total investment in R&D by businesses. In turn, these companies employed almost 2.6 million US workers in 2014, up from 2.46 million in 2013. US affiliates of European companies, in general, provide higher compensation than the US average: more than $80,000 per US employee in 2014, as compared to average earnings of $60,000 for workers in the economy as a whole. One OECD study by the Organization for Economic Cooperation and Development (OECD) predicts that potential welfare gains to the EU and the US could reach as much as 3-3.5 percent of their respective GDP.

In addition, the US manufacturing industry is benefiting enormously from FDI inflows, as nearly 70 percent of FDI flows in 2015 and more than 40 percent of jobs at foreign-owned manufacturing firms in the US are created by investment from the EU.

updated Econographic

In March 2014, German automaker, BMW, announced an investment of approximately $1 billion in a new X7 production line at their Spartanburg plant in South Carolina. The addition of this production line has made Spartanburg BMW’s largest manufacturing facility in the world. More than half of all the cars produced at Spartanburg are exported. BMW has greatly utilized the strength of US manufacturing and export opportunities offered by US trade agreements to expand their US operations. Of course, this also means potential higher US economic growth and more well-paid jobs.

BMW’s factory in South Carolina is just one example of a European company’s success in the US market. Success comes in many forms and sizes – small and medium-sized enterprises are another important part of the economic ties between Europe and the United States. In short, enhancing the US-EU trade and investment partnership is in everyone’s interest.

This EconoGraphic is the first of a three-part series on why the United States needs Europe and vice versa. The series will lead up to the upcoming launch of the EuroGrowth Task Force’s report on European economic growth and why it matters for US prosperity. The Global Business & Economics Program will launch this timely report on March 10, 2017 at the Atlantic Council.
On December 4, Italian voters rejected former Prime Minister Renzi’s constitutional reform referendum. The result of the referendum renewed concerns about the economic recovery in Italy, stability of the Euro, broader European economic integration, and rising populism across Europe. In the week following the referendum, global markets have focused their attention on the ailing Italian banking sector. The Italian banking system is undergoing a serious restructuring in an effort to raise capital and increase profits. The €360 billion in non-performing loans (NPL) on Italian banks’ books – about one-third of the Eurozone’s total – underscore why shares of Italian banks have declined by ca. 50 percent since the beginning of 2016.

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Over the last decade, China’s large holdings of US debt have helped the Bank of China keep the value of the renminbi artificially low. This strengthened China’s competitive position in the global markets, allowing for cheaper Chinese exports and contributed significantly to China’s large trade surplus, which now accounts for about half of the total US trade deficit.

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On October 14th, the regional parliament of Wallonia, a French-speaking region of 3.6 million people in Belgium, voted to block the Comprehensive Economic and Trade Agreement (CETA), a proposed trade agreement between the European Union (EU) and Canada, which has been negotiated for over 7 years. To implement the agreement, it must be ratified by 28 national parliaments and 10 other regional assemblies and upper houses in the EU; Belgium cannot sign the agreement without Walloon support. At the end of last week, the EU issued an ultimatum urging Wallonia to end its objection to the agreement before Monday. Wallonia, which calls for stronger safeguards on labor, environmental, and consumer standards, rejected the ultimatum, threatening to cancel an EU-Canada summit planned for Thursday (October 27) to sign the accord.

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The European Union’s (EU) Stability and Growth Pact requires Eurozone countries to annually lay out their fiscal plans for the following three years. The European Commission (EC) then compares the member states’ reports with its own projections and those produced by independent bodies, such as the International Monetary Fund (IMF), to evaluate whether the member states are on track to reach their Medium-Term Budgetary Objectives (MTOs). It is important to note that Eurozone countries’ macroeconomic forecasts usually diverge, sometimes significantly, from the reports produced by the EC and the IMF. 

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On the occasion of Myanmar’s State Counselor Aung San Suu Kyi’s recent visit to the United States (U.S.), President Obama announced that executive sanctions on Myanmar would soon be lifted. This will grant Myanmar greater access to the U.S. market and encourage U.S. companies to invest in the country. Trade between the two countries remains at relatively low levels (i.e. $225 million in 2015), with U.S. investment to Myanmar accounting for only 0.2% of the country’s Foreign Direct Investment (FDI). Lifting the sanctions would remove a number of trade and investment barriers, which in turn would strengthen Myanmar’s competitiveness and foster growth across its economy. It would also allow the country to diversify its range of trading partners (e.g. only 2% of its exports end up in non-Asian economies).

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As the most export-driven major economy in the European Union (EU), Germany stands to benefit greatly from a robust Transatlantic Trade and Investment Partnership (TTIP) agreement.

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Since the British referendum, Europe’s banking sector has come under renewed scrutiny from financial markets as well as European Union officials and finance ministers. A primary focus is on Italy - which has accumulated $400 billion in gross bad loans - and the EU-Italy talks about how to recapitalize the weak Italian banks. Another focus is Germany following the IMF determination that Deutsche Bank AG posed the greatest risk to the financial system. European banks face uncertainty from the British referendum and have struggled in the face of slow European economic growth, which has averaged only 1 percent annually over the past five years.

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The United Kingdom’s (UK) vote last week to leave the European Union (EU) has raised questions about the future of the Transatlantic Trade and Investment Partnership (TTIP). TTIP is a trade agreement currently being negotiated by the United States (US) and the EU that will eliminate tariffs, reduce red tape, and set a new standard for international trade agreements. Following the Brexit vote, US Trade Representative Michael Froman and European Commissioner for Trade Cecilia Malmström released statements reaffirming their commitment to TTIP. They met in Washington, DC earlier this week and Malmström spoke at the Atlantic Council yesterday. (Link to event video, transcript of remarks)
London is the undisputed financial capital of Europe, and is rivaled only by New York City for the top spot worldwide (Global Financial Centers Index). When competing on a level playing field, London outperforms other major European financial centers because of the superior human capital, infrastructure, and regulatory environment of the city. London dominates 78 percent of European FOREX trading and generates a trade surplus worth tens of billions of pounds (UK Office of National Statistics).

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