The Transatlantic Economy

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Madam Chairwoman, Senator deMint, other distinguished members of the Subcommittee, thank you for this opportunity to appear before you to discuss this important topic. I am honored. I truly welcome your interest in a subject the transatlantic economy that is often ignored but is a vital part of U.S. prosperity. Moreover, this interest is especially timely, as there are now opportunities to deepen the transatlantic economic relationship and take on a key role in leading the global economy away from the financial crisis. The transatlantic economy the combined market of the United States and the European Union is the core of the global economic system. Even after the financial crisis, the United States and the EU together comprise 54 percent of global GDP. Their markets represent mature, service-oriented economies that have been the major engines for innovation in both markets and technology for the last few decades. And because of the size and attractiveness of their markets, the United States and the EU (along with its member states) play a major role in shaping global standards and regulations. Recently, much of the policy community has been focused on China as an economic partner of the United States. While China is clearly an increasingly important member of the global economy, along with a number of other emerging economies, the reality is that China's economic interactions with the United States are generally not of the same magnitude as those of the EU. In terms of trade, for example, China imported $85 billion worth of goods and services from the United States in 2008, and exported $348 billion. That same year, the EU as a whole (and the EU is a single trading zone) imported $467 billion in goods and services from the U.S. and exported $521 billion. And while the U.S. trade deficit with China totaled $262 billion, the trade deficit with the EU was $54 billion. The U.S.-EU investment relationship is even more dominant. In 2008, U.S. EU investment into the United States totaled $1.4 trillion, or just over 60 percent of all foreign investment in the U.S. U.S. investment in the EU totaled $1.6 trillion, or 51 percent of U.S. investment abroad. That same year, U.S. investment in China totaled only $46 billion (one third of what the U.S. invests in Ireland, for example) and Chinese investment into the United States was only $1.2 billion.

The fact that the U.S.-EU economic relationship is so focused on investment has an important consequence because investment is about supporting or establishing companies, it is also about creating jobs. While high trade levels raise fears of jobs leaving, high investment levels usually mean the creation of more jobs. Today, about 12 million jobs in the United States, and an equal number in Europe, are the result of transatlantic investment. The financial crisis of 2008 demonstrated that such close economic integration can have its downside. Weaknesses in one country can be transferred swiftly to its economic partners, as demonstrated by the collapse or near collapse of several European banks that had invested in U.S. subprime mortgages. The result has been weaker economies in both the U.S. and Europe, with unemployment in both now at close to 10 percent (although in Europe, this represents a lower increase and has less of an impact, because of the more extensive social safety net). Both the U.S. and EU are now moving out of recession, but OECD forecasts call for slower growth on both sides of the Atlantic next year (2.5 percent in the U.S. and 1.15 percent in the eurozone. An argument can certainly be made that the U.S. should strengthen its partnership with rising economic powers such as China, and not worry about the future of its economic relations with Europe. After all, the financial crisis fully demonstrated the growing importance of the BRIC countries. They have moved into the management structures of the global economy by joining the G20, as befits their growing share of the world economy. …