European firms maintain their dominant foreign investment position in the United States. Of total U.S. inflows of $385 billion in 2016, 72% were from Europe, with inflows from Europe totaling an estimated $277 billion for the year. That reflects the strategy of European firms to be “inside” the world’s largest and most dynamic market.  

Ranking of Top 20 States by jobs supported directly by European investment (Thousands of employees) (2014)

  1. California: 394
  2. Texas : 331
  3. New York : 310
  4. Pennsylvania: 223
  5. Illinois: 195
  6. New Jersey: 174
  7. Florida: 174
  8. North Carolina: 174
  9. Massachusetts:  164
  10. Ohio:  148
  11. Michigan: 142
  12. Virginia : 132
  13. Georgia:  130
  14. Indiana:  96
  15. South Carolina: 95  
  16. Maryland:  84
  17. Tennessee:  81
  18. Connecticut:  81
  19. Missouri: 73
  20. Minnesota: 65

Note: The figures above underestimate the true impact on U.S. jobs of America’s commercial ties to Europe in at least two ways. First, jobs tied to exports and imports of goods and services are not included. Second, many other jobs are created indirectly through suppliers or distribution networks and related activities.

In terms of foreign capital stock in the United States leads the way. The region accounted for roughly 70% of the total $3.1 trillion of foreign capital sunk in the United States in 2015. Total European stock in the United States of $2.2 trillion was almost four times the level of comparable investment from Asia. The United Kingdom remains by far the largest foreign investor, based on FDI on a historic cost basis, with total FDI stock in the United States totaling $484 billion in 2015. Luxembourg ranked second ($328 billion), followed by the Netherlands ($283 billion) Switzerland ($258 billion), Germany ($255 billion), and France ($234 billion). Many firms from these countries are just as embedded in the U.S. economy as in their own home markets. And with the U.S. economy expanding at a faster clip than Europe, and with the rising risks of U.S. protectionism under the new U.S. administration, which will spur more foreign firms to be inside the U.S. economy, European firms will continue to deepen and spread their footprint in the United States in the years ahead. Whether Swiss drug firms, German capital goods manufacturers or British transportation firms, their corporate and commercial links to America have been hugely important and beneficial to their bottom line.

European firms earned an estimated $112 billion in the United States in 2016, up 9% from the prior year. Through the first nine months of last year, European affiliate income earned in the U.S. totaled $84 billion; German affiliates saw a large increase in U.S. income of over 36% in the first nine months of the year, compared to the same period in 2015. Strong auto sales in the United States among German auto manufacturers helped boost affiliate earnings. Taking the long view, affiliate earning levels for most European firms are significantly higher today than a decade ago. As European firms have built out their U.S. operations, the payoff has been rising affiliate earnings in one of the largest markets in the world.

The bottom line is that Europe’s investment stakes in the United States have paid handsome dividends over the past decades, notably since the Great Recession, given the growth differential between the United States and Europe. That said, while European investment in the United States has paid off rather well, the benefits have not been one way. The United States has benefitted as well in terms of increased jobs and wages for U.S. workers, and rising exports via European affiliates operating in the United States.

Europe’s Stakes in America’s 50 States

European investment is widespread across the United States and by industry. Indeed, European firms can be found in all 50 states, and in all sectors of the economy, in manufacturing and services alike. One of the greatest benefits of this presence is the creation of U.S. jobs. The employment impact of European firms in the United States is quite significant. California, New York and Texas—among the largest states in the union—is where employment by European affiliates is highest. Over 1 million U.S. workers were on the payrolls of European affiliates in the three states combined in 2014. In general, the presence of European affiliates in many states and communities across the United States has helped to improve America’s job picture. The more European firms embed in local communities around the nation, the more they tend to generate jobs and income for U.S. workers, greater sales for local suppliers and businesses, extra revenues for local communities, and more capital investment and R&D expenditures for the United States. Deep investment ties with Europe have also generated U.S. trade, notably exports. In any given year, foreign affiliate exports typically account for one-fifth of total U.S. merchandise trade, with the bulk of these exports resembling intra-firm trade, or trade between the affiliate and parent company. In 2014, the last year of available data, U.S. exports shipped by all foreign affiliates totaled $425 billion, with European affiliates accounting for 54% of the total. The United Kingdom and Germany dominate European affiliate exports from the United States, with UK affiliates in America exporting $73 billion worth of goods in 2014 and German affiliates exporting $45 billion in goods. By commodity, the largest exports of British-owned affiliates were petroleum and coal products, the largest exports of German-owned affiliates were chemicals and autos. In the end, the more European affiliates export from the United States, the higher the number of jobs for U.S. workers and the greater the U.S. export figures. Every U.S. state maintains cross-border ties with Europe, with various European countries key export markets for many U.S. states, a dynamic that creates and generates growth in the United States.

Even in the face of weak European demand, 45 of the 50 states exported more to Europe than China in 2015. Goods exports from California to Europe were double those to China; New York exports to Europe were more than seven times those to China. Exports from Texas to Europe were almost three times larger than exports to China. In addition, while the figures are significant, they actually underestimate Europe’s importance as an export destination for U.S. states because they do not include U.S. state exports of services. This is an additional source of jobs and incomes for U.S. workers, with most U.S. jobs tied to services. Europe is by far the most important market in the world for U.S. services, and the United States consistently records a service trade surplus with Europe. Suffice it to say that if services exports were added to goods exports by state, the European market becomes even more important for individual states. By destination, key markets in Europe for U.S. states include Germany, the United Kingdom, and the Netherlands.

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