US holds slight current account surplus with euro area
A Banque de France analysis reveals the United States has maintained a slight current account surplus with the euro area since 2022. This finding contrasts with a goods-only perspective, highlighting the significant role of services and income flows.
Services and income drive US surplus
A Banque de France analysis challenges the notion that the United States consistently runs a bilateral deficit with its trading partners, particularly the euro area, when only considering trade in goods.
While the euro area recorded a goods trade surplus of approximately EUR 200 billion with the United States in 2024, driven by countries like Germany and Ireland, this perspective overlooks crucial financial flows.
The study highlights a significant reversal in the overall current account balance.
Until 2021, the euro area maintained a current account surplus with the US.
However, since 2022, this situation has shifted, with the United States now holding a slight current account surplus or near-balance with the euro area.
This change is primarily attributed to rapidly expanding deficits in services and income flows.
In 2024, these deficits reached record levels, with services accounting for EUR 144 billion and income for EUR 55 billion, effectively offsetting the goods trade surplus.
Ireland's role in services deficit
The euro area's services deficit with the United States is largely due to intellectual property (IP) related services, with Ireland contributing EUR 141 billion to this deficit in 2024.
These flows are primarily intra-group payments from European subsidiaries to US parent companies for technology and patent usage.
The concentration of major US multinational firms' European operations in Ireland significantly influences these cross-border flows.
The study highlights that the location of these IP assets and the resulting service trade are profoundly shaped by tax policy changes.
Key factors include the phasing out of Ireland's 'Double Irish' tax scheme and the 2017 US Tax Cuts and Jobs Act, which introduced a territorial tax regime and a lower corporate tax rate.
Tax policy's hidden hand
This Banque de France analysis effectively debunks a simplistic view of transatlantic trade balances.
It highlights how complex intra-group financial engineering, often driven by tax incentives, distorts trade figures.
Policymakers should note that trade policy based solely on goods deficits risks misdiagnosis and could lead to ineffective measures.