Author: Manus AI

The economic relationship between the United States and the European Union is arguably the most significant and complex bilateral partnership in the world. Far from a simple exchange of goods, it encompasses a vast web of trade in services, intricate industrial interdependencies, massive capital flows, and a shared, yet sometimes diverging, geopolitical outlook. For investors, understanding the nuances of this relationship is crucial, as it impacts global markets, supply chains, and political stability. This post delves into the multifaceted dimensions of the US-EU trade relationship, examining its current state, key sectors, and future prospects.

 

1. The Size of the Trade Relationship: Goods and Services

The economic ties between the US and the EU are immense, forming the largest bilateral trade and investment relationship globally. This partnership is characterized by substantial exchanges in both goods and services, reflecting a deeply integrated economic landscape.

Goods Trade

According to data from the United States Trade Representative (USTR), total bilateral goods trade between the US and the European Union reached an estimated $975.9 billion in 2024, with significant flows in both directions, though the US ran a deficit of about $235 billion.  

From the European perspective, Eurostat data for 2024 indicates that the United States was the largest partner for EU exports of goods (20.6%) and the second largest partner for EU imports of goods (13.7%), largely industrial in nature (vehicles, machinery, pharmaceuticals). 

Services Trade

The services sector forms an equally vital, if not more balanced, component of the transatlantic economic relationship. In 2023, bilateral services trade was worth €746 billion (approximately $800 billion). For services, it was the EU that ran the deficit with ~€110 billion in 2023.

Overall Trade and Investment

When combining both goods and services, the EU-US trade relationship is remarkably balanced. In 2023, EU-US trade in goods and services reached an impressive $1.7 trillion. The difference between EU exports to the US and US exports to the EU stood at just ~$100 billion.

Beyond trade, the investment relationship is equally profound. EU and US firms have a staggering €4.7 trillion worth of investment in each other’s markets (2023 data), supporting jobs, governments, and wealth.

 

2. Key Industries from Both Economies

The transatlantic economic relationship is underpinned by several industries, each contributing significantly to the trade and investment flows between the US and the EU. These sectors often showcase both intense competition and deep interdependence.

Aerospace: Airbus and Boeing (and COMAC)

The global commercial aircraft market has long been dominated by a duopoly of the European Airbus and the American Boeing. Recent data indicates that Airbus has taken a significant lead in market share. As of April 2025, Boeing holds approximately 40% market share, while Airbus commands more than 50%. The remaining share is split among smaller players, with China’s COMAC emerging as a notable contender.

COMAC (Commercial Aircraft Corporation of China) is actively working to challenge this duopoly, particularly in the Asian market. While its current market penetration is slow, with only a few C919 aircraft delivered, COMAC benefits from strong government support and protectionist policies within China. Its C919 narrow-body model is designed to compete directly with the Airbus A320neo and Boeing 737 MAX. How the trade tensions between the US, EU, and China play out could determine whether COMAC succeeds in breaking the duopoly sooner rather than later.

Pharmaceutical Companies

The pharmaceutical industry is a significant sector for both the US and the EU. The United States remains the largest national pharmaceutical market globally, accounting for approximately 53% of the total pharmaceutical prescription drug market in 2024. This dominance is attributed to strong intellectual property protections, streamlined regulatory systems, and a large domestic market that is willing to pay top-dollar for treatments (in part through extensive health insurance).

Leading US pharmaceutical companies include Johnson & Johnson, Pfizer, Merck & Co., Eli Lilly, and AbbVie. In Europe, major players include Novo Nordisk (Denmark), Roche (Switzerland), AstraZeneca (UK/Sweden), Novartis (Switzerland), and Sanofi (France).

Pharmaceuticals represent a substantial portion of EU goods exports to the US, accounting for about 15% of the total. European pharma companies often pivot to the US market for growth due to its high-margin nature. The transatlantic pharmaceutical trade is robust, with both regions being key players in drug development, manufacturing, and distribution.

US LNG Exports and Energy

The energy relationship between the US and the EU has gained significant importance, particularly in the context of global geopolitical shifts. The European Union has become the largest buyer of US natural gas and oil, a crucial element for transatlantic energy security and a response to Russia’s invasion of Ukraine and subsequent sanctions.

In 2024, the United States remained the world’s largest liquefied natural gas (LNG) exporter. Europe accounted for a substantial portion of these exports, with some reports indicating that over 75% of total US LNG went to European nations in April 2025, and the US is the single largest seller of LNG to Europe.

US vs EU Defense Industry

The defense industry is another area where the US and EU have a complex and evolving relationship. Historically, the US has been the dominant player in the global defense market, and European nations have been significant importers of US military equipment. However, recent geopolitical events, particularly the conflict in Ukraine, have spurred a significant increase in European defense spending and a renewed focus on strengthening the European defense industrial base. 

