By John Rossant
Is it open season on French and German companies in the U.S.? In mid-January, just as German utility giant RWE Group was completing its $4.6 billion acquisition of Voorhees (N.J.)-based American Water Works Co., an unexpected thing happened. Opposition to the sale -- already being stirred up on environmental grounds by Public Citizen, the consumer-watchdog group founded by Ralph Nader -- strengthened as other Americans, angered by German resistance to a U.S.-led war on Iraq, began joining the chorus. And days later, with no explanation, a U.S. Defense Dept. agency sharply scaled back the involvement of German arms maker Krauss-Maffei Wegmann in a $36 million project for the development of ground-combat vehicles.
In Washington, the anti-European rhetoric is heating up. Speaker of the U.S. House of Representatives J. Dennis Hastert (R-Ill.) has suggested a ban on French wine and bottled water, while Congressman Jim Saxton (R-N.J.) has urged U.S. companies to boycott the Paris air show in June. Richard Perle, a prominent adviser to the Pentagon, threatened on a top Berlin TV talk show that Germany will be economically and politically "punished."
Judging by some of these events, it looks almost as if France's Jacques Chirac and Germany's Gerhard Schroder -- not a certain Saddam Hussein of Baghdad -- are the real mortal enemies of the U.S. Punishing the Europeans by boycotting them makes even less sense economically than it does politically. Thanks to decades of mutual trade and investment, Europe and the U.S. have long been the Siamese twins of the global economy.
Far from drifting apart, the two sides have been drawing closer than ever. From megadeals such as Vivendi's (V ) takeover of Seagram and its Universal entertainment properties to IBM (IBM ) snapping up small European software houses, there has been a tidal wave of two-way direct investment in recent years. European companies represented over 60% of all foreign direct investment in the U.S. as of 2001, says the U.S. Bureau of Economic Analysis.
You could say that the transatlantic commercial partnership has morphed into something so big and so deeply rooted that it's in a class of its own. Two-way trade in goods and services, at around $600 billion a year, already dwarfs any other trade relationship on the planet.
But even that's a narrow way of looking at it. A study soon to be released by the Johns Hopkins Center for Transatlantic Relations in Washington tallies up the sales of U.S. companies controlled by Europeans and European companies controlled by Americans -- "foreign affiliate sales" in economic parlance. Using that formulation, there's an entity out there called the Transatlantic Economy, and it has a value of $2.5 trillion -- equal to approximately one-quarter of U.S. gross domestic product. Joseph P. Quinlan, global economist at the center, credits the frenetic M&A activity of the past decade with transforming Europe-U.S. commercial relations. "The 1990s [have] seen the most profound period of transatlantic integration in history," he says.
Boycott German cars and French cheese? Try telling that to the workers at the Mercedes-Benz assembly line in Tuscaloosa County, Ala. Or those at the Dannon Yogurt plant in Munster, Ohio, the largest of its kind in the world -- owned by Paris-based Groupe Danone. They hold some of the estimated 4.9 million American jobs that exist as a result of European direct investment in the U.S. Boycotts, in other words, can backfire.
Considering what's at stake, it's high time for business leaders on both sides of the Atlantic to cool the overheated rhetoric. They need to firmly oppose any and all plans for transatlantic boycotts, whether they originate in the U.S. or Europe. The U.S. already has a tool it can use to enforce embargoes -- the Trading with The Enemy Act, first framed by the U.S. Congress in 1917, when the country was at war with Germany. It's still on the books and has been a potent weapon against the old Soviet Union and others. Let's continue to use it -- but only on our real foes.
Rossant covers European politics and economics from Paris.