Editors note: Strange that this article does not even discuss that China is a predatory state directed economy with serious geopolitical goals. Only quantitative comparisons of trade and investment are discussed… a marginally relevant analysis.
President Trump keeps raising the stakes in his standoff with China over trade, but he’s backed down, for now, in his assault on Europe. What gives?
[Jeffery Bartash | July 30, 2018 | MarketWatch]
The answer is simple: Europe — along with Canada — is still more vital to the well-being of the U.S. economy, despite the growing importance of China in global affairs.
The value of American-made goods shipped to Europe is more than twice as high as the value of goods sent is to China, and the U.S. runs a much smaller trade deficit with its European trading partners. What’s more, investment on both sides of the Atlantic is enormous.
The government’s latest figures on investment reinforce just how close the relationship is.
In 2017, U.S. investment abroad totaled some $6 trillion, with almost 60% of it in Europe, according to the Bureau of Economic Analysis.
American companies also earned nearly a half billion dollars last year on their foreign investments.
The rest of the world, meanwhile, had about $4 trillion invested in the U.S., but once again it’s Europe at the forefront.
Europe accounted for 59% of foreign investment in the United States, largely in manufacturing and finance. Think BMW BMW, -0.80% plants in South Carolina or Santander Bank SAN, +1.00% branches in Philadelphia.
Germany invests about three times as much in the U.S. as the U.S. does in Germany. The same is true of France.
Canada, for its part, had about $524 billion in investments in the U.S. at the end of 2017. That’s about 13% of all foreign investment.
Canada also invests substantially more in the U.S. than the other way around. American investments in Canada totaled $355 billion in 2017.
And how does China stack up?
U.S. investment in China and Hong Kong touched $188 billion in 2017. Chinese investors, for their part, own a much smaller $73 billion in U.S. assets.
Some of the discrepancy between what the U.S. invests in Europe and China, of course, reflects price differentials. It’s more expensive to do business and acquire assets in Europe.
The investment numbers, however, don’t capture the real disparity between the U.S. and China. The U.S. imported a whopping $524 billion in goods and services from China last year, but American exports to the Asian giant amounted to just $188 billion.
The relationship with Europe (and Canada) is far less lopsided.
In an ever-entwined world, the U.S. and Europe are among the most symbiotic of partners. When the U.S. economy suffers, so does Europe’s. And when Europe isn’t doing well, the U.S. economy can’t achieve its full potential, at least not for long.
One big caveat: These numbers have to looked at cautiously. A lot of U.S. investment abroad or foreign investment in the U.S. is concentrated in holding companies whose business dealings are relatively opaque.
Consider Luxembourg. In sheer dollar terms, the tiny European country is the third largest recipient of U.S. investment and the fourth largest investor in the United States. Yet almost all of the investment is in holding companies whose ultimate owners are not based in Luxembourg.
Investors around the world have taken advantage of Luxembourg’s status as a business-friendly tax haven with a sophisticated banking system that provides access to the center of Europe.
The same pattern is evident in the U.S. relationship with Ireland, but to a lesser extent.