Opinion: Exploring the economic ties between old world and new
By John Chamberlain
The European economy is one of the largest on Earth, and it is also one of the richest regions as measured by assets under management, with over $32.7 trillion. The European Union’s GDP was estimated to be around $15 trillion in 2020, representing around one-sixth of the global economy. The euro is the second largest reserve currency and the second most traded currency in the world, after the U.S. dollar.
Why is this important to readers of the Pacific Coast Business Times?
California’s south-central coast is also an important economic hub with important sectors in life sciences, technology and agriculture. Understanding current trade dynamics, European consumers and geopolitical trends will add to the knowledge of the companies located in Santa Barbara, Ventura and San Luis Obispo counties.
An extremely educated business base exists in the region. This column is designed to add to the understanding of regional businesses in their efforts to diversify supply chains and customer bases and increase profitability.
The European Union, a political entity composed of 27 European states, comprises the largest single economic area in the world and has more than one-ninth of the world’s population. 19 EU countries share the euro as a common currency. Four European countries rank in the top 10 of the world’s largest national economies in GDP: Germany (No. 4), the United Kingdom (5), France (7) and Italy (8).
As with other continents, Europe has a large variation of wealth among its countries. The richer states tend to be in the west, followed by Central European nations, while some of the Eastern European economies are still emerging from the collapse of the Soviet Union and the breakup of Yugoslavia.
The European Union and the United States have the largest bilateral trade and investment relationship and enjoy one of the most integrated economic relationships in the world. Although overtaken by China in 2021 as the largest EU import source for goods, the U.S. remains the EU’s largest trade and investment partner by far.
This trans-Atlantic relationship defines the world economy. Either the EU or the U.S. is the largest trade and investment partner of almost every other country. The economies of both territories combine for more than 40% of world GDP and more than 40% of global trade.
The EU-U.S. trade and investment relationship remains strong despite the economic challenges related to the COVID-19 pandemic. In 2020, The European Central Bank noted EU companies exported goods worth €353 billion ($400 million under current exchange rates), almost €2 billion ($2.3 billion) more than in 2018. More than 164,000 EU companies export to the U.S., almost 93,000 of which are small and medium-sized businesses. Total U.S. investment in the EU is three times higher than in all of Asia, and EU investment in the U.S. is around eight times the amount of EU investment in India and China together.
California’s businesses enjoy a privileged position related to European trade. California exports to the EU were $30.9 billion in 2020. California is the second-largest exporting state to the European Union, with computers, electronic products, transportation equipment, chemicals, and agricultural products as our leading export sectors to the region. European Union countries purchase roughly 20% of all California exports.
For California companies, the single European market presents stability with huge opportunity. Imports from the EU to California totaled $33.9 billion and consisted of 33.4% transportation equipment, followed by less than 10% in the rest of the categories, including computer products, chemicals and non-electrical machinery. California had the most jobs supported by European foreign direct investment in 2017, totaling 447,200. European companies accounted for 56% of foreign affiliate jobs in California.
Some of California’s leading exporters to Europe are either based on the south-central coast or have significant operations in the area. In future columns, I will discuss important European business dynamics related to health care, life sciences and agriculture.
Additionally, European innovation and its impact on the California Central Coast, important European technology hubs, and their relationships with California will be discussed. The European consumer and traveler will be explored to understand what they value. Risk diversification, developing an export plan and key considerations for marketing in Europe will also be considered. Finally, European dynamics with Asia and how this impacts businesses on California’s Central Coast will be analyzed.
I’m forward to checking in regularly from Italy.
• John Chamberlain is based in Turin, Italy. He is the managing director of Trade Trajectories, an international trade and economic development communications company. In early 2021, he retired from his position as vice president of marketing at Santa Paula-based Limoneira, after more than 15 years with the company.