ECONOMY

Tight transatlantic ties

Whether George W. Bush is re-elected or John Kerry succeeds in toppling him in the November 2 presidential election, the US administration will try to heal the wounds in its relations with the European Union. There is an understanding emerging in the US that the economic interdependence of the two regions is far greater than the trade statistics show and that political differences should not be allowed to hurt economic relations, Joseph Quinlan, a fellow at the Center for Transatlantic Relations of the Paul H. Nitze School of Advanced International Studies, Johns Hopkins University, told Kathimerini. Quinlan is currently leading a study on the transatlantic economy and its strategic importance to the US, Europe and the world. He has published over 125 articles on international economics and trade and is the author of three books, the most recent being «Global Engagement: How American Companies Really Compete in the Global Economy.» He has also served as an economist at investment banks Morgan Stanley and Merrill Lynch. Quinlan says both sides tend to overlook the importance of their economic relations. «The links are very important and unrecognized is the fact that in the transatlantic economy total sales annually come to $2.5 trillion. There is no commercial artery in the world as large and as deep as the transatlantic economy,» he says, adding that even this statistic does not truly reflect the interdependence of the EU and the US. «The problem lies in how we measure bilateral, biregional economic relations. The standard scorecard comes from trade. The trade statistics show, for instance, that the US exports more to Asia and to NAFTA than it exports to Europe. Based on that evidence, many people would say that Europe is third in terms of importance. But what these numbers don’t show you is that US exports come to $1.2 trillion a year, while foreign affiliate sales are $3 trillion a year. So when you look at the foreign affiliate sales in Europe by US companies and in the US by European companies, you see a much broader, deeper level of integration. And that’s overlooked by many in the media, (as well as) by many policymakers, because they are just looking at trade, they are not looking at foreign affiliate sales.» «If you use bad data to make policy, you get bad policies. That’s what the US and Europe potentially do,» Quinlan says. But are we looking at the wrong kind of data? «I don’t know,» he shrugs. «I think people learn early on that it’s about trade. And it’s not. People don’t know, for instance, that of foreign affiliate earnings on a global basis, 50 percent come from Europe. So Europe is very important to the bottom line of corporate America. Conversely, to a lot of European companies, their biggest market is not Germany, France or Italy, it’s the US. So, America dictates their earnings.» Investment dictates trade What is the role of transnational companies in this, we ask. «Trade used to dictate foreign direct investment. A company would export and then things would go well and the company would build a presence in the country. More and more in the 10 last years it is that foreign direct investment dictates trade,» Quinlan says. He makes the example of a US company building a factory in China and importing equipment and spare parts from its parent company in the US to do so. A large part of the trade between US and Germany involves parts. «Sixty-six percent of what we consider German imports to the US are nothing more than interrelated parts trade. It’s BMW in Germany sending parts to BMW South Carolina,» he says. The end of the Cold War prompted many to say that economic relations between Europe and the US would be less tight and, for a while, this seemed to be the case. «It was the military threat of communism that united them to a large degree with the Europeans in the Cod War era. In the 1990s, some people said the US transatlantic relationship was downgraded,» Quinlan says, adding that military cooperation, the most obvious feature of the Cold War era, obscured the development of a huge transatlantic market that kept expanding from the early 1950s. «In the US, a lot of people thought Europe was the past, Asia was the future, based on trade, but it’s not at all like that. In the first part of this decade more US investment has gone into Europe than to any part of the world. We keep hearing about China and India but in the first half of this decade, US companies investment four times more money in Ireland than in China and India,» Quinlan remarks. «US companies are very interested in going to Central Europe, leveraging the skilled labor, tapping the new markets. They are very interested in EU accession prospects, such as Romania and Turkey, because the larger the market, the more opportunities (exist) for US companies.» Long-term divergence? Quinlan believes that the EU’s current lag in economic growth relative to the United States is either a short-term development or, more worryingly, reflects a long-term divergence in living standards between the center and the periphery, because, he says, however developed Europe may be, it is still on the periphery of the global economic system relative to the US. «I hope (this divergence) is for a short period,» he says. He believes the lag in growth is Europe’s problem, which must ensure sustained annual growth between 3 and 4 percent of GDP – if not more. «That means adjusting the Stability and Growth Pact, labor reform… Perhaps we need lower interest rates by the European Central Bank.» «We have to recognize the depth of this transatlantic relationship and that it is mutually beneficial,» Quinlan says, adding, «Hopefully, the Iraq conflict has opened the eyes on both sides of the Atlantic» «The US and Europe have to work together – if they don’t work together the bigger, global issues will continue to simmer and will hurt both the US and Europe,» he concludes.