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ifo Expert Felbermayr Criticises Trump of “Distorted Perception” of EU-US Trade Relations

Summary:
The ifo trade expert Gabriel Felbermayr has criticised US President Donald Trump of a “distorted perception” of EU-US trade relations. “He only talks about the US deficit in goods, but forgets to mention that the USA is running a massive surplus against the EU in services and corporate profits,” said Felbermayr on Friday at the start of the G7 Summit. “According to its own figures, the US is ultimately running a surplus of 14 billion US dollars in its current account balance with the EU, which has been in the black since 2008. The USA has enjoyed a competitive advantage in the “New Economy”, and especially in digital services with Apple, Amazon, Facebook, Google and Co. In the “Old Economy” of car manufacturing, machinery,

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The ifo trade expert Gabriel Felbermayr has criticised US President Donald Trump of a “distorted perception” of EU-US trade relations. “He only talks about the US deficit in goods, but forgets to mention that the USA is running a massive surplus against the EU in services and corporate profits,” said Felbermayr on Friday at the start of the G7 Summit.

“According to its own figures, the US is ultimately running a surplus of 14 billion US dollars in its current account balance with the EU, which has been in the black since 2008. The USA has enjoyed a competitive advantage in the “New Economy”, and especially in digital services with Apple, Amazon, Facebook, Google and Co. In the “Old Economy” of car manufacturing, machinery, various consumer goods and even in the food industry, by contrast, the EU has a competitive advantage,” explains Felbermayr.

He concedes that US Department of Commerce data reveal a current account deficit with Germany of 65 billion US dollars. “But it is wrong to pick out individual EU member states. The EU is a customs and economic union in which individual member states are closely linked. The US surplus of almost 100 billion US dollars with The Netherlands is largely due to Germany,” notes Felbermayr, as US internet giants accessed the German market via headquarters in The Netherlands for tax purposes. A similar pattern can be seen in Ireland.

“Both trade partners are extremely vulnerable. Both stand to lose from an escalating trade war. Europe now needs to unite and explain US figures to the Americans. Europe also needs to signal retaliatory measures in the digital sector like the digital tax discussed by the EU Commission, if the Americans decide to impose tariffs on European cars,” warns Felbermayr.

Prior to the Summit US President Trump complained in a tweet that the USA was running a deficit of 151 billion US dollars with the EU. The official figure from the US Department of Commerce, however, is 153 billion US dollars. A detailed overview of the figures can be found in the table below:

US Leistungsbilanz nach Sektoren und Partnerländern

in Milliarden US-Dollar

 
Old Economy
New Economy
Current
account
balance
 
Trade in goods
Services and
primary income
 
Credit
Debit
Saldo
Credit
Debit
Saldo
 
EU28
285
438
-153
677
510
167
14
Germany
53
118
-65
67
67
0
-65
France
34
49
-15
43
38
5
-10
Italy
18
50
-32
15
16
-1
-33
UK
57
54
3
186
140
46
49
Eurozone
211
345
-134
458
342
116
-18
The Netherlands
42
18
24
112
38
74
98
Rest of the Eurozone (Irland)
32
94
-62
158
93
65
3
Canada
283
306
-23
126
89
37
14
Mexico
243
320
-77
49
60
-11
-88
Japan
69
138
-69
99
109
-10
-79
China
131
506
-376
75
58
17
-358
Rest of the World
540
654
-113
831
687
144
30
World
1551
2362
-811
1857
1513
344
-467
Source: US Department of Commerce, Bureau of Economic Analysis. 
https://www.bea.gov/iTable/iTable.cfm?ReqID=62&step=1#reqid=62&step=3&isuri=1&6210=1&6200=3
 
Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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