Dykes, Hugh.

English

Archive of European Integration

1· (J s. 
1\ p (!. 'L 
THE EUROPEAN COMMITTEE 
A PRESS RELEASE AND SPEECH 
from HUGH DYKES, M.P. 
E.C. TRADE WITH THE USA AND THE WORLD 
i.f <.II, ,; f~ ~ 
~~' (----~~---_..-/ 
The Community's common external trade tariff means that 
it is seen as a single trading partner by other world trading 
powers. By volume of trade, it is well ahead of its partners. 
Averaging imports and exports, the Community has 19% of world 
trade, compared to 14% for the United States and 8% for Japan. 
International trade is a much larger share of GDP for the 
Community and Japan than for the United States. This fact 
underlines the Community's interest in maintaining an open 
world trading system. It also demonstrates the need for a 
·-
sharpening of the competititve edge of the European economy. 
The Community imports almost half of its energy needs and about 
three quarters of other vital raw materials. To maintain its 
present standard of living, it must therefore export finished 
goods. 
In US dollar terms the value of world trade increased 16 
times between 1958 and 1982. The increase by volume - which 
leaves out the effects of inflation and monetary fluctuations 
but also ignores real increases in the value of increasingly 
elaborate goods - is considerably less, but still substantial. 
Taking 1975 as the base figures of 100, world trade by volume 
stood at only 30 in 1958 and had grown to 130 by 1982. Two 
distinct periods can be identified here. Between 1958 and 
1972 the volume of world trade triples in 14 years. In the 
next 10 years, it increased only by half and, due to the 
recession, actually shrank slightly in 1981 and 1982. 
Community trade with the rest of the world followed more or 
less the same pattern. European imports and exports increased 
13 times in value between 1958 and 1982, slightly below the 
rate for world trade as a whole. During this period, however, 
2the shares in world trade of the Community (about 23% in 
1958) and the United States have been eroded by the growing 
economic power of Japan, the oil-producing countries and 
newly industrialized countries in Asia. The strength of 
the dollar has meant a fall in dollar terms in the value of 
Community external trade in 1981 and 1982. In terms of ECUs 
it has continued to rise. 
The Community is the principal trading partner of the 
United States (17% of US imports and 23% of exports) and many 
other countries. In Western Europe and in Africa, the 
Community often accounts for over half of the total trade of 
its partners. All in all, over half of Community trade takes 
place with other industrialized, free economy countries and 
about two fifths with the Third World. The Americans here 
today will hence realise how keen the E.C. authorities are to 
~aintain free trade and avoid import controls. 
And they worry - we worry - about the attitude of the 
u.s. authorities. 
The relentless rise of the u.s. dollar over the past three 
years provides a key example of how a European perspective 
might have produced better economic policies in several 
European countries. 
The Europeans' attempts to defend their currencies against 
the rising dollar have been among the biggest factors restraining 
domestic policies and closing off options for faster economic 
recovery. In countries like the UK and Germany in particular, 
where fiscal stimulus was ruled out for political or long-term 
budgetary reasons, the hopes that reductions in budget deficits 
and inflation would promote growth through dramatic reductions 
in interest rates were disappointed. In part, at least, this 
was because governments and central banks chose to maintain 
tight monetary conditions. 
The alternative of allowi~g a devaluation would make a 
country's import prices rise and aggravate its domestic 
3·. 
inflation. Even if it was linked into a semi-fixed exchange 
rate against its mai~ trading partners, as in E.M.S, a fall 
in the whole system against the dollar would raise the prices 
of oil and other raw materials, which are denominated in 
dollars. 
These concerns are certainly understable for a single 
European country. But they are much less persuasive for 
·Europe as a whole. As already mentioned, it is Europe, not 
the U.S., which dominates world trade movements. In 1980, 
the EEC accounted for 24 per cent of total worldwide imports 
(excluding trade within the Community). The U.S. bought only 
15 per cent of the rest of the world's goods (and Japan 9 per 
cent) . 
What this means is that market conditions in Europe should 
gctually have a bigger impact on international import prices 
than conditions in the U.S. Even though many prices may be 
set in dollars, i·t will generally pe supply and demand in the 
world market as a whole which these prices ultimately reflect. 
Over the past ~ree years, this is just what.has been 
happening to many European import prices. Britain's experience 
is instructive: Although the pound fell by nearly 40 per cent 
against the dollar, it declined by only 6 per cent against the 
European currencies - and fears of rapid inflation fuelled 
by the dollar-based import prices have not materialised. 
The fall in the price of oil earlier this year could have 
provided the clinching evidence against the "dollar illusion" 
that dollar-denominated prices were somehow sacrosanct and 
that domestic sacrifices were worthwhile to limit the rise of 
the dollar. 
The official price of oil fell from $34 a barrel, where 
it stabilised in October 1981, to $29 in March this year - a 
decline of 17.2 per cent. In the same period the dollar rose 
against the ECU (a representative "cocktail" of all the EEC's 
currencies) by 17.5 per cent. Thus the fall in the dollar 
price of oil exactly offset the dollar's rise against the ECU. 
4• ~
European governments may never be persuaded by evidence 
of this kind to recognise both their interdependence and their 
potential ability to.provide the world with economic leadership. 
So far there is no sign, for instance, of a European initiative 
to offer Opec oil purchase contracts denominated in ECUs instead 
of dollars. 
What can be said with confidence, however, is that Europe 
is still, despite its long run problems, the greatest single 
influence on the international trading economy - so a healthy 
and lasting world economic recovery will simply be impossible 
unless Europe joins in more convincingly soon. Meanwhile, 
the ECU is gradually increasing its scope and meaning, the 
E.M.S. is getting a solid look about it and the U.K. will 
presumably join in at sometime soon, I hope. 
None of these things will harm America's basic interests. 


