MNI: EU's USD600bn U.S. Investment Pledge Questioned

The credibility of the Brussels pledge to invest USD600bn in the U.S. over the remainder of the Trump presidency is being called into question by EU economic experts. 

While the European Commission has defended its estimate as a robust one, noting it is based on soundings of the EU private sector and their plans for foreign direct investment in the US, experts caution that such calculations can be unreliable. 

David Henig, head of the UK Trade Policy Project at the European Centre for International Political Economy, says investment numbers are "notoriously unreliable" as well as "prone to some exaggeration by governments..."

"There isn't really a set way in which this commitment would be measured, nor does the agreement set one out. As such it should be regarded as speculative at best, even if not presented in this way," he noted

Dan Hamilton, senior fellow at the Foreign Policy Institute of Johns Hopkins University, runs an annual economic study of transatlantic trade relations for AmCham EU. He says that the EU will find it impossible to make good on its investment pledge, its $750bn energy purchases or its US defence purchasing commitments.

FDI flows for last year showed EU companies putting around $75bn into the US, which if copied over the next three years, would only total $225bn, Hamilton said. 

CHANGE IN TRENDS?

But past trends may not be a good guide this time round, high and rising US tariffs could totally upend incentive structures for EU firms. 

Alicia Garcia-Herrero, a senior fellow at the Bruegel think tank and adviser to the European Commission, believes that it is quite possible that enough European companies will eventually decide to invest into the US, if only to escape high and potentially rising tariffs. 

Tariffs of up to 250% in 12-18 months have been threatened by Trump on pharma and semiconductors - both currently subject to US Section 232 economic security investigations. Even just the threat of such elevated tariff levels creates massive incentives for EU firms to invest in the US.   

French pharma firm Sanofi, for instance, has already announced $20bn of investment in US manufacturing capacity over the period to 2030, Garcia-Herrero noted. 

"We may well end up having a lot of investment into the US," she says, also noting that Korea's Samsung and Hyundai have also made significant combined investment commitments in US manufacturing capacity.  

If the big investment numbers fail to materialise, however, Trump will likely pile further pressure on the EU, Japan and South Korea with more tariff threats and demands for greater investment.