The Core of the Global Economy - the Combined U.S.--EU Gross Domestic Product Is $18 Trillion, Dwarfing All Other Economic Relationships in the World

By Smyser, William Richard | The World and I, April 2001 | Go to article overview

The Core of the Global Economy - the Combined U.S.--EU Gross Domestic Product Is $18 Trillion, Dwarfing All Other Economic Relationships in the World


Smyser, William Richard, The World and I


The European Union and the United States form the core of the global economy. America has the world's largest single GDP, about $9.5 trillion. The 15 states of the European Union jointly have the next largest, $8.5 trillion, and will have a larger one when all the prospective new members join by the second decade of this century. Japan, at about $3.2 trillion, is a distant third.

The United States and the EU are also the most important members of the World Trade Organization, which governs the international trading system, as well as of the World Bank and the International Monetary Fund.

Moreover, the United States and four EU members--France, Germany, Italy, and the United Kingdom--form the preponderant majority of the Group of Seven (G--7), in which they try to coordinate global economic policy with each other and with Japan and Canada.

Most of the cooperation between the EU and the United States moves so smoothly that it escapes notice. Goods and individuals travel across the Atlantic as easily and naturally as people used to cross a river a hundred years ago.

American trade with the EU exceeds every other bilateral trading relationship. American exports of goods to the EU have averaged $150 billion per year over the last several years, whereas U.S. imports have averaged $185 billion, leaving an EU trade surplus of about $25 billion. Annual U.S. exports of services to the EU have averaged $90 billion, giving a surplus of $20 billion over U.S. imports of $70 billion.

America's main exports to the EU are aircraft, computers, engines, and precision instruments. Its main imports are cars and trucks, engines, specialty chemicals, and aircraft. Thus, the two exchange over a billion dollars in goods and services every day as well as trillions of dollars of currency a week.

Mutual investments

American and EU companies also invest massively in each other. European direct investment in the United States amounts to $500 billion, with the main investors being British, Dutch, and German. American direct investment in the EU amounts to $450 billion, with most of it being in the United Kingdom, the Netherlands, and Germany.

Almost one-half of U.S. direct investment abroad is in EU states, while 60 percent of EU direct investment abroad is in the United States. General Motors and Ford produce cars in Europe, while Intel and Microsoft produce computer chips and software. In return, Daimler- Chrysler and BMW produce cars and trucks in the United States. The two exchange over 1,000 mergers and acquisitions a year.

Even as European-American economic relations have grown, EU integration has proceeded at an ever-accelerating pace. During the 1990s, the European Union became a single market, as goods and people traveled freely across its borders and common industrial and service standards developed. The EU also made organizational changes to speed up its decision-making processes and give more power to institutions like the European Parliament.

The EU expanded during that decade to include Sweden, Finland, and Austria, attaining a population 100 million larger than America's 280 million. The EU hopes to expand across almost all of Europe by 2012, integrating 12 more states from central and eastern Europe and the Mediterranean.

In a step toward full economic integration, the EU has launched a new European currency, the euro, administered by the new European Central Bank. The ECB, whose governing board includes 12 of the 15 EU states (only Denmark, Sweden, and the United Kingdom have not joined), makes decisions that affect the entire European economy as well as the economies of each EU state.

The euro will become a daily reality in the lives of Europeans on January 1, 2002, when euro coins and bills will replace such national currencies as the German deutsche mark, the French franc, and the Spanish peseta. It could also become a competitor to the dollar as an international reserve and transaction currency. …

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