EU-U.S. Economic Ties: Framework, Scope, and Magnitude

Publication Date: March 2009

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

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Abstract:

The United States and the European Union (EU) economic relationship is the largest in the world -- and it is growing. The modern U.S.-European economic relationship has evolved since World War II, broadening as the six-member European Community expanded into the present 25-member European Union. The ties have also become more complex and interdependent, covering a growing number and type of trade and financial activities.

In 2004, $966 billion flowed between the United States and the EU on the current account, the most comprehensive measure of U.S. trade flows. The EU as a unit is the largest merchandise trading partner of the United States. In 2004, the EU accounted for $172.6 billion of total U.S. exports (or 21.1%) and for $282.6 billion of total U.S. imports (or 19.2%) for a U.S. trade deficit of $110.0 billion. The EU is also the largest U.S. trade partner when trade in services is added to trade in merchandise, accounting for $115.6 billion (or 34.0% of the total in U.S. services exports) and $108.7 billion (or 37.3% of total U.S. services imports). In addition, in 2004, a net $83.8 billion flowed from U.S. residents to EU countries into direct investments, while a net $48.2 billion flowed from EU residents to direct investments in the United States.

Policy disputes arise between the United States and the EU generating tensions which sometimes lead to bilateral trade disputes. Yet, in spite of these disputes, the U.S.-EU economic relationship remains dynamic. It is a relationship that is likely to grow in importance as the trends toward globalization and the enlargement of the EU continue, forcing more trade and investment barriers to fall. The expanded relationship will bring economic benefits to both sides in the form of wider choices of goods and services and greater investment opportunities.

But increasing economic interdependence brings challenges as well as benefits. As the U.S. and EU economies continue to integrate, some sectors or firms will "lose out" to increased competition and will resist the forces of change. Greater economic integration also challenges long-held notions of "sovereignty," as national or regional policies have extraterritorial impact. Similarly, accepted understanding of "competition," "markets," and other economic concepts are tested as national borders dissolve with closer integration of economies.

U.S. and EU policymakers, therefore, will continually face the task of how to manage the increasingly complex bilateral economic relationship in ways that maximize benefits and keep frictions to a minimum. For Members of Congress it means weighing the benefits of greater economic integration against the costs to constituents in the context of overall U.S. national interests. This report will be updated as events warrant.