After the election of Trump, Europe’s economic model is under pressure from both East and West. The challenge lies not only in the dangers of a two-front trade war, but just as much in how the effects of increased economic tensions between the US and China will play out for the EU. The ripple effects will also be noticeable for Norway. A new geo-economic reality is about to wash over a continent that has been based on open markets and a close trade relationship with China. Among the major economic players in the world, no one is more dependent on international trade than the EU. As the European market is less integrated than the Chinese or American, one is more dependent on trading goods and services abroad. This has worked for a long time, but with Donald Trump in the White House, it is further hardening in international trade. The first category of challenges are those resulting from direct trade conflicts. To the west lies the United States, where Trump’s aversion to trade deficits is well known – albeit poorly grounded in economic logic. The US has a trade deficit with the EU of 158 billion. Euro, and Trump has stated that a 20 percent tariff wall could be a good way to change that. Europe’s economic model is in trouble after the election of Trump, writes Bjørnar Sverdrup-Thygeson. In the European capitals, work is going on in high gear to offer negotiation solutions, and possible countermeasures, to avoid a trade war. It is assumed that the 20 percent figure is only a negotiation ploy that will not be put into practice. But even if it is assumed that the tariff is limited to the European car industry, it will cause a significant economic blow. It is also likely that Trump will push for a solution that involves the EU trimming its trade ties with China. However, European trade dependence on China means that it can be a challenging cross-pressure to deal with. It is also smoldering in the eastern direction, with an emerging trade conflict between the EU and Beijing over electric cars, milk and brandy. The EU’s economic dependence on China has long been a matter of concern. Despite several policy initiatives to reduce European economic vulnerability to China, the value of the EU’s China imports doubled in the years 2018–2022. Almost 10 per cent of Germany’s GDP is directly exposed to China, in the US the figure is approx. 4 per cent, in other large European countries it is around 5 per cent. Putin’s full-scale invasion of Ukraine has helped make the job of curbing dependence on Xi Jinping more difficult. With rising energy prices and defense spending, it is harder to absorb the significant costs of curbing dependence on Beijing. On top of everything, the area where European countries have actually decreased in their economic intercourse with China is that exports to China have decreased. The disadvantage is that these exports have instead gone to the United States, and contributed to increasing precisely the American trade deficit that Trump wants to eliminate. The second category of challenges facing Europe are the indirect spillover effects of increased economic disputes between the US and China. Europe’s open economy is vulnerable to geo-economic crossfire. Should it escalate into a broad trade war between China and the US, paradoxically it is not the two warring parties that are expected to lose the most, it is Europe. Beijing wants to get out of its economic stagnation by exporting more and more. Donald Trump’s Washington, for its part, wants to import less and less. The consequence is most likely that large parts of China’s export flow to the USA will be diverted to the European market. This threatens European businesses, and could turbocharge the EU’s already significant trade deficit; for every container of goods sent eastwards, approx. five containers back from China – including key products such as electronics and penicillin. When Danish industry recently counted on the negative effects of an international trade war, it is precisely this dynamic that causes the majority of the economic loss for Denmark. The EU is in the process of taking a number of measures to prepare for the new situation. When Ursula von der Leyen enters her new term as EU Commission chief, it is welcome that she has singled out economic foreign policy as a main focus. Europe has a lot of work to do to make the economy more robust against geopolitical storms, not least domestically. A better integrated European internal market will make Europe less dependent on trade, and better prepared for trade political storms. Norway is in a special position, for better or for worse. Støre boasts the conciliatory factual information that the US has had a trade surplus with Norway since 2014. On the other hand, Norway is not a member of the EU’s customs union. Any agreement between the US and the EU has the potential to place Norway in a challenging outside position. It is this externality that has led to Norway now being a duty-free island for Chinese car imports, and which made it possible for Norway to enter into free trade negotiations with China. But if that process wasn’t already dead, it is now. No Norwegian politician wants to enter Trump’s presidential office waving a Norwegian-Chinese free trade agreement. It also hardens for small foreign countries, and Norway has a strong interest in the EU succeeding in the European damming project. Send us your opinion Want to write? Feel free to contact us at news Ytring with your post. The guidelines can be found here. Published 08.11.2024, at 15.13
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Europe in a pinch – Statement
