America’s Cornerstone: What’s next for US Trade with Europe?

As the US - and more European economies - continue to expand, the growth prospects for US businesses also increase. Joseph Lake, global economist for The Economist Intelligence Unit chaired a discussion with a group of panelists representing government, business and academia to examine the opportunities and challenges with America’s cornerstone trading partner.

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The US and EU share the most integrated political and economic relationship in the world. The partnership is an economic powerhouse. According to Joseph Lake, global economist for The Economist Intelligence Unit, the US and EU account for half of the world’s economy and one-third of global trade flows. The US, he said, has three times the investment in Europe than it does in Asia and six of the country’s top 15 trading partners are based in Europe.

Daniel Hamilton, director of the Center for Transatlantic Relations at The Johns Hopkins University, highlighted the important role foreign investment plays in US international commerce. “Our relationship with Asia is driven by trade. But our relationship with Europe is driven by investment, which is the driver of the transatlantic economy,” he said.

About 60% of EU investment in the US occurs within companies, noted Hamilton, citing an example of Volkswagen building a manufacturing plant in Chattanooga, Tennessee.

Hamilton stated that the proposed Transatlantic Trade and Investment Partnership (T-TIP) would further increase the flow of both investment and trade between the two regions by reducing the high cost of regulatory barriers. “If you keep those investment flows going, you’re going to do a lot more for people and create more jobs,” he said. The challenge comes from reconciling two sophisticated regulatory systems approved by two different democratic governments. One is not better or stricter than the other, Hamilton contended – just different. “I’m not worried about taking a pill in France,” he said, “and a European is probably not worried about driving a car in the US.”

Stefan Selig, under-secretary for international trade at the International Trade Administration, US Department of Commerce, echoed this sentiment. “There is no industry that will not be positively impacted by T-TIP,” he said, also pointing to the automotive industry as an example.

“You can’t produce an automobile with the same standards in the EU and US,” he said. “[Instead], we have to have a company produce on two different

production lines to meet both sets of standards.” Selig noted this practice is prohibitively expensive for small and medium-sized businesses (SMEs).

Hamilton explained that in addition to reducing regulatory barriers for SMEs, T-TIP stands to shape the future of the global economy. “If the US and EU can come to a new way of working together on regulatory issues, we will set the pace for the world. There is no other framework right now,” he said.

Frank Sportolari, president of UPS Germany, emphasised that US companies have a big opportunity to capitalise on the world’s growing middle class. He noted that 90% of middle class consumers don’t have a US passport, and that a US company introducing a product to Europe alone, gives it access to 500 million more potential customers.

Yet, between 97% and 99% of US companies currently do not export at all, Selig said. Of the companies that do trade abroad, 58% only export to one market, often a border country such as Canada and Mexico.

For Ed Cook, chief executive of Red Rocket Merchandising Corporation, EU expansion led to growth for the pop culture retailer. But initially, going overseas “seemed like a big step,” so the company started with Canada first. “It immediately threw a whole series of learning curves at us that we were able to overcome, from regulatory to financial,” he said. “It gave us the courage to expand into the European market.”

Cook added that forming relationships with partners experienced with international trade, such as Bank of America for financial assistance and UPS for logistics support, was key to Red Rocket’s success. Selig encouraged other US companies to follow suit, noting that the ITA provides resources and support for SMEs seeking export abroad. The office has over two thousand people in 75 countries around the world and 100 cities in the US.

Looking to the future, all four panelists agreed that T-TIP’s passing in 2015 would be beneficial for both the transatlantic and global economies. Sportolari said, “T-TIP has the potential to be as or more important than NATO—that’s the magnitude of what we’re talking about.”

Ed Cook, chief executive, Red Rocket Merchandising

Daniel Hamilton, director, Center for Transatlantic Relations, The Johns Hopkins University

Joseph Lake, global economist, The Economist Intelligence Unit

Frank Sportolari, president, UPS Germany

Stefan Selig, under-secretary for international trade, US Department of Commerce

View the full event at upstradehorizons.economist.com