US-Europe trade: pluses outweigh minuses
It has become a European concern that the United States is shifting its economic focus to Asia, particularly in light of the President's trip to China, and is therefore willing to act in disregard of European concerns. This is not true.
The rapid growth of the Asian economy has affected US trade interests, and with this comes a change in perspective. However, this does not necessarily hurt US-European relations. The US views its future as being with Europe and with Asia, as well as other parts of the world.
There are three reasons the US-European economic relationship is solid, and should continue to be solid.
First, although some have observed that our $90 billion two-way trade with the European Economic Community (EC) is now less than US-Asian trade, in today's complicated world you simply cannot talk about trade without talking about investment, which is frequently overlooked. At the end of 1982, US direct investment in Europe stood at $100 billion, or nearly half the total US investment abroad. Europe's $68 billion direct investment in the US accounts for two-thirds of the total foreign investment in the US. These amounts dwarf the $ 12 billion US direct investment in the Pacific Basin countries and that area's $ 10 billion investment in the US.
Second, our trade problems, while serious, are not nearly as bad as some would have it. The US, of course, is concerned about EC intentions to limit market access of US nongrain animal feeds. We have had, and continue to have, worries about EC agricultural subsidies in third-country markets. In addition, recent EC moves to reduce market access in high-technology areas are of concern.
The EC is worried about protectionist bills that have been introduced in the US Congress, particularly those that would limit imports of steel and autos. Escape-clause petitions filed by US carbon steel and footwear industries also concern the EC.
But, while solving these problems will be difficult, both sides have the wisdom and will to do so. The Reagan administration is committed to fighting protectionism - including such potentially disastrous proposals as local-content rules, unilateral steel quotas, and the wine equity act.
We must also remember that only a small portion of our trade - about 5 percent - is in dispute. This 5 percent under discussion between the US and the EC largely involves steel and nongrain animal feeds and represents only about $5 billion out of the $90 billion US-EC trade total.
Third, on balance, the economic policies of this administration have benefited Europe. Some claim that high US interest rates, caused by our budget deficit, have attracted too much capital from Europe and retarded its growth. This is a misperception, since many of Europe's economic problems - structural rigidity in the labor market, high taxes, and their own deficits - are homegrown. The Organization of Economic Cooperation and Development reports that European countries in recent years have had budget deficits about as large as those of the US or much larger.
In 1983 the deficit for all levels of government in the US represented 3.8 percent of our gross national product. In Europe, this relationship ranged between 2.7 percent in the United Kingdom to as much as 12 percent in Italy, with Germany and France at levels close to that of the US - 3.1 percent and 3.4 percent, respectively.
It should also be noted that, although Europe had some relatively large, and unusual, capital flows to the US in the middle of 1983, the latest data do not show a significant net inflow from Europe by the end of the year.
The most important way the US can help the European Community is to continue its solid economic expansion. The GNP grew more than 6 percent last year, and it is expected to grow 5 percent this year and 4 percent next year. The European Community's exports to the US this year are running 40 percent ahead of last year's pace. This export surge accounts for about one-quarter of the 2 percent GNP increase the EC is expecting this year. And the ability of the US economy to absorb temporarily trade deficits of over $100 billion is helping not only Europe but the whole world to recover.
In sum: While we have concerns about European economic policy, and the Europeans have concerns about the US, the benefits of our economic ties far outweigh any difficulties. President Reagan is reaffirming these ties at the Economic Summit in London. Our economic relationship with Europe is not a ''zero sum game.'' We can, and will, prosper together.