The United States in the global economy

Despite rising competitors like China, the United States remains the world’s largest economic power. In 2014, its GDP was $17.3 trillion. Although China took the lead in merchandise trade (exports and imports) some years ago, the United States remains the leading nation in trade in services. And the United States also remains the global leader in foreign direct Investment.

American integration in the global economy

In terms of the importance of trade for GDP, the United States remains a relatively closed economy. Trade in goods and services represented about 30 percent of U.S. GDP in 2014 (U.S. Bureau of Economic Analysis, BEA). In Germany, in the same year the ratio of foreign trade to GDP was about 85 percent (Statistisches Bundesamt). The comparatively small role of foreign trade in the United States is due largely to the size of its internal market. The United States can produce a multitude of industrial and agricultural goods itself and is therefore less dependent on imports. The United States also has a comparably high rate of consumer spending. Exports thus play a smaller role for businesses. However, in terms of its average tariffs – 3.2 percent for industrial goods and 5.1 percent for agricultural products (2014 figures) – the United States still has a very open trade policy in international comparison.

While the United States was still the world’s biggest trading nation in 2012, it was overtaken by China in 2013. According to 2015 figures from the World Trade Organization (WTO), the United States is now in second place with an 8.6 percent share of merchandise exports (behind China but ahead of Germany) and in first place for merchandise imports with a share of 12.7 percent. In trade in services the United States remains the global leader both in exports (14.1 percent) and imports (9.6 percent) (all figures here include intra-EU trade). If intra-EU trade is excluded, the United States was the third-largest exporter of goods in 2014 (behind China and the European Union), but remained the largest importer. In trade in services, it held the second place behind the European Union (imports and exports).

The most important market for U.S. merchandise exports in 2014 was neighbouring Canada, the biggest source of imports was China. Considering the EU as a whole, the United States sent 17.1 percent of its merchandise exports to the EU, and received 17.8 percent of its imports from there (2014). Altogether the United States conducts one-third of its trade in goods with Canada and Mexico, with which it has had a free trade agreement since 1994 (North American Free Trade Agreement, NAFTA).

Most important U.S. trading partners (2014, merchandise exports)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value (bn. $) Share (%)
1 Canada 313.5 19.2
2 Mexico 240.7 14.7
3 China 124.7 7.6
4 Japan 68.0 4.2
5 United Kingdom 54.5 3.3

Most important U.S. trading partners (2014, merchandise imports)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value (bn. $) Share (%)
1 China 467.9 19.7
2 Canada 354.4 14.9
3 Mexico 301.4 12.7
4 Japan 136.7 5.8
5 Germany 124.2 5.2

Most important U.S. trading partners (2014, export in services)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value(bn. $) Share (%)
1 United Kingdom 63.6 9.0
2 Canada 61.4 8.6
3 Japan 46.7 6.6
4 China 42.5 6.0
5 Mexico 30.0 4.2

Most important U.S. trading partners (2014, import in services)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value (bn. $) Share
1 United Kingdom 49.7 10.4
2 Germany 32.8 6.9
3 Japan 31.2 6.5
4 Canada 30.1 6.3
5 India 20.8 4.4

World trade collapsed in the course of the economic and financial crisis of 2008/2009. As a result, the U.S. current account deficit decreased, after remaining at a high level since the 1970s. It is composed of the trade balance (merchandise exports minus imports), the services balance (services exports minus imports), capital income, and transfers (the latter includes remittances from workers abroad, inter alia). The U.S. current account deficit is caused above all by the country’s negative trade balance. In 2007, it was $821 billion in trade in goods; in 2009, only $510 billion after imports fell more strongly than exports (BEA figures). After 2009, the trade deficit grew again, but not to pre-crisis levels. In 2014, the deficit in merchandise trade was $741 billion, equivalent to 4.3 percent of GDP.

How can the large trade gap be explained? If the United States imports more than it exports, it must be spending more than it generates itself. That is only possible if capital from other countries flows into the United States, for example through foreigners buying U.S. Treasury bonds. The United States funds its imports through a capital account surplus.

The United States is an attractive investment destination. In 2014, it was by far the most important destination for foreign direct investment (FDI) with a share of 22 percent of global FDI stocks (inward stock). But it is also the leading investor in other countries. In the same year, 25.7 percent of global FDI stocks were US-owned (outward stock). FDI comprises long-term capital exports and imports, such as company mergers and acquisitions, capital transfers to set up businesses abroad, loans to foreign subsidiaries, and reinvested profits of foreign subsidiaries. Unlike portfolio investments, FDI involves ownership and operative control by the investing firm and thus ensures decisive influence over company policy.

The largest share of FDI in the United States (inward stock) in 2014 came from the United Kingdom. Altogether, 59.4 percent of FDI stocks in the United States were owned by investors from the European Union. The biggest stock of U.S. FDI (outward stock) was in the Netherlands. Altogether 51.1 percent of U.S. FDI stocks were in the European Union in 2014.

