European economy: playing defense in EU trade policy | Opinion



Maravillas Delgado

Italy in the 1982 FIFA World Cup, Greece in the 2004 European Championship, Leicester City winning the Premier League in 2016 and Atlético de Madrid winning the Spanish La Liga soccer championship this year. All these teams have one concept in common: catenaccio. This defensive tactical system in football, based on the prevention of scoring opportunities and counterattack, has taken root in the European institutions, which are preparing a number of measures using defense as a trade policy response by default.

After four years of Donald Trump as President of the United States, nearly two years of the coronavirus pandemic and forced exit from Afghanistan, Europe is considering its place in the world with a mixture of caution, mistrust and disapproval. The feeling of insecurity has increased and so has the need for protection. The result is that the European Union is preparing the most important overhaul of its trade policy since its member states decided to create a common customs union in 1968.

From 2024, 85% of global economic growth will occur outside the EU, which means that European trade policy cannot simply be defensive

Taken one by one, each of the policies in this legislative package has considerable merits. Overall, however, this particular European catenaccio has the potential to radically change the way the EU trades and communicates with the rest of the world.

Among the policies envisaged, Brussels has prepared a mechanism for imports of certain products to have to pay an additional tax for the CO2 emissions involved in their production – an instrument that punishes foreign companies receiving subsidies that European companies are not. authorized to receive. In addition, Brussels is working on a new industrial strategy that reduces the EU’s dependence on foreign products, as well as an instrument allowing foreign companies to access the EU public market only when companies of the EU can in return access the public market of other countries.

These measures have two common characteristics: their implementation is justified, but all use the restriction on the EU market as the main political lever. The logic is this: if a foreign company wants to sell its products in Europe, it must comply with all EU rules. The aim is not only for foreign and European companies to compete on an equal footing, but also for the rest of the world to be more like the EU when they compete.

At first glance, this makes sense. The bad news is that the distance between the wishes of the EU and global economic realities is widening day by day. One example is the Carbon Frontier Mechanism, which aims, among other objectives, to reduce CO2 emissions in cement production. Nonetheless, the European market only accounts for 1% of sales for one of the major cement exporters, Vietnam, so this country is highly unlikely to change its production techniques to comply with EU regulations.

If the EU wants to influence the policies of other countries, it should offer support to countries that share the same objectives as the EU

In addition, the implementation of these new trade policies could be counterproductive. EU industrial policy, for example, favors the production of electric batteries in Europe to the detriment of Chinese batteries produced at lower prices. As a result, products using European batteries will sell for more, which will increase the cost of climate change policies. In addition, public subsidies to produce these batteries are similar to subsidies received by non-European companies that the EU wants to challenge with the upcoming regulation.

The retaliation of these measures from the affected countries and the negative impacts on EU exporters is another consequence to consider. Even if Europe wants to build an autonomous space, the reality is that Europe is not an island. The opposite is true: the EU is a major global exporter of goods and services. In total, international trade accounts for over a third of the EU’s gross domestic product (GDP) and supports 36 million European jobs.

A world turned in on itself will have negative economic effects on the European economy because it is the rest of the world that buys more from the EU and not the other way around. Therefore, to create prosperity, the EU must look outward and not inward. From 2024, 85% of global economic growth will occur outside the EU, which means that European trade policy cannot be just defensive. Yet none of the forthcoming trade policies aim to link Europe to future sources of global economic growth.

In 1972, Rinus Michels’ Ajax unlocked Inter Milan’s catenaccio and won the Champions League with a total offensive style of football, a tactical system where each player must be able to defend and attack. If the EU wants to influence the policies of other countries, instead of looking inward, it should offer support to countries that share the same objectives as the EU. Thus, the new European trade policy would be able to both defend and attack, thus improving its game and its efficiency.

scar Guinea is an economist at the think tank European Center for International Political Economy. Twitter: @ osguinée. Isabel Pérez del Puerto is a journalist and communicator in development finance.



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