Carlo Altomonte

A second term for Donald Trump could structurally intensify the trend toward trade fragmentation, heightening tensions, particularly between the United States and China, the world’s two largest economies.

Robust port infrastructure can significantly mitigate the risk of supply chain disruption, suggesting that government efforts are better targeted at improving the performance of ports and critical infrastructure more broadly, rather than implementing protectionist measures.

It is therefore possible that even the election of the Commission President will not change the overall picture, with the real game taking place whenever the European Parliament is called to vote on the fundamental choices that Europe will face in the coming years, from managing the digital and green transitions to fundamental decisions on the common defense and security policies.

We identify specific industrial products that are projected to be in high demand in the EU and can be realistically produced given North African countries’ existing capabilities. Specializing in these products, North African countries can diversify their export basket, which has been shown to correlate positively with economic development.

This policy brief highlights that while the green subsidies provided by the Inflation Reduction Act of the United States are homogeneous across beneficiaries, the subsidies associated with the Green Deal industrial plan are highly fragmented across European member States. We quantify the extent of resource misallocation due to this subsidy dispersion by using the model of Hsieh and Klenow (2009), calibrated on the EU electricity-producing industry. We compare both the actual allocation of subsidies, and a policy of subsidies coordinated at the EU level, to a hypothetical frictionless benchmark with no subsidies. We find that moving to coordinated subsidies can increase productivity by more than 30% with respect to the uncoordinated scenario, substantially reduce the productivity gap with the United States, and generate gains worth up to 6% of the EU value-added in the industries considered. Policy recommendations include greater EU-level coordination to minimize misallocation and enhance productivity. 

A continuous political drive will be necessary, at all levels of government, to guarantee enough momentum in terms of both the necessary implementation of the approved reforms, and the timely disbursement of the sum related to already authorized public investments.