The Future of EU Competitiveness
Growing to Foster the European Economic and Social Model
In a multipolar world, the European Union must carve out its role and cannot afford to lag behind the United States and China
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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.
Building on a previous analysis of the trends of convergence and divergence between peripheral and core EA-12 countries after the euro area sovereign debt crisis (Bordignon et al., 2023), this work investigates the long-term evolution of such differences in economic, institutional, and political outcomes, testing whether a pattern of convergence was finally resumed and comparing the effects of this crisis with those induced by the Covid-19 pandemic.
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.
The economic transformation required to reach global net zero goals relies on the mining and transformation of certain minerals and metals for the production of low-carbon technologies. Increasing global demand for these critical materials, combined with their uneven geographical distribution, raise potential supply issues that pose economic security and transition risks for the European Union. This report sets out the nature of the challenge, the policy responses and ways forward for the bloc.
The report on The Future of European Competitiveness presented by Mario Draghi provides a clarion call for economic reforms to stop Europe’s relative decline. This short comment cannot do justice to the report with over 300 pages of supporting material. We will concentrate just on two key messages regarding innovation and investment.
We find that the profitability of high-risk tech companies, associated with high rates of failure, is very dependent on the cost of restructuring, which itself is driven by employment protection legislation.
The mobile telecom sector is often taken as a case study of fragmentation of the single market leading to less investment and a loss of technological leadership. However, a closer examination of the data suggests that the fragmentation also implies more competition leading to lower prices for consumers in Europe.
A popular thesis in policy circles is that there is an “investment gap” that Europe needs to fill to face the great challenges of our times, such as the digital and green transitions. However, the notion of the “investment gap” used by policymakers is often vague and therefore it risks legitimate a wasteful allocation of public resources.
Imposing such high tariffs on BEVs from China without any evidence of damage to EU industry does not make sense and will only backfire on the ability of EU industry to export their own cars.
ASML has a global monopoly on EUV, the most advanced lithography technology that is on the Wassenaar Arrangement list of dual-use technologies and requires an export license. The Dutch government approved the export license of EUV-technology to China in 2018. The US government was not pleased and tried to press its ally to consider the security issues.
The EU is encouraging other countries to follow its lead and support the green transition. This requires massive subsidies in many different sectors. Why should the EU then complain if other countries outcompete it in terms of subsidizing the production of green goods?
With many new restrictive measures in place one would have expected trade to fall. However, the most one can say is that globalisation has turned into slowbalisation.
European automakers currently face increasing pressures. While the region’s manufacturers long dominated global sales revenues, several competitors from Asia have recently moved into the top ten. But European companies have faced similar difficulties before, and the responses of the region’s automakers and policymakers to previous challenges offer insight for the present, especially on the issues of global competition and energy transition.
The 1960s and 1970s acute industrial conflicts were at the root of the demise of large companies in the Italian economy, setting in motion a trend of reduction in company size that continued over the ensuing decades
The European manufacturers have different views on the new challenge from China and the potential outcome of the EU anti-subsidy investigation although it can be expected that the Chinese advance will go to the detriment of all European manufacturers.
It is often assumed that Germany’s economic relations with China are so important that Berlin tends to take a softer stance on China-EU relations than its EU partners – or at least that this used to be the case until most recently. In particular, it is feared that German industry might be more vulnerable to disruptions of the supply of Chinese inputs than other European countries. However, this impression of a greater dependency of German industry