Between 2021 and 2024, EU member states’ total defense expenditure rose by more than 30%, reaching an estimated €326 billion in 2024. A key aspect of this increased spending is the EU’s stated intention to prioritize European armaments. The EU has launched initiatives like the European Defence Fund and is actively seeking to reduce its reliance on non-EU, particularly US, defense imports. US arms-makers may be disadvantaged in the massive new defense spending plans, particularly if President Trump continues to threaten NATO and allude to disallowing US weapons in certain conflicts.

This push for ‘buying European’ is driven by a desire for greater strategic autonomy and to ensure a more robust and self-sufficient European defense capability. While US arms exports to Europe have tripled in recent years due to the Ukraine conflict, the long-term trend points towards the EU fostering its own defense industry to reduce dependency on external suppliers, including the US. This could lead to increased competition as Europe and the US look to export arms to the rest of the world.

Finance and Banking Services

The financial and banking services sector is another major component of the US-EU trade relationship, contributing significantly to the overall services trade.

While both regions have robust financial sectors, there are notable differences. The US financial market is generally considered far deeper and more integrated, particularly in capital markets. US banks have historically shown higher profitability and better capitalisation. Venture capital is more active in the United States, fostering more innovative companies. And the sovereign bond market is much, much larger and more liquid in the United States, which runs a large national budget deficit, while the EU bond market is fragmented among national economies (i.e., Germany, France, and others all issue their own bonds). 

US banks also hold a dominant position in certain segments of the European financial market, such as derivatives. This highlights the interconnectedness of the transatlantic financial system. The EU, on its part, is working towards a more unified capital market to enhance its competitiveness. The ongoing dialogue between the EU and US on financial regulatory matters, as seen in the Joint Financial Regulatory Forum, underscores the importance of this sector to both economies.

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3. Special Focus on the Tech Industry

The technology sector represents a dynamic and often contentious area within the US-EU trade relationship. While the US leads in many cutting-edge domains, the EU is a significant player in regulation and specialised manufacturing.

US Tech Dominance: Cloud, Operating Systems, and Chip Design

The United States holds a dominant position in several key areas of the tech industry, including cloud computing, operating systems, and chip design.

Cloud Computing: The US is home to the world’s largest cloud service providers. Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) collectively command a significant majority of the global cloud market share. With the build-out of AI infrastructure, these companies are likely to lead for the foreseeable future.

Operating Systems: US-based companies also dominate the operating system landscape. Microsoft Windows remains the leading desktop OS, and macOS is not insignificant, together reaching about 80% of market share. In the mobile space, Google’s Android and Apple’s iOS collectively hold nearly 100% of the market, with Korea’s Samsung coming in 3rd with less than 0.5%! 

Chip Design: The US semiconductor industry is a global leader in chip design and research and development. While manufacturing has seen some shifts, the US maintains a strong competitive edge in the design segment. Companies like Nvidia are at the forefront of new trends, too, and US companies lead the design software space.

 

EU Regulations: GDPR

The European Union’s General Data Protection Regulation (GDPR), implemented in 2018, has had a profound impact on data privacy globally, including on US tech companies operating in Europe. GDPR aims to give EU citizens greater control over their personal data and imposes strict rules on how data is collected, processed, and stored.

For US tech companies, GDPR compliance has necessitated significant changes in data handling practices, often requiring them to adapt their services and operations to meet EU standards. This has created both challenges and opportunities, fostering a greater focus on data privacy across the industry.

 

Critical Machinery: ASML’s EUV Machines

ASML, a Dutch company, holds a unique and critical position in the global technology landscape as the sole producer of Extreme Ultraviolet (EUV) lithography machines. These machines are the only ones capable of manufacturing the most advanced microchips.

Significance of ASML’s EUV Technology:

  • Monopoly in Advanced Chip Manufacturing: ASML’s near-monopoly in EUV lithography means that any company aiming to produce cutting-edge chips (e.g., for 5nm and 3nm process nodes) must rely on ASML’s technology.
  • Geopolitical Importance: The control over this critical technology has significant geopolitical implications, particularly in the ongoing competition for technological supremacy between the US and China. 
  • Transatlantic Relations: ASML’s position also underscores interdependence. While the US leads in chip design, the EU, through ASML, provides the essential manufacturing equipment. Moreover, custom components for ASML’s machines are sourced from both the EU and US, where a single company produces them and they are, in the short term, effectively irreplaceable.

