Written by: David Stone
With the November elections nearing, the two presidential candidates have begun discussing various issues, including foreign policy. However, the respective candidates’ foreign policies are unlikely to have an impact on U.S.-Sweden relations, especially trade. Sweden is not a point of contention between the parties, it is not trying to gain influence over a region, trade between the nations is already liberalized and there are no trade disputes.
Just because a change in policy is not likely, other differences in the two candidates’ policies could have an effect on aspects of the US-Sweden relationship. Economic health of the nations has especially had an impact on the amount of exports going from Sweden to the U.S. (chart).
Worldwide, the U.S. is the fourth largest importer of Swedish goods. However, after the Great Recession, exports from Sweden to the U.S. dropped significantly from their peak in 2005-2006. Since the drop, they have begun to recover, but more could still be done to boost Swedish exports and create stronger economic ties between the two countries.
As the chart shows, exports from the U.S. to Swedenhave been much less volatile than Swedish exports to the U.S. A similar relationship is present in the GDP growth of both countries, with U.S. growth showing more volatility than that of Sweden. As perceived wealth grew during the housing bubble, so did exports fromSwedento theUS, about 50% of which are machinery and transportation equipment. These exports are what a growing economy demands/needs.
One of the largest pulls on the U.S. economy has been unemployment. People have lost wealth and jobs during the Great Recession. Because of this change in the economy, many are unable to purchase as much as they did before the recession. Each candidate has a starkly different idea of what will boost the economy, leading companies to start hiring more unemployed workers and investing more cash reserves in expanding business operations.
Mitt Romney has focused on a supply side solution, embracing deficit reduction through cutting programs and public sector workers and loosening regulations on private industries. By decreasing the budget deficit, Mr. Romney hopes to restore confidence in theUSeconomy and encourage the private sector to hire more employees. He also states that by loosening regulations, the cost of doing business in theUSwill be decreased, causing more corporations to invest their cash in growing business operations.
President Barack Obama is taking a very different approach to economic recovery. Recently, he has been advocating measures that would reduce the debt burden on homeowners and students, increase the number of public employees and spending on projects like infrastructure. These plans are more of a Keynesian approach, where the public sector steps in to compensate for shortfalls in the private sector and consumer spending.
The two policies draw on competing schools of thought in economics and are structurally different in how they attack the problems in the U.S. economy. Mr. Romney’s plan would likely produce an initial increase in exports from the U.S. to Sweden due to a decreased cost of doing business in the U.S. In the long run, as more people are employed, they will demand more goods and eventually increase exports fromSwedento the U.S. President Obama’s plan is more focused on the ability of people to have money to spend and be able to purchase goods (i.e. increasing demand). If the President’s policy was successful, it is likely that exports from Sweden to the U.S. would increase and return to a more stable level.
Because neither candidate is likely to make drastic change to U.S. foreign policy, the effect of the election on U.S.-Sweden relations will not be profound. However, when it comes to economic policy, Mr. Romney is looking to address structural problems he sees as hindering U.S. industries, while President Obama is attempting to spur people to spend more. Both candidates’ policies are focused on growing the economy, and as the U.S. economy improves it will be an opportunity for growth in trade between the nations as well.
Out of the two economic policies, it is my opinion that a demand-focused agenda will have a more immediate effect than one that is supply side focused. Mr. Romney’s plan would possibly increase expansion in the industrial sector leading to an increase in Swedish exports to the US, however if there is no increased domestic demand for companies’ products it is hard to see the incentive for expanded industry. Focusing on demand growth by strengthening household consumption would increase demand for domestic goods, giving incentives for businesses to expand and hire more people, as well as international goods, increasing the exports from Sweden to the U.S.
No matter who wins, there is unifying hope that the elected candidate can guide the U.S. out of its current anemic growth. If so, there is a brighter outlook for U.S.-Sweden relations than if the U.S. economy trends back towards recession.
David Stone is an economic and policy consultant for Seward Square Group, a bipartisan government affairs firm based in Washington, D.C.
Also on Currents
The question of the outcome of U.S. elections affects on Swedish-American trade will be debated during the SACC-USA seminar in Almedalen, Sweden, July 2nd at the Governor´s residence. Read more about the seminar and get the invitation here. You can also follow the debate right here on SACC-USA´s online magazine Currents Online.