EconoGraphics

On August 2, 2017, US President Donald J. Trump signed into law H.R.3364, a new set of economic sanctions aimed primarily on Russia (with additional measures adopted against Iran and North Korea). Essential to the success of any sanctions regime is its alignment. As defined by John Forrer in an upcoming paper, economic sanctions are aligned when they “inflict a prescribed amount of economic loss… at a level to achieve the identified foreign policy goal(s) with the least amount of unwanted harm.” 

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On June 15, 2017, US President Donald J. Trump issued Executive Order 13801, which sought “to promote affordable education and rewarding jobs for American workers” by increasing the number of apprenticeship opportunities. Trump’s stated goals are ambitious. With a proposed ApprenticeshipUSA budget of $200 million (roughly double the previous amount), the president wants to increase the number of US apprenticeships from 505,000 in 2016 to 5 million by 2022.

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In March 2014, the United States and the European Union (EU) issued the first in a series of sanctions against the Russian Federation for its destabilization of Ukraine and annexation of Crimea. These restrictions, which initially focused on senior Russian government officials and private individuals, have expanded to include large corporations, financial institutions, and even entire economic sectors. In retaliation, Russia has adopted counter-sanctions of its own. With the US Treasury Department adding new sanctions in recent weeks—after the US Senate had passed its own legislation on the issue with almost unanimous support—it appears unlikely that the West will relent in the near future.

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On June 12, in US President Donald J. Trump’s first full cabinet meeting, the new US Trade Representative Robert Lighthizer briefly encapsulated the young administration’s philosophy on international trade: “Deficits do matter, and ours are coming down.” This is not a particularly partisan view; Trump’s opponent in the 2016 presidential election, former Secretary of State Hillary Clinton, spoke out against the Trans-Pacific Partnership (TPP) during her campaign despite supporting it previously.

To be sure, the United States has a perpetual trade deficit. In 2016, the country imported over $500 billion more in goods and services than it exported, and the United States has not had a surplus since 1975. Yet focusing solely on a country’s trade balance provides a sharply limited view of its economic health.

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This is the first EconoGraphic as part of our recently launched Economic Sanctions Initiative. The initiative aims to promote dialogue between the public and the private sector to investigate how to improve the design and implementation process of economic sanctions. The following text includes excerpts from our upcoming brief titled “Economic Sanctions: Sharpening a Vital Foreign Policy Tool” by our nonresident senior fellow John Forrer. Please visit our website to learn more about our work on economic sanctions.

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The global economic and financial crisis, which originated in the United States in 2008, ultimately triggered a sovereign debt crisis in Europe in 2010. As a result of sky high debts, economies lacking in competitiveness, and over lenient banking regulations, the credit ratings of the Eurozone members Cyprus, Greece, Ireland, Portugal, and Spain plummeted. These countries began facing prohibitively high interest rates when they attempted to borrow from international credit markets. As the situation worsened, Greece effectively lost access to international bond markets, and the European Commission established the European Financial Stability Facility (EFSF) to prevent sovereign defaults of Eurozone member states and to protect the common currency.

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This EconoGraphic is the final edition of a three-part series on why the United States and Europe need each other. The series highlights excerpts from the EuroGrowth Task Force’s inaugural report on European economic growth and why it matters for US prosperity. The Global Business & Economics Program launched this timely report on March 10, 2017 at the Atlantic Council. If you would like to learn more about the report, please visit: http://www.atlanticcouncil.org/publications/reports/charting-the-future-now.

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US economic ties with the European Union (27) generate the largest global bilateral trade flows, worth an estimated $2.4 billion per day. The massive volume of US-EU (27) bilateral trade promotes prosperity on both sides of the Atlantic.

In 2015, the total value of US goods and services trade with the EU (27) reached $869.5 billion. The United States had $589.7 billion in total bilateral goods trade with the EU (27), its second largest goods trade partner. US trade in services (exports and imports) with the EU (27) was $279.8 billion.

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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.

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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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