E.C. trade with the USA and the world. A press release and speech from Hugh Dykes, M.P., on a U.S. visit. April 1984

1· (J  s. 1\  p  (!.  'L THE  EUROPEAN  COMMITTEE A  PRESS  RELEASE  AND  SPEECH from  HUGH  DYKES, M.P. E.C.  TRADE  WITH  THE  USA  AND  THE  WORLD i.f <.II, ,; f~  ~ ~~'  (----~~---_..-/ The  Community's  common  external  trade  tariff means  that it is seen  as  a  single  trading partner by  other world  trading powers.  By  volume  of  trade,  it is well  ahead of its partners. Averaging  imports  and exports,  the  Community  has  19%  of world trade,  compared  to  14%  for  the  United States  and  8%  for  Japan. International  trade is a  much  larger share of  GDP  for  the Community  and  Japan  than  for  the  United States.  This  fact underlines  the  Community's  interest in maintaining an  open world  trading system.  It also demonstrates  the  need  for  a ·- sharpening of  the  competititve edge  of  the  European  economy. The  Community  imports  almost half of its energy  needs  and about three  quarters of other vital  raw materials.  To  maintain its present standard of  living, it must  therefore export finished goods. In  US  dollar  terms  the  value  of world  trade  increased  16 times  between  1958  and  1982.  The  increase by  volume  - which leaves out the effects of inflation and  monetary  fluctuations but also ignores  real  increases  in the  value of increasingly elaborate  goods  - is considerably less,  but still substantial. Taking  1975  as  the base  figures  of 100,  world  trade by  volume stood at only  30  in 1958  and  had  grown  to  130  by  1982.  Two distinct periods  can be  identified here.  Between  1958  and 1972  the  volume  of world  trade  triples in  14  years.  In the next 10  years,  it increased only  by half and,  due  to  the recession,  actually shrank slightly in 1981 and  1982. Community  trade with  the rest of  the world  followed  more  or less  the  same  pattern.  European  imports  and exports  increased 13  times  in value between  1958  and  1982,  slightly below  the rate for  world  trade  as  a  whole.  During  this  period,  however, 2the  shares  in world  trade of  the  Community  (about  23%  in 1958)  and  the  United States  have  been  eroded  by  the  growing economic  power  of  Japan,  the oil-producing countries  and newly  industrialized countries in Asia.  The  strength of the  dollar has  meant  a  fall in dollar  terms  in  the  value  of Community  external  trade  in 1981  and  1982.  In  terms  of  ECUs it has  continued  to rise. The  Community  is  the principal  trading partner of  the United States  (17%  of  US  imports  and  23%  of exports)  and  many other countries.  In Western Europe  and  in Africa,  the Community  often accounts  for  over half of  the  total  trade  of its partners.  All in all,  over half of  Community  trade  takes place with other industrialized,  free  economy  countries  and about  two  fifths with  the Third World.  The  Americans  here today will hence  realise  how  keen  the  E.C.  authorities  are  to ~aintain free  trade  and  avoid  import controls. And  they worry  - we  worry  - about  the attitude of  the u.s.  authorities. The  relentless rise of  the u.s.  dollar over  the past three years provides  a  key  example  of  how  a  European perspective might have  produced better economic policies in several European countries. The  Europeans'  attempts  to  defend  their currencies against the  rising dollar have  been  among  the biggest factors  restraining domestic policies and  closing off options  for  faster economic recovery.  