A US pivot to Europe would boost the economy and national security

  • Taking nearly a quarter of American exports, Europe is by far the most accessible overseas market for U.S. businesses.
  • U.S. sales to Europe are growing twice as fast as those to the Pacific Rim — and four times faster than sales to China.
  • Trump says he wants a “strong Europe,” but he needs to stabilize the European economy and to strengthen the foundations of the trans-Atlantic alliance.
French President Emmanuel Macron welcomes U.S. President Donald Trump for bilateral talks at the Elysee Palace in Paris on Nov. 10, 2018.
Julien Mattia | NurPhoto | Getty Images
French President Emmanuel Macron welcomes U.S. President Donald Trump for bilateral talks at the Elysee Palace in Paris on Nov. 10, 2018.

The sales of American goods to Europe — nearly a quarter of the total — are three times larger than sales to China. That's shown by the U.S. trade numbers for the first nine months of this year.

Over that period, American exports to Europe were soaring at an annual rate of 13 percent, while sales to China were marking a mere 3.2 percent increase from the nine months of last year.

But the most important difference is this: The U.S. trade deficit with China was more than double the American trade gap with Europe.

One could take that a bit further. U.S. export sales to Europe in the first three quarters of this year were growing twice as fast as those to the entire Pacific Rim.

Not bad for that oft-derided "sclerotic" Europe holding its own — and then some — with the Pacific Rim tigers free-riding on their huge, and growing, U.S. trade surpluses. In fact, the Pacific Rim countries accounted for 60 percent of America's total trade deficit in this year's January-to-September interval.

Europe is open

Those numbers may surprise some as an entirely counter-intuitive outcome because one would normally expect the U.S. exports to China, and the rest of the Pacific Rim, to grow much faster than American sales to Europe.

Why? Simply because the Pacific Rim economies are growing at a rate of 5 percent — with China marking a 6.7 percent growth in the first three quarters of this year — while Europe is barely eking out 2 percent GDP growth.

In spite of that, the U.S. is doing much better in the slow-growing European markets than in the strongly expanding markets routinely called by raving observers as the "future of the world economy."

What's the problem? Why is the U.S. taking a beating in markets where it should be making a mint?

Here is a thought: Isn't that part of what U.S. President Donald Trump never tires of calling a "rip-off" of the U.S. economy? A decades-old outrage neglected and tolerated by Washington?

And does that strike you like something Trump is trying to stop and reverse with his "free, fair and reciprocal trade" amid a chorus of catcalls — led by official international organizations richly funded by Washington — that he is killing the so-called "free and multilateral" trading system?

The answer seems clear. The U.S. is selling more to the lackluster European economies than to the Pacific Rim — those "dynamic" Asian economies — because the European markets are much more open and accessible to American companies.

So, the trade policy conclusion for Washington should be a proverbial "no brainer." Just tweak a few things with Europeans to even out the playing field. The Pacific Rim, however, is an entirely different story.

That's where the U.S. needs a root and branch review of tariff and non-tariff trade barriers, trade practices, comity and basic rules of reciprocity.

Germany should not destabilize Italy

Hopefully, there is enough bipartisanship left in Washington to support such vitally important trade policy changes initiated by the present administration.

Meanwhile, there are things the White House can do on its own.

For example, Washington should stop Germany from repeating a Greek tragedy in Italy. Unless that is done forthwith, there is no sense for the U.S. to foot three quarters of a bill for the largest military and political alliance the world has ever known.

The U.S. economic and financial authorities know everything they need to know about the Italian budget for 2019 — an entirely appropriate counter-cyclical fiscal policy well within the euro area budget rules. But Germany, with France in tow, seems hellbent on using its own reading of that budget as a pretext for destroying the Italian economy and its democratically elected government. That is a pathetic example of how far the sinking governing elites are ready to go to fight their opponents in the elections to the European Parliament scheduled for May 2019.

Washington has been there before. In July 2015, the U.S. helped France keep Greece in the euro area, saving that long-suffering country from economic and political destruction. Working together, Washington and Paris squashed the German plan for throwing Greece out of the monetary union.

One can now see how important it was to keep Greece functioning. The Greeks are hosting huge assets of a U.S.-led alliance controlling the Eastern Mediterranean and battlefield operations in the Middle East.

Italy is equally central to U.S. national security. The country has many allied military installations, with command headquarters in Naples and a new hub in Sicily covering the Mediterranean, North Africa, Middle East and most of the Balkans. None of that is compromised by Italy's right-of-center government. On the contrary, Italy remains an unquestionably loyal alliance member.

Apart from the urgent task of shielding the military alliance from German mischief, the U.S. should also nudge Berlin toward a more balanced economic growth that would benefit its euro area partners and expand European markets for American goods and services.

Investment thoughts

"Don't neglect Europe" could have been an echo of history that Trump was hearing while visiting the American Military Cemetery and Memorial on Mont Valérien in one of the western suburbs of the French capital on Sunday.

But the "strong Europe" he says he wants needs some work. Arguably, trade problems should be the easiest part. Their solution can be readily found in the family of nations sharing the same values and social foundations.

On economic policies, it is essential to ween Germany off its selfish and excessive export gravy train. Living so grandly off its closest friends and partners should finally give a pause for thought to German leaders — an injunction repeatedly proffered by Germany's former go-to Chancellor Helmut Schmidt.

A significant adjustment to Germany's traditional export-led growth would give Washington better balanced trade accounts, it would strengthen America's presence in Europe, and it would pave the way for a deeper trans-Atlantic economic and political integration.

The Pacific Rim is a much more complicated story. After the last week's conference with China's high-level emissaries, Washington should have no illusions about any meaningful breakthroughs in diametrically opposed U.S.-China economic, political and security relations.

That should bring some sense of urgency to settling America's trade issues with European allies.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.