Navigating turbulent geopolitical waters: Europe’s response to Chinese and American economic competition

Navigating turbulent geopolitical waters: Europe’s response to Chinese and American economic competition

Tuesday, 16 April 2024

Funcas Europe

In a new Future is Blue podcast show hosted by Carlos Carnicero Urabayen, Sander Tordoir, Senior Economist at the Centre for European Reform, delved into the intricate dynamics of the global geopolitical landscape, the rise of economic nationalism and Europe's strategic positioning amidst the assertive manoeuvres of superpowers like the United States and China.

Below you can read some of the key points covered in our podcast. If you want to listen to the conversation, please click here.

Tordoir, who recently contributed to the  Centre for European Reform comprehensive paper "Europe and the Super Powers: Responding to Economic Nationalism," began by highlighting the increasingly protectionist strategies adopted by the U.S. and China, emphasizing significant investment in future industries and legislation aimed at bolstering domestic manufacturing capabilities.

As the CER report notes, from 1989 to 2008, the global economy adhered to a framework of regulations and organisations that minimised tariffs and subsidies to foster international trade. That policy consensus was already under pressure in the period after the global financial crisis. A new era altogether may now be opening.

The U.S., mirroring China's model, has launched ambitious programs like the Inflation Reduction Act and the CHIPS Act, pouring what will likely be over one trillion into green technology and semiconductor industries with a clear bias towards domestic production.

This shift towards economic nationalism has posed challenges for Europe, which, according to Tordoir, has adopted a more measured response.

One of the most sensitive economic challenges for Europe relates to its need to adequately finance the green transition while boosting its strategic autonomy, industrial, trade, and market competitiveness. This means tackling a funding gap that the European Trade Union Confederation (ETUC) has recently estimated could hover at around €300-420 billion per year, equal to 2.1-2.9% of the bloc’s GDP.

While Europe has introduced its versions of industrial and green tech initiatives, such as the Net Zero Industry Act and the EU CHIPS Act, these efforts appear modest in comparison to the largesse of U.S. and Chinese investments.

The CER report notes that existing pots of EU funds and green regulation have already boosted Europe’s green technology prowess.

But Tordoir pointed out the inherent weaknesses in Europe's strategy, notably its less aggressive financial commitment and a regulatory framework that may not sufficiently counterbalance the advantages enjoyed by firms within the U.S. and China's borders. This approach, while fiscally cautious, risks leaving Europe behind in the critical sectors of green technology and semiconductor manufacturing.

Another piece of the conversation touched on the challenges facing the World Trade Organization (WTO) and the necessity for reform in an era increasingly dominated by economic nationalism.

The immediate prospects for significant WTO reform look bleak, given that the US seems to have given up on it. Tordoir advocated for Europe to remain committed to the WTO to focus on maintaining open markets for emerging and lower-income countries while employing sector-specific strategies to ensure Europe's competitive edge in green tech and semiconductors – areas in which poorer countries anyway do not compete.

Tordoir also underscored the importance of transatlantic cooperation, proposing that Europe and the U.S. could benefit from granting each other access to their respective subsidy programs and technological innovations. This collaborative approach could serve as a counterbalance to China's massive overproduction, fostering a more united front among the transatlantic democratic nations.

The conversation also touched on Europe's green industrial strategy, which Tordoir believes stands on firmer ground than many assume. Despite aggressive subsidization by the U.S. and China, Europe's regulatory environment and early investments in green technologies have positioned it ahead in the global market share of green tech vis-à-vis the US but not China. However, Tordoir warned of the dangers posed by divergent national subsidies within Europe, advocating for a more cohesive and centralized European industrial policy to protect the single market's integrity.

In conclusion, our podcast episode offers a good overview of the current geopolitical challenges and opportunities facing Europe. By advocating for strategic cooperation with the U.S., regulatory and policy coherence within the EU, and a pragmatic yet ambitious approach to industrial policy, our new podcast content brings fresh ideas for Europe's journey through the complex terrain of global economic nationalism.

Carlos Carnicero Urabayen


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