 

4. Capital Flows

Beyond the direct exchange of goods and services, the US-EU economic relationship is characterised by substantial capital flows, particularly in the form of Foreign Direct Investment (FDI) and holdings of government bonds. These financial interconnections further deepen the economic ties between the two blocs.

Foreign Direct Investment (FDI)

The US and the EU are each other’s largest investment partners, with substantial FDI flowing in both directions. This deep integration of capital markets underscores the strong economic ties between the two blocs.

The total FDI between the US and Europe accounted for over $7 trillion in 2023, when including the UK and EEA members (like Norway). The EU invested slightly more in the US than vice versa. To put these numbers into perspective with the ever-present comparison of US-China, Chinese FDI into the US was less than Denmark or Luxembourg (though US FDI into China is much higher).

FDI plays a crucial role in job creation and economic growth on both sides of the Atlantic, and the transfer of wealth in both directions means considerable faith in long-term stability. 

Bond Holdings: US Treasuries and German Bunds

Beyond direct investment, the flow of capital between the US and EU is also evident in their respective government bond markets, particularly in holdings of US Treasuries and German Bunds.

US Treasuries: The US Treasury market is the largest and most liquid bond market globally. While Japan and China are the largest foreign individual holders, EU countries hold the most US debt when counted together, and the amount jumps considerably when the UK is included (though the UK has been working on its own trade deals with the US). And since 2020, while China and Japan have decreased or stayed flat, the EU increased its US holdings.

German Bunds: German Bunds are considered a safe-haven asset within the Eurozone. Foreign investors hold a substantial portion of German government bonds, with some estimates suggesting over 75% in 2023 (China, the US, and UK mainly). However, the German bund market is much smaller than the US Treasury market, and this fragmentation in the eurozone is part of what continues to buoy the USD as a reserve currency over the euro.

Overall, both the US and EU hold each other’s debt in large quantities, with strong interconnections between the two economies and, by extension, governments.

 

5. Future Speculation

The relationship between the United States and the European Union, often referred to as the transatlantic relationship, is at a critical juncture. While historically a cornerstone of global stability and economic prosperity, various factors are leading to questions about its future trajectory.

Post-Atlanticism?

Some analysts suggest that the world is moving towards a ‘post-Atlanticist’ era, where the traditional dominance of the US-European alliance is being challenged by the rise of other global powers and a more multipolar world order. This perspective is fueled by a growing European desire for strategic autonomy, particularly in defense and technology, and a perceived shift in US foreign policy priorities towards the Indo-Pacific region. 

While the belief in a robust US-European relationship has endured many challenges, there’s a growing sentiment in Europe that the US is more a “necessary partner” rather than an ally. Though whether Europeans stand united in their stance towards the United States is another matter entirely.

Can the US-EU Relationship Improve?

Despite the challenges, there is a strong mutual interest in improving and strengthening the US-EU relationship. Both sides recognise the immense economic and geopolitical benefits of their partnership. Potential avenues for improvement include:

  • Addressing Trade Tensions: Reducing tariffs and non-tariff barriers, and finding common ground on trade disputes, would significantly boost economic ties.
  • Cooperation on Global Challenges: Collaborating on issues like climate change, cybersecurity, and global health can reinforce their shared values and interests.
  • Harmonising Regulations: While challenging, greater regulatory alignment, particularly in the tech sector, could reduce friction and foster innovation.

However, the path to improvement is not without obstacles. Divergent economic interests, differing approaches to global challenges, and the potential for political shifts in both regions could create further strain. The current US administration’s ambiguity towards the alliance, threats to NATO and trade, and an apparent reversal of the US agenda in regards to several global challenges will weigh on the relationship for the foreseeable future.

 

Can Europe Actually Compete with US and China?

Europe faces a significant challenge in competing with the economic and technological might of the US and China. Both the US and China have vast domestic markets, leading tech companies, and significant government support for strategic industries. Europe, on the other hand, is often more fragmented with national interests slowing adoption or change.

To compete effectively, Europe needs to invest in its R&D, deepen its unified market, and support domestic industry while still balancing an open trade relationship with the rest of the world. If Europe is able to do this, the relationship with the US could improve on the basis of a stronger partner that offers more to the United States, as well as a healthy competitor that shares many cultural similarities and values.

 

6. A Relationship Decades in the Making

The economic interconnectedness and trade between the EU and the US are deep and gargantuan. Taking goods, services, and investment together, this is by far the largest relationship in the world, even including the US-China and EU-China relation. The geopolitical relationship since WW2 and especially the end of the Cold War is also the most integrated, spilling over into industries like defense and tech. And the cultural and historical relationship stretches back centuries.

Tensions of course will ebb and flow, but with a general alignment between values and economies, it seems almost preordained that this economic relationship will endure for the short- and medium-term.

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