U.S.-EC trade swings into surplus - European Community

Business America, August 27, 1990 by Leyla Woods

After five years in the red, the U.S. trade balance with the EC swung into surplus in 1989 as U.S. exports grew 14 percent while imports held at 1988 levels. The EC is the single largest foreign market for U.S. products, absorbing almost $1 of every $4 of U.S. exports. The EC is also the largest host of U.S. direct investment abroad, and the largest source of foreign direct investment in the United States. EC measures to achieve a unified market in 1992 offer opportunities and challenges to U.S. multinationals and other investors and exporters.

In response to healthy economic growth in most member countries of the European Community (EC), U.S. exports to the EC hit a record $86.3 billion in 1989, while U.S. imports grew less than I percent to $85.2 billion. The U.S. balance improved from a $9.2 billion deficit in 1988 to a $1.2 billion surplus in 1989 as the U.S. trade position improved with every major EC trading partner: the U.S. deficits with West Germany, France, and Italy shrank, and the U.S. surpluses with the United Kingdom, the Netherlands, and Belgium-Luxembourg expanded. The $10.4 billion improvement in the 1989 U.S. balance with the EC helped to offset deteriorations in other U.S. bilateral balances-notably with OPEC and China-and more than accounted for the $9.1 billion reduction in the global U.S. deficit.

Continued strong U.S. export growth has led to further improvement in the U.S. balance with the EC this year: for January-May 1990, the U.S. surplus stood at $4.3 billion (seasonally unadjusted), more than twice the $1.7 billion U.S. surplus recorded for the comparable 1989 period.

The 12 EC member countries together account for approximately 20 percent of U.S. total trade (exports and imports), about the same share as Canada. Among the EC countries, the United Kingdom is the leading market for U.S. exports, absorbing about 25 percent of U.S. shipments to the EC. Other important EC markets are West Germany (with about 20 percent of the EC total), France and the Netherlands (about 14 percent each). West Germany is the largest supplier of U.S. imports (with about 30 percent of the EC total), followed by the United Kingdom (about 21 percent), France, and Italy (about 14 percent each). The United States accounts for 7 to 10 percent of EC exports and imports. The majority of EC trade-more than half of both exports and imports-is between EC member countries. Other West European countries account for a further 9 to I I percent of EC trade. Japan supplies only around 5 percent of EC imports, and the East Asian Newly Industrialized Countries NICs) somewhat less.

Between 1980 and 1985, appreciation of the dollar and slow economic growth in most EC countries contributed to a stagnation in U.S. exports to the EC. In 1985, U.S. exports stood 17 percent below their 1980 level. U.S. imports soared after 1983, growing 32 percent in 1984 and 12 to 13 percent in 1985 and 1986. Stagnating U.S. exports and mushrooming imports combined to drive the U.S. balance with the EC from a $20.6 billion surplus in 1980 to a record deficit of $22.6 billion in 1986.

As dollar depreciation after 1985 improved U.S. competitiveness, U.S. exports to the EC picked up and U.S. import growth slowed. From 1985 to 1989, U.S. exports expanded 15 percent a year, more than double the import growth rate of 6 percent a year. The U.S. balance improved steadily, shifting to a $1.2 billion surplus in 1989.

Manufactures Dominate U.S.-EC Trade

Manufactures predominate in U.S.-EC trade, composing more than 80 percent of U.S. exports and imports. Rising manufactures shipments accounted for virtually all the growth in U.S. exports to the EC in 1989. Almost 60 percent of U.S. manufactures exports, and about 50 percent of U.S. manufactures imports, are machinery and transport equipment.

High-tech products account for around one-half o U.S. manufactures exports to the EC and one-fifth o U.S. manufactures imports. This trade represents about 30 percent of total U.S. high-tech exports and around 20 percent of all U.S. high-tech imports. The traditional U.S. surplus in high-tech trade with the EC declined to a low of $8.0 billion in 1985, then rebounded to $16.1 billion in 1988 (latest data available). West Germany, the United Kingdom, and France, the leading U.S. trade partners among the EC countries, are also the main U.S. partners in high-tech trade. The United Kingdom is the largest EC market for U.S. high-tech exports with about 28 percent of the EC total, followed by West Germany with 20 percent and France with 16 percent. The United Kingdom is also the leading EC supplier of U.S. high-tech imports, providing almost 30 percent of EC shipments. West Germany and France each supply 22 to 25 percent of the EC high-tech total.

More than half of U.S. high-tech exports to the EC are in two categories: ADP machines and aircraft and parts. Other significant U.S. exports are telecommunications equipment and scientific instruments.

Aircraft and parts are also prominent in total U.S.-EC trade. Aircraft and parts constitute the leading U.S. export-with more than 10 percent of total U.S. exports-and the second largest U.S. import (see tables above).