European experts and media are actively discussing the likely economic policy of the next US president. The fears are related to Trump's promised course of tough protectionism, which, according to analysts, may undermine Europe, which is already stagnating. Izvestia found outwhat the consequences will be and whether there is a way out for the economy of the Old World.
Optimization plans
The priority measure, which Trump has repeatedly stated, is to limit imports. The president-elect intends to impose at least 10 percent duties on goods from Europe. Over the past three years, the US trade deficit with the European Union has exceeded $200 billion. In the context of the security guarantees that Washington actually provides to its allies on the continent, this circumstance seems all the more unfair to Trumpists. Some among them believe that 10% is too little and the amount should be doubled. This has been stated by future Secretary of State Mark Rubio, Trump's national security adviser Michael Waltz, and Robert Lighthizer, the U.S. Trade Representative (the de facto equivalent of the Secretary of Commerce) in the previous and, apparently, the next Trump administration. Protectionist measures, they believe, will deliver the tax cuts promised to Americans.
It should be noted that Europe is not the main object of attack in this strategy. The main stated goal is to reduce the volume of imports from China. Now the Chinese share is 14%, by 2030 it is going to be reduced to 1%. However, this fact also has a negative connotation for the Europeans. Chinese manufacturers will look for new markets, which means that they will intensify competition with them.
Skeptics also recall that the last time the U.S. imposed such serious import restrictions was in the late 20s - early 30s ofthe last century. Together with similar measures of European countries, they led to a decline in industrial production and were one of the reasons for the Great Depression.
There is another question that remains unanswered. The need to pay off the national debt (payments on it have grown by 120%, or $1.05 trillion a year) requires a reduction in the key rate. Together with a sharp increase in duties, this could lead to an uncontrollable rise in inflation.
However, whatever option is chosen in the end, it will have almost inevitable consequences for Europe. In the words of the chief economist of ING, the largest banking group in the Netherlands, it would be "the worst economic nightmare" for the Old World.
The imposition of duties will further accelerate the ongoing process of capital flight to the United States. European companies are already actively moving production abroad. In this sense, moving to the States looks like a viable option - cheap energy, less bureaucracy, as well as subsidies and various preferences from the federal government and individual states.
What to do
The basics of the European response to the changing reality were described in a report by Mario Draghi, an Italian economist and former ECB President. He acknowledges the absence of cheap energy from Russia in the long term, calls for savings and for optimizing and modernizing production. All of this, though, is possible if an additional €800 billion of investment is attracted each year. Even without regard to the practical possibility of achieving such figures, Brussels has lost too much time, emphasizes Elena Sidorova, head of the international monetary and financial relations sector at the Primakov Institute of International Relations of the Russian Academy of Sciences.
- The figures are not quite real, and the point is not in the figures. Ten years ago, when the "Juncker plan" with €300 billion over three years for European industry was announced, they were already talking about the chronic lack of investment. Competitiveness problems have not been solved, and today the EU is already talking directly about a list of lost industries where leadership has been lost and is unlikely to return (ten years ago there was no such thing). As a result, today the figure has grown to the mentioned €800 billion, the list of problems has expanded, and there is a feeling that even these investments may not be enough in the "perfect storm" in which European competitiveness is caught. However, I doubt that this money will be found in full," the expert concludes.
Brussels intends to solve the issue with energy carriers, in particular, by supplying American LNG instead of LNG purchased in Russia. At the same time, the EU hopes to soften Trump's tough stance in this way. Experts point out that there is more politics than rational economic calculation in these plans. The costs of fossil fuels (and not in the most environmentally friendly way) will rise, but Brussels hopes that this deal can be part of a larger and mutually beneficial arrangement. The problem is that Trump has absolutely no interest in compromise. The US president's goal is massive cost optimization. If this happens at the expense of competitors (which Trump believes America already owes), so much the better.
As Hildegard Müller, president of the German Association of the Automotive Industry, said on this occasion, "many people in Europe do not yet fully understand what it means to consider geopolitics and economic policy together."
As Artem Sokolov, a researcher at the IMI of the Moscow State Institute of International Relations (MGIMO), notes, Berlin apparently has no clear plan for interacting with the new White House masters.
- In any case, the experience of Trump's first presidency with its desire to "make Germany pay" cannot but cause German politicians to fear the introduction by the second Trump administration of protectionist measures against products from the EU. "There is no indication that in the run-up to this year's American presidential election, the German establishment has fully taken into account the mistakes of its 2016 approaches, when it bet on the victory of the Democratic candidate and significantly complicated for itself the prospects for normal communication with its American partner," the Izvestia interlocutor points out.
New old ideas
For the reasons described above, European politicians have once again returned to the topic of European sovereignty. As always, Emmanuel Macron was ahead of everyone, calling on them to stop being "herbivores." "It should not be a naive transatlanticism, nor a questioning of our alliances, nor a narrow nationalism that will not allow us to take up this challenge in the face of China and the United States. So for us Europeans, this is a crucial moment in history. In fact, the question before us is: do we want to read history written by others?" - asked the French president at the summit in Budapest.
As Pavel Timofeev, head of the regional problems and conflicts sector of the Primakov IMEMO, notes, this time Europe may be pushed to a certain independence by the actions of its overseas allies.
- The plan for a "sovereign Europe" is not so much a specific project as a general idea that has been around since de Gaulle's time. Macron has been continuously speaking with this idea since 2017. Another thing is that he adjusts the details depending on the situation. In brief, the plan assumes, first of all, substantial autonomy for the EU in energy and military-industrial affairs. And here Trump is in principle indirectly working to assert this industrial independence of the EU. But for this, the EU will have to shell out some money. Is the EU willing to pay for the independence of its military-industrial complex? This is a question to which there is no single answer," Timofeev says.
A bet on stimulating the military-industrial complex can solve two important problems. First, several industries will be loaded with orders at once. As Armin Papperger, head of the Rheinmetall concern, said, against the backdrop of Trump's election victory, the European defense industry "will experience pressure," but this pressure will help German concerns "gain access to the budget." Second, the modernization of the armed forces is accelerating and the reserves that have been depleted over the past two and a half years are being replenished. Third, it is another pass to the American allies.
To realize this project, European capitals must answer the one remaining question: where to get the money for it?
Internal conflict
The prospect of a three-front trade war does not appeal to everyone in Europe, and some governments are making efforts for separate negotiations. This behavior can be exemplified by Italy's efforts to maintain stable trade relations with China.
Moreover, in the context of negative trends, political disagreements within the European Union are becoming more and more evident. In order to implement the reforms described in the Draghi report, Brussels is once again demanding more powers. But if almost everyone is interested in economic consolidation, the transfer of even more political powers to the European bureaucracy is the object of heated discussions, admits Daria Moiseeva, a senior researcher at the Center for European Studies of IMEMO RAS.
- The Draghi report condemns protectionism and violation of global trade principles. This means striving for economic independence and protecting their markets at the same time. In other words, consolidation in common economic and foreign policy is necessary. But if compromise on the first point is possible and probable, because it is the protection of a common market and a common currency, then the second point will be much more difficult.
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