Tuesday January 3rd 2012

18. Impact of Trade Deficit on crisis and drop of Industrial production in the USA and 5 European major countries: France, Germany Italy, Spain and UK

Graph 1. Real Value-Added of Industry per capita in France, Germany, Italy, Spain, the United Kingdom and the United States. Source: Elaborated by Guisan(2011) from OECD statistics.



Graph 2. Trade Balance of EU27 and industrial real value-added of EU5. Source: Elaborated by Guisan(2011) from Eurostat Statistics. Left axis for Extra-EU27 Trade Balance. Right axis for Value-Added of Industry. Source: Elaborated by Guisan(2011) from Eurostat and OECD statistics. 

Industrial production in the Europea Union for 2000-2010: The lack of enough european policies of support to industrial production have led to decreasing real Value-Added of industry and increasing trade deficits in the balance of goods of EU27, as it is shown in the graph 2 above.

The impact of wrong policies on industrail development of many European countries has been very strong for the period 2008-2010, and some politicians and citizens are showing concern and disagreement with the EU policies in this regard. Diminution of industrial production implies negative consequences for the European Union such as lower production in other sectors, more unemployment and increse of international debt.

Graph 1 shows the evolution of real Value-Added of industry per capita in the 5 major European Union countries (those with highest levels of Gross Domestic Product and Population) for the period 1985-2010.

European Union problems: The European Union documents usually assumes that “The EU´s external trade policiy contributes to Europe´s competitiveness in foreign markets” and includes declaration as the following one: “The EU has a common trade policy whereby the European Commission negotiates trade agreements and represents the EU´s interest on behalf of its 27 Member States. The European Commission consults Member States through an advisory committee which discusses the full range of trade policy issues affecting the Community including multilateral, bilateral and unilateral instruments”. In spite of these declarations many people think that policies for industrial development and less deficit should be addressed.

It is clear that the European public opinion and many leaders do not agree with those trade policies that have led to increase indebtness and diminution of industrial development. Some reactions are active in France and the United Kingdom, and surely in other countries, which may be of interest to recover industrial development and favor a balanced trade of the European Union with extra-UE partners, or at least to diminish the trade deficit.

Trade deficit in EU27: In fact in year 2009 the trade balance was negative in 17 countries, positive in 10, and negative for EU27 as a whole.

Countries with positive trade balance of goods in 2009: Belgium, Czec Rep., Denmark, Finland, Germany, Hungary, Ireland, Netherlands, Slovakia and Sweden.

Countries with negative trade balance of goods in 2009: Austria, Bulgaria, Cyprus, Estonia, France, Greece, Italy, Latvia, Lithuania, Luxembourg, Malta, Portugal, Romania, Slovakia, Spain and the United Kingdom.

The most positive balance in Euros per capita, more than 1000 € in year 2009, corresponded to Belgium (1194), Denmark (1465), Germany (1644), Ireland (8568), Netherlands (2380).

The most negative balance in Euros per capita, less than -1000 € in year 2009, corresponded to Cyprus (-5918), Greece (-2531), Luxembourg (-4940), Malta (-3283), Portugal (-1787), Spain (-1081) and the United Kingdom (-1513).

Crisis and solutions: The European Union should show concern about high deficits in extra-EU trade, particularly if those deficits lead to diminution of industrial production per capita, particular if dismantling EU´s industry is not accompanied by an increase in the International Investment Position or in other variables that can guarantee sustained development. European Economic Policies should be adressed to diminish deficit in extra-EU balance for the EU as a whole and to make sustainable the intra-EU imbalances among countries. Sustainability presents to options: 1) all EU countries would promote industrial development to a degree enough to guarantee real convergence with the most advanced economies. 2) European Unions would guarantee flows of credit from EU countries with superavit to EU countries with deficit, like among different regions of a single country. European Parliamente and Commission may choose a mix of both options, but they should offer to all EU countries opportunities for sustainable development.


Selected newspaper article on industrial problems in EU countries:


Telegraph: Where will Britaint´s manufacturing revival come from?, by Louisa Peacok, 2nd June 2011.


This article was originally posted on Euro American Association of Economic Development Studies