Where the Money Is: The Transatlantic Digital Market

Europe and the United States stand at the cusp of an economic revolution -- the rise of automation, data exchanges, and new technologies that connect the physical and virtual worlds to generate unprecedented efficiencies and scale economies for companies of all sizes.

These technological changes are also critically shaping transatlantic and therefore global trade and supply chains. In particular, a rapidly growing share of trade flows between the U.S. and Europe is digital – exchange of digitized products and digitally delivered services; data among people, businesses, and machines; and physical products that have been bought and sold digitally on ecommerce platforms. An especially important share of the total transatlantic online trade happens between the United States and UK.

So, how much digital flows are we talking about?

  • Ecommerce – digital purchases of physical products – is booming in the transatlantic market, growing 2-3 times faster than overall trade. The United States, UK, and Germany are among the very largest ecommerce markets and also the most important cross-border ecommerce markets for each other: 48 percent of German and 70 percent of UK ecommerce shoppers use U.S. ecommerce sites, while 49 percent of Americans buy from UK sites. American online shoppers make most of their online purchases from the U.K. and China.
  • In digitally-enabled services (business, professional, and technical services, royalties and license fees, insurance services, financial services, and telecommunications that are largely enabled by information technologies), the EU and U.S. are top markets to each other: the EU is the destination for 45 percent of American digitally derivable service exports and source of 46 percent of U.S. imports of digitally derivable services, accounting for  twice as much as Asia. For EU, the United States is the largest external market for EU’s ICT-enabled services, making up 32 percent of EU’s extra-regional ICT-enabled service exports.
  • Digital trade is important for the U.S. economy: in 2009, exports of digitally enabled services accounted for 53 percent of total U.S. services exports while imports of these services accounted for 49 percent of total U.S. services imports. In 2015, the U.S. had a $161.5 billion trade surplus in digitally-deliverable services. $70 billion of that is surplus with the EU, and $8 billion of that surplus with the UK.
  • U.S. digital goods, services, and data are frequently used as inputs in European-made final products and exports, and vice versa. Some 53 percent of digitally deliverable U.S. services exports going to the EU were used in the production of EU exports, while 62 percent of digitally deliverable EU services exports are incorporated into U.S. exports. The rise of this transatlantic digital supply chain means that the United States and Europe play a central role in each other’s global competitiveness in the digital era.
  • Of course, not all services travel across the Atlantic: both U.S. and EU companies have affiliates in each other’s markets that also sell digitally deliverable services. In 2014 U.S. affiliates in Europe supplied $428 billion in digitally deliverable services (or 2.3 times as much as U.S. digital services exports to EU), whereas European affiliates in the United States supplied $270 billion in digitally deliverable services (1.5 times as much as EU Exports of digitally enabled services to the U.S.).
The United States and Europe are massively important markets to each other also in the digital economy. U.S and European consumer welfare and the global competitiveness of U.S. and European businesses and exports depends on fluid access to and quality of inputs of digital services, products, and data sourced from the other side of the Atlantic.

Nowhere is the case for free flows of goods, services, and data than between the United States and UK, which are each other’s main trading partners of goods and services sold online. 

It is time to focus on enhancing both the bilateral and transatlantic digital trade which is why CSIS, the UK’s Institute of Directors and Chatham House have joined together to map out a future U.S.-UK digital trade agenda.