Mainland Portugal, along with the autonomous island regions of the Azores and Madeira, offers American exporters a market of approximately 10.3 million people in a country roughly the size of the State of Indiana. As a member of the European Union (EU) and the eurozone, Portugal is fully integrated with the EU, uses the euro currency, and follows directives from the European Commission (E.C.) in Brussels. As with all EU countries, Portugal’s borders and ports are completely open to the free flow of trade with other EU member countries. Portugal is politically stable, with a democratically elected parliamentary government that welcomes foreign business and investment. The structural reforms implemented since 2011 have created an economic and regulatory climate favorable to foreign investment, which remains a priority for the Government, focusing on tourism, renewable energy and critical minerals, high-quality industrial components, technology and service delivery, and value-added agricultural products.
Many Portuguese companies, some in critical infrastructure, have significant ownership by People’s Republic of China (PRC)-based state-owned-enterprises. Portugal passed an investment screening law in 2013 but has never found a reason apply it. As a result, the Portuguese government operates under heavy PRC economic influence, which has consequences in the selection of vendors in sectors from 5G networks to electric battery production. The U.S. government and the EU have been raising awareness about the risks of using untrusted 5G vendors in telecom networks. Portugal’s neighbors such as France and Spain, and other EU countries, are applying the EU’s 5G toolbox to remove untrusted 5G vendors from their telecom networks. Among the various provisions in a new Portuguese communications law is a requirement for telecom operators to remove equipment deemed to be at risk. How the Portuguese government implements this law in the regulatory body that is evaluating the viability of trusted vendors will impact the effective implementation of the EU’s 5G toolbox to nudge Portugal’s largest telecom service provider, Altice, away from untrusted 5G vendors. Similar concerns exist in other sectors such as critical minerals and AI. Any changes in the government’s posture would represent new market opportunities for U.S. companies.
Portugal’s GDP registered a historic decline of 8.4% in 2020, compared to 2019, due to the adverse effects of the COVID-19 pandemic on travel, tourism and general economic activity. However, the economy rebounded post-pandemic, on the backs of travel, tourism and personal consumption, by 4.9% in 2021 and an amazing (expected) 6.5% in 2022. Portugal, among the euro countries, has the best GDP performance in 2022, followed by Ireland and Spain. However, 2023 is expected to be difficult because of the energy supply shocks and increased inflation.
According to the U.S. Bureau of Economic Analysis (BEA), bilateral trade in goods and services reached $8.77 billion in 2021, a 40% increase from 2020 ($6.26 billion) driven largely by increased U.S. LNG exports. U.S. Census data indicates the United States exported approximately $3.23 billion worth of U.S. goods to Portugal in 2021, compared with $2.35 billion in 2020. In that same period, U.S. imports of Portuguese goods increased from $3.91 billion in 2020 to $5.54 billion in 2020.
The top five U.S. exports to Portugal in 2021 were Mineral fuels, Oils, Distillation products (1.27B$), Transportation Equipment (291M$), Chemicals (147M$), Agricultural Products (120M$), and Computer & Electronic Products (89M$). The top U.S. states exporting to Portugal were Texas, Pennsylvania, Louisiana, California, and Indiana.
The top five categories of U.S. imports from Portugal in 2021 were Petroleum & Coal Products (858M$), Chemicals (473M$), Apparel & Accessories (351M$), Computer & Electronic Products (351M$) and Plastic & Rubber Products (323M$). The top U.S. states importing from Portugal were New Jersey, California, South Carolina, New York, and Texas.
The U.S. is Portugal’s fourth-largest export market for goods and services and the largest trading partner outside the Europe. The total amount of U.S. goods sold into Portugal is likely higher than what the statistics reflect, as census data does not account for U.S. products imported into other EU countries and subsequently transported into Portugal for resale. It is common throughout the European Union for goods to be shipped to one EU location – often to take advantage of lower value-added tax rates – and then distributed by ground transport to neighboring member state markets.
Regarding foreign direct investment (FDI), Portugal registered 200 projects in 2021, 70% from Europe and 30% from the rest of the world, representing a 30% increase compared to 2020 with 154 projects. In this record-breaking year, the United States was Portugal’s largest source of FDI projects.
Integrated into the Next Generation EU, the Portuguese government’s portion of the EU’s Recovery and Resilience Plan (RRP)will reach €17 billion, where €14 billion are in subventions, and €3 billion are in loans to be fully implemented through 2026. The RRP is divided into three main pillars, Resilience, Climate, and Technological Transition, with assigned budgets and reform objectives. The Resilience pillar aims to cover the expansion and digitalization of the health care system, social responses such as affordable housing, and training incentives for the Portuguese talent pool. The Climate transition pillar relies on sustainable mobility and the decarbonization of industry. The Digital Transition aims to invest not only in companies and their digital transformation but also in public administration capacitation, digitalization, and interoperability.
Portugal’s Public Finance Council (CFP) stated in its Fiscal Risks and Public Finance Sustainability report that productivity growth is the main macroeconomic risk in the long term. Low productivity translates into low wages across the Portuguese economy. The report highlighted the successful implementation of the RRP as crucial to long-term macroeconomic health. As in other European countries, Portugal also faces a “demographic winter” with too few births and a growing number of elderly citizens, which has longer-term consequences on pensions and public finances.
The United States continues to work closely with Portugal to find ways to expand and deepen two-way trade and investment to augment the already historically strong political, geo-strategic, and security ties between the two countries. Portugal’s continued drive to modernize and diversify its economy will offer possibilities for growth in U.S. trade and investment over the medium and long term. Demand for high-quality, price-competitive U.S. products in Portugal is strong.
Political & Economic Environment: State Department’s website for background on the country’s political environment