In countries like  the  UK  and Germany  in particular, where  fiscal  stimulus was  ruled out for political or long-term budgetary  reasons,  the hopes  that reductions  in budget deficits and  inflation would  promote  growth  through  dramatic  reductions in interest rates were  disappointed.  In part, at least,  this was  because  governments  and central banks  chose  to maintain tight monetary  conditions. The  alternative of  allowi~g a  devaluation would  make  a country's  import prices rise and  aggravate its domestic 3·. inflation.  Even if it was  linked into  a  semi-fixed exchange rate against its mai~ trading partners,  as  in E.M.S,  a  fall in the whole  system against the dollar would  raise  the  prices of oil and  other  raw materials,  which  are  denominated  in dollars. These  concerns  are certainly understable  for  a  single European  country.  But  they  are  much  less persuasive  for ·Europe  as  a  whole.  As  already mentioned,  it is Europe,  not the  U.S.,  which  dominates  world  trade  movements.  In  1980, the  EEC  accounted  for  24  per cent of  total worldwide  imports (excluding  trade within  the Community).  The  U.S.  bought only 15  per cent of  the rest of  the world's  goods  (and  Japan  9  per cent) . What  this  means  is that market conditions  in Europe  should gctually have  a  bigger  impact on international import prices than conditions  in the  U.S.  Even  though  many  prices  may  be set in dollars,  i·t will generally pe  supply  and  demand  in the world market as  a  whole  which  these prices  ultimately reflect. Over  the past  ~ree years,  this is just what.has  been happening  to many  European  import prices.  Britain's experience is instructive:  Although  the  pound  fell  by  nearly  40  per cent against  the dollar, it declined by only  6  per cent against the European  currencies  - and  fears  of rapid inflation fuelled by  the dollar-based import prices have  not materialised. The  fall in the price of oil earlier this year could have provided  the  clinching evidence against the  "dollar illusion" that dollar-denominated prices were  somehow  sacrosanct and that domestic sacrifices were  worthwhile  to limit the rise of the  dollar. The  official price of oil fell  from  $34  a  barrel,  where it stabilised in October  1981,  to  $29  in March  this year  - a decline of  17.2 per cent.  In  the  same  period the dollar rose against  the  ECU  (a  representative "cocktail"  of all the EEC's currencies)  by  17.5 per cent.  Thus  the fall in the dollar price of oil exactly offset the dollar's rise against the  ECU. 4•  ~ European  governments  may  never  be  persuaded by  evidence of  this kind  to  recognise  both  their interdependence  and  their potential ability to.provide  the world with  economic  leadership. So  far  there is no  sign,  for  instance,  of  a  European  initiative to offer Opec  oil purchase contracts  denominated  in ECUs  instead of dollars. What  can be  said with  confidence,  however,  is that Europe is still, despite its long  run  problems,  the  greatest single influence on  the international  trading  economy  - so  a  healthy and  lasting world economic  recovery will  simply  be  impossible unless  Europe  joins in more  convincingly  soon.  Meanwhile, the  ECU  is gradually  increasing its scope  and  meaning,  the E.M.S.  is getting  a  solid look  about it and  the  U.K.  will presumably  join in at sometime  soon,  I  hope. None  of  these  things will  harm America's  basic interests. 

E.C. trade with the USA and the world. A press release and speech from Hugh Dykes, M.P., on a U.S. visit. April 1984

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Archive of European Integration