As good Americans, we naturally wonder: how is this all going to affect us?
The financial media is full of talk about different channels of contagion. We’re not talking about a new offering on the higher end of the cable dial. Rather, we’re talking about the ways in which European tristesse can translate into American distress.
The most simple and direct route of contagion is through trade. Europe, as it is often said, has long been America’s largest trading partner. Exports have been a powerful driver of growth. Since bottoming at $124 billion in April 2009, U.S. monthly exports have risen 47 percent, to $183 billion in April.With imports bouncing back sharply as well, trade has been a bright spot in the sluggish U.S. economy. Beyond the companies and people who produce goods for export, the folks who move stuff and people around have benefited as well — railroads and truckers, logistics companies and shippers, ports and airports. So reduced employment and economic activity in Europe will affect the ability of consumers overseas to buy our exports, and to come here on vacation — and hence impact the U.S. But there’s reason to think that Europe’s woes simply don’t matter as much to the U.S. trade economy as they would have a few years ago.
Take a look at the data on international trade flows, which can be accessed here. Yes, Europe — which means the whole massive land mass from Ireland in the west to Siberia in the east — remains America’s largest trading partner. But the European Union, the 27 countries that share a common free trade zone, and the Eurozone, the 17 countries now lashed together in an ineffective monetary union, may no longer be America’s largest trade partners. With each passing month, the Eurozone accounts for a smaller chunk of trade. That’s because in the last several years, the U.S. economy has become more closely integrated with its neighbors and with distant lands with which the U.S. hasn’t traded all that much in the past.
In 2011, the volume of trade between the U.S. and the European Union was $986 billion — $463 billion in exports and $523 billion in imports. That was below the level of 2008 — when $471 billion of exports and $525 billion in imports created a trade volume of $996 billion. Between 2008 and 2011, U.S. exports to the European Union actually fell. Last year, the volume of U.S.-Eurozone trade was $700 billion (divided between $319 billion in exports and $381 billion in imports), which was essentially flat from 2008, when bi-lateral trade totaled $697 billion.
If you consider it as a single entity, the 17-nation Eurozone was America’s largest trading partner in 2011, but not by much. In 2011, trade between U.S. and Canada amounted to $687 billion, below the level of 2008. In the past few years, as trade between the U.S. and Europe essentially stagnated, trade with Latin America, Asia, and Africa has boomed. U.S. exports to Latin America soared from $389 billion in 2008 to $484 billion in 2011, an increase of 24.4 percent. The volume of trade with Latin America (which includes Mexico) jumped from $849 billion in 2008 to $1.013 trillion in 2011. Exports to Mexico rose from $177 billion in 2008 to $229 billion in 2011, up 30 percent. The total volume of trade between the U.S. and China rose from $434 billion in 2008 to $543 billion in 2011. Exports to China rose by 52 percent in those three years, from $86 billion in 2008 to $131 billion in 2011.
Step back, and you’ll see a pattern of stagnant U.S.-Europe trade and rising trade between the U.S. and its immediate neighbors (Canada and Mexico) and between the U.S. and distant developing-world partners. This pattern has continued thus far in 2012. In April, the volume of U.S. trade with Canada, about $52.1 billion, was roughly equal to the volume of trade between the U.S. and the European Union. So far this year, both the volume of U.S.-Mexico trade and the volume of U.S.-China trade have been larger than the volume of trade between the U.S. and the Eurozone.
What does it all mean? The U.S. has been dealing with a relative decline of European trade for the last several years, and other countries have been picking up the slack. Companies have been adapting. They’ve focused greater attention and resources on distant, rapidly-growing emerging markets and on our closets neighbors. And they’ve deployed less attention and capital to mature, stagnant markets like Europe. So, yes, if your firm’s strategy rests on exporting a lot more widgets to Italy than it did three years ago, or if the viability of your hotel rests on attracting lots of Greek tourists, the renewed contraction in Europe will surely set you back. But if this was your model, then you were already in pretty big trouble before the latest round of debacles commenced.
With each passing month, the shape of the globe’s economy continues to shift. By the end of this year, it’s likely that neither the Eurozone nor the European Union will stand as America’s largest trading partner. And as U.S.-European trade accounts for a smaller chunk of the total, the capacity of falling demand in Europe to inflict pain on American companies declines.
That’s the good news. The bad news? There are several other channels of contagion.