Europe and the superpowers: responding to economic nationalism

Summary:

The global economic landscape is undergoing significant shifts with the rise of economic nationalism in China and the US. The established rules and institutions that governed the world economy after the Cold War ended, characterised by limited tariffs, conditional financial assistance, and development aid tied to reform measures, are now facing challenges. The uncertain future of the World Trade Organisation poses dilemmas for the EU, while Biden’s green subsidies programme may present both opportunities and challenges for Europe’s economic trajectory. Europe’s economic model will be tested by widening gaps vis-à-vis the US in technological innovation and productivity. This will require disseminating foreign technology better and deepening the single market. However, the EU’s capacity to respond to growing economic nationalism, particularly in the realm of green industrial policy, is constrained by political and institutional factors.

China’s economic outlook is fraught with challenges, including dwindling returns from its investment-led development model and policy shifts towards technological self-reliance. China’s economic weakness implies the country will rely even more on demand from the US and the EU, further fuelling global trade imbalances and potential trade disputes with the West. Meanwhile, while there is little evidence of widespread de-dollarisation, Beijing and Moscow are trying to drive a shift away from Western currencies. Amidst all these changes, Western support remains crucial for emerging markets and developing economies to navigate debt distress.

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