allies, Biden administration, China, decoupling, Emanuel Macron, European Union, foreign direct investment FDI, France, investment, Our So-Called Foreign Policy, Trade
Since French President Emanuel Macron’s boot-licking recent trip to China, something of a debate has broken out this past week over whether America’s European allies are moving fast enough to reduce their dependence on commerce with the People’s Republic – or as fast as the United States is. Here’s a claim that they are. And here’s one that they aren’t.
How to know for sure – or with some confidence? Maybe by looking at some numbers? So I did. And the two most important 30,000-foot measures of trade and investment show that the Europeans are lagging significantly – in absolute term and relative to the United States. In fact, both measures indicate that investment in and especially trade with China recently has become more important to the European Union (EU), not less.
The gauges I use are two-way trade as a share of the total U.S. and European Union economies, and direct investment in China as a share of their respective goss domestic products (GDP – the standard measure of an economy’s size). As is often the case, I use the numbers as percentages of their economies because they provide the context that the numbers themselves lack. And this practice is all the more important when trying to figure out matters like dependence or vulnerability.
Let’s start with the European Union’s two-way trade with China and use 2019 as the first year – since that’s the last full year before the arrival of the CCP Virus pandemic, which focused so much attention on over-reliance on China (or any single supplier) for products deemed unusually important. As can be seen, combined exports to and imports from the People’s Republic has grown much faster since 2019 than has the EU economy:
In fact, during this period, this trade relative to the EU economy expanded much faster than in the years before 2019. For example, in 2012, two-way Sino-EU goods trade already stood at 3.36 percent of the Union’s output.
(Both sets of figures are in euros before factoring in inflation. The 2012 and 2019-21 figures come from the reliable Statistia.com website here and here. The 2022 trade data come from Statistia. The 2022 GDP figure comes from taking the 2021 Statistia number and adding the 3.6 percent pre-inflation EU growth estimate provided by the Union’s statistical service Eurostat.)
Here’s how America’s annual bilateral goods trade with China as a share of the U.S. economy has changed from 2019 to 2022:
These percentages are up some during this period, but by much less than those for the EU. And in 2022, the share went down. Also of note: These numbers are lower in absolute terms than the EU’s. For comparison’s sake, the U.S. figure for 2012 was 3.30 percent. So the importance of China trade to the U.S. economy had been fading steadily before 2019, and has stabilized since. But may be declining once again. So the EU certainly looks like a laggard here.
(These U.S. pre-inflation trade and GDP data come from the standard Commerce Department sources.)
Turning to direct investment flows to China, here are the annual EU results as a percent of economic output:
Here, EU relations with China look to be decreasing. But one source pegs the 2021-22 increase at 92.5 percent – a near doubling! Since EU economic growth last year wasn’t remotely that strong, it’s possible that the Union’s businesses have just executed a major turnabout.
(The EU GDP data for 2019-21- this time in pre-inflation U.S. dollars – come from the World Bank. The 2022 figure comes from the St. Louis branch of the Federal Reserve. The investment figures, also in in pre-inflation U.S. dollars – including the claim of the big 2022 jump – come from the China-Briefing.com website.)
Their U.S. counterparts?
No clear trend here – but no evidence of a big recent pop. So let’s call this a draw at best. And overall edge to the United States.
(The 2019-21 investment and all the GDP data come from the Commerce Department. The 2022 investment figure can be found in this New York Times piece.
Not that I’m completely thrilled with the U.S. performance. Except for the curbs on exports of goods and investments related to advanced semiconductors, the Biden administration seems wed to the notion that the United States can trim its China economic sails in a piecemeal fashion. But this approach suffers at least two major flaws.
First, as I’ve repeatedly argued, the threat from China is systemic. Therefore addressing product by product or industry by industry is likely to keep Washington straining to keep up with China’s progress.
Second, the piecemeal approach seems to assume that “strategic goods” exist in isolation, even though nearly all manufactured products are only the tip of a (yes, iceberg-like) supply chain.
In other words, if you want to boost America’s health security, you need to make sure that the domestic economy can not only turn out facemasks, but the materials from which they’re made, the machinery needed to manufacture them, and the parts and components of this equipment.
Does this mean that there’s no substitute for aiming to shut down economic relations completely, however gradual this effort may be to proceed? Doubtful, because so many of the goods supplied by China, like apparel and toys, are harmless (although their purchase does increase resources ultimately available to the Chinese regime).
But does it mean that much more energy and thought need to be applied to so-called “decoupling” by both the European Union and the United States? Undoubtedly.