Most important FDI partner (2014, inward FDI stock)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value (bn. $) Share (%)
1 United Kingdom 448.5 15.5
2 Japan 372.8 12.9
3 Netherlands 304.8 10.5
4 Canada 261.2 9.0
5 Luxembourg 242.9 8.4

Most important FDI partner (2014, outward FDI stock)

Source: U.S. Bureau of Economic Analysis
Rank Partner Value (bn. $) Share (%)
1 Netherlands 753.2 15.3
2 United Kingdom 587.9 11.9
3 Luxembourg 465.2 9.5
4 Canada 386.1 7.8
5 Ireland 310.6 6.3

U.S. trade policy

The National Export Initiative (NEI) was established in March 2010, during President Obama’s first term in office, to boost support for small and medium-sized businesses and to enforce international trade rules more aggressively in important markets. Alongside engagement in the multilateral WTO talks (the Doha Round), the focus was on strengthening trade relations with Asia and central trade partners like South Korea. In March 2010, the United States participated for the first time in the talks on a Trans-Pacific Partnership (TPP). At the beginning of his second term Obama also demonstrated growing interest in deepening and expanding trade and investment relations with the European Union. The United States and the European Union began negotiating TTIP in mid-2013.

Although President Obama missed his goal of doubling U.S. exports between 2010 and 2014, he did achieve two important trade policy objectives in 2015. At the end of June 2015, Congress granted him the Trade Promotion Authority (TPA) that will be crucial for concluding trade agreements like TPP and TTIP. And on 5 October, the TPP partners announced that the negotiations had been completed. The agreement will come into force as soon as it has been ratified by at least six states representing at least 85 percent of the GDP of all TPP states. In order to pass that threshold, both the United States and Japan will have to ratify. The TTIP talks, on the other hand, are still in full swing. It is an ambitious goal to conclude these negotiations before Obama leaves office.

While TPA is not a precondition for negotiating trade agreements, it does make the process considerably easier and is fundamental for the ratification process. The President possesses far-reaching powers in the area of foreign policy: “He shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur” (Article II, Section 2 of the U.S. Constitution). Thus, he has the power to negotiate and sign bilateral, regional, and multilateral trade agreements with other states, without congressional authorization. But under Article I, Section 8, regulating foreign trade is fundamentally a responsibility of Congress: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises . . . [and] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” The Administration in turn sets the trade agenda in consultation with numerous committees, and conducts international negotiations. The negotiations are led by the U.S. Trade Representative with the rank of cabinet member and ambassador. The current USTR is Michael Froman.

Under TPA, Congress may delegate parts of its trade powers to the President. While the President does not require TPA to negotiate a trade agreement, its mandate is essential for successfully concluding the process. Under TPA, Congress does not fully renounce its influence on trade policy, as the President remains subject to notification and consultation duties. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015, under which the President was granted TPA, also specifies a series of specific and fundamental objectives. Congress in turn is obliged to put the implementing bill to a vote (which it would not be without TPA). Amendments are not permitted and strict deadlines govern the ratification process.

The TPA is valid until 2021, unless it is suspended by both houses of Congress before mid-2018 (“extension disapproval”).

The United States presently has 14 free trade agreements with 20 countries.

U.S. free frade agreements

Source: U.S. Census Bureau
FTA / Partner Countries Trade volume (goods only) between the U.S. and its FTA partners (exports and imports) (mio. $), 2014 Share of overall U.S. trade volume in %
In force
1 Australia 37253.4 0.94
2 Bahrain 2025.2 0.05
3 CAFTA-DR 59502.5 1.50
Costa Rica 16464 0.41
El Salvador 5700.1 0.14
Guatemala 10180.4 0.26
Honduras 10603.9 0.27
Nicaragua 4112.2 0.10
Dominican Republic 12441.8 0.31
4 Chile 25990.2 0.65
5 Israel 38045.2 0.96
6 Jordan 3450.9 0.09
7 Columbia 38406.3 0.97
8 KORUS (South Korea) 113989.7 2.87
9 Morocco 3094.3 0.08
10 NAFTA 1194541.6 30.10
Canada 660218.8 16.64
Mexico 534322.8 13.47
11 Oman 2992 0.08
12 Panama 10898.2 0.27
13 Peru 16130.3 0.41
14 Singapore 46663.4 1.18
Not yet signed/ still under negotiation
15 TPP 1610039.1 40.57
Australia 37253.4 0.94
Brunei 581 0.01
Chile 25990.2 0.65
Japan 200831.1 5.06
Canada 660218.8 16.64
Malaysia 43488.8 1.10
Mexico 534322.8 13.47
New Zealand 8236.4 0.21
Peru 16130.3 0.41
Singapore 46663.4 0.92
Vietnam 36322.9 0.92
16 TTIP (EU-28) 694343.2 17.50