Olan McEvoy
Research expert covering the European Union for society, economy, and politics.
Trade within the European Union is defined by the rules of the EU Single Market, most notably by the 'four freedoms' - freedom of movement of labor, capital, goods, and services. The result of these rules is that trade between EU member states is in theory not hampered by any internal trade barriers, such as trade tariffs, import/export quotas, or other discriminatory taxes or charges which would give preferential treatment to domestically produced goods or services. While in practice, substantial barriers still remain to a truly integrated EU internal market, progress has been made in economically integrating the different member states over the past two decades, as evidenced by the growing value of intra-EU trade.
Trade has been at the heart of the European project since its beginnings in the European Coal & Steel Community (ECSC) in the post-war period, which aimed to prevent future conflicts between European countries by binding their economies together. Since then, the aims of Europe have expanded dramatically, with the idea of a political union being presaged by the 1957 Treaty of Rome which brought in the idea of 'ever closer union' between the member states. Even so, the economic aspect of European integration has tended to be the most popular and uncontroversial element of the EU, with the common market being seen as fostering shared economic prosperity and opportunity. The flip-side of the common market within the EU, is that member states share an external commercial policy which defines their trade relations with the rest of the world, otherwise known as extra-EU trade.
Ireland has become a key exporter of goods such as chemicals and pharmaceuticals, as well as professional and ICT services, due to the many multinational corporations who have located their European headquarters and subsidiaries in the country. Some commentators have however highlighted that due to profit-shifting and other accounting tricks, the figures reported by Ireland may be skewed. Several Central & Eastern European countries have emerged as prominent net exporters within the EU. They have often successfully joined the supply chains of companies from the wealthier Western European member states, as well as developing domestic industrial exporters. Poland, Czechia, Hungary, and Slovakia are prominent examples of this, with the latter three being particularly adept at the manufacturing of cars and related parts.
As countries such as the Netherlands have run structural trade surpluses for decades, this has required other member states to perpetually import more than they export. There are some signs that these long-term imbalances may be beginning to change as Germany, the EU's largest importer and exporter in absolute terms, has in fact moved from a long-standing intra-EU trade surplus to having a 50 billion Euro deficit in 2022. This deficit was more than tripled by the need for Germany to import more raw materials and fuels from within the EU, due to the boycott of Russian imports in the wake of the Russian invasion of Ukraine in February 2022. Germany's growing deficit within the EU may also reflect the fact that many German companies (particularly car manufacturers) have extended their supply chains into the CEE region, meaning they are no longer registered as German exports when traded within the union.
Trade has been at the heart of the European project since its beginnings in the European Coal & Steel Community (ECSC) in the post-war period, which aimed to prevent future conflicts between European countries by binding their economies together. Since then, the aims of Europe have expanded dramatically, with the idea of a political union being presaged by the 1957 Treaty of Rome which brought in the idea of 'ever closer union' between the member states. Even so, the economic aspect of European integration has tended to be the most popular and uncontroversial element of the EU, with the common market being seen as fostering shared economic prosperity and opportunity. The flip-side of the common market within the EU, is that member states share an external commercial policy which defines their trade relations with the rest of the world, otherwise known as extra-EU trade.
What is traded between EU member states?
The largest single product category traded between the member states of the European Union is machinery and transport equipment. Within this category, the Netherlands and Czechia have grown to be the two largest net exporters of machinery and transport goods in 2022. Germany, the largest economy in the EU, has seen its exports surplus in a number of products drastically reduce in recent years. Its machinery and transport equipment exports, for example, show a dramatic shift from a net export position of 80 billion Euros in 2007 to only 18 billion by 2022. In other goods categories such as manufactured goods and chemicals, Germany's trade surplus has been massively eroded over recent years. In terms of EU-wide trade in services, commercial services are the most traded category, with around 50 percent of all intra-EU services trade, or approximately 1 trillion Euros in 2021.Which countries run intra-EU trade surpluses?
The Netherlands has emerged as the stand out net exporter among EU member states, having a trade surplus of over 200 billion Euros. The country exports a wide array of goods and services throughout the EU, being particularly prolific in exporting machinery and transport equipment, raw materials, minerals and fuels, and manufactured goods, while being the third largest exporter of services. Perhaps surprisingly, Ireland, the country with the ninth largest GDP in the union and the nineteenth largest population, has the second largest trade surplus in the EU.Ireland has become a key exporter of goods such as chemicals and pharmaceuticals, as well as professional and ICT services, due to the many multinational corporations who have located their European headquarters and subsidiaries in the country. Some commentators have however highlighted that due to profit-shifting and other accounting tricks, the figures reported by Ireland may be skewed. Several Central & Eastern European countries have emerged as prominent net exporters within the EU. They have often successfully joined the supply chains of companies from the wealthier Western European member states, as well as developing domestic industrial exporters. Poland, Czechia, Hungary, and Slovakia are prominent examples of this, with the latter three being particularly adept at the manufacturing of cars and related parts.
Which countries run intra-EU trade deficits?
The two countries which run the largest trade deficits within the European Union are France and Germany, the EU's two largest economies. France has consistently run a trade deficit within the union since 2002, importing food, drinks and tobacco, as well as machinery and transport equipment in particularly large quantities. The country's structural trade deficit is an issue as it is related to the lack of competitiveness within its legacy industries such as car making, which has come under serious pressure from newer exporters in Central & Eastern Europe (CEE), and this results in lower GDP growth and higher unemployment, two persistent problems for France. On the other hand, France's higher consumption is accentuated by the strict fiscal policies and reduced demand in other EU member states.As countries such as the Netherlands have run structural trade surpluses for decades, this has required other member states to perpetually import more than they export. There are some signs that these long-term imbalances may be beginning to change as Germany, the EU's largest importer and exporter in absolute terms, has in fact moved from a long-standing intra-EU trade surplus to having a 50 billion Euro deficit in 2022. This deficit was more than tripled by the need for Germany to import more raw materials and fuels from within the EU, due to the boycott of Russian imports in the wake of the Russian invasion of Ukraine in February 2022. Germany's growing deficit within the EU may also reflect the fact that many German companies (particularly car manufacturers) have extended their supply chains into the CEE region, meaning they are no longer registered as German exports when traded within the union.
