Partners in Prosperity: The Changing Geography of the Transatlantic Economy

Speaker: Daniel S. Hamilton, Director of the Center for Transatlantic Relations; Executive Director of the American Consortium on EU Studies and Richard von Weizsäcker Professor, SAIS

Discussant: Gunnar Wiegand, Head of Unit for Relations with the US, DG Relex, European Commission
 
Date: 28 May 2004
 
Today, the popular image of transatlantic relations tends to be characterised by disputes over everything from bananas to Iraq. Daniel S. Hamilton and Joseph P. Quinlan seek to dispel these misconceptions of European and American relations in their new book, Partners in Prosperity: The Changing Geography of the Transatlantic Economy. They argue that the highly publicised periodic disputes between Europe and the United States are, in fact, a function of the interconnectedness of the two regions, rather than the result of a series of discontinuities.
 
Speaking at a CEPS lunchtime meeting on May 28th, Dr. Hamilton summarised his findings and related some astonishing statistics from his new book. He asserted that Europe and America, sometimes at odds politically, are more connected commercially today than they have ever been in the past. The transatlantic economy generates roughly $2.5 trillion in total commercial sales per annum and employs over 12 million workers. 2003 saw economic milestones, from $395 billion in the transatlantic trade of goods to $16.5 billion of European profits in the United States. If globalisation is defined as the interactions between continents, then the deepest globalisation occurs between Europe and the Americas.
 
When measuring the depth of interconnectedness, Dr. Hamilton argued that one must analyse the degree of investment, rather than only the commonly cited trade statistics. In 2001, European and US foreign affiliate sales amounted to $2.8 trillion, more than five times the $549 billion in total trade. “Foreign direct investment is ‘globalisation’ in its most potent form”, argues The Economist. In 2003, when the US dollar was relatively weak, strong trade and investment were preserved, in part, because of related party trade. Thus, foreign affiliate investment between Europe and America has resulted in a decreased elasticity of real trade volumes with respect to currency changes.
 
Dr. Hamilton argued that future transatlantic economic relations will be just as bright as in the past. This forecast is evidenced by strong European-American investment in foreign affiliates and significant trade in the service sector. Some 60% of the United States’ global R&D is conducted in Europe and European research and development abroad is destined primarily for the United States.
 
Benefits from globalisation are realised at the micro- as well as the macro-level. Texas is the most popular destination for European firms. In fact, there is more European investment in Texas than American investment in China and Japan combined. French and British investment is concentrated in the American southwest, while German investment goes to the Great Lakes and southeast regions. Over the past two decades, Charlotte, North Carolina has positioned itself to become the recipient of significant sums foreign investment from the ‘elbow’ of the Rhine River. Whereas Charlotte once specialised in certain rather unpromising industries, such as textiles, woodworking and tobacco, it is now focused on geographic-specific development. 250 of the 617 foreign firms in the Charlotte region are Mittelstand enterprises from “Elbow strategy” countries, rather than large corporations. When considering the costs and benefits of globalisation, it is important to recognise these localised gains.
 
Combining the fact that foreign investment is greater in magnitude than trade with the notion that investment yields a deep relationship while trade represents a shallower one, it is evident that the European and American economies are merging. Thus, issues traditionally considered to be ‘domestic’, such as regulatory policy and competition, have become ‘foreign.’ Dr. Hamilton argued that we have entered a time in which the lines between ‘foreign’ and ‘domestic’ policies have become blurred.
 
In 2003, a year in which Robert Kagan quipped that Americans are from Mars and Europeans are from Venus, more attention must be paid to Mercury, the god of commerce. During the Cold War period, Europe and the United States were geo-strategic partners. Today, geo-economic relations have bound the two. Economics is not a zero-sum game; firms on both sides of the Atlantic stand to gain from each other’s economic growth. However, policy-makers must remember that mechanisms for deep integration between Europe and the United States have not been arranged nor articulated in many cases. Dr. Hamilton concluded his remarks with the thought that perhaps the Doha Round is a good opportunity to implement transatlantic policies that bring the two systems even closer together.
 
Gunnar Wiegand, DG External Relations, European Commission, offered follow-up comments to Dr. Hamilton’s presentation. Wiegand stressed that the depth of European and American interconnectedness implies policy-makers must have a very responsible attitude towards each other, as the livelihoods of many people rely on these relations. Furthermore, given that globalisation has been a win-win situation for Europe and America, this is a call to work with nations and firms beyond the North Atlantic, extending the benefits to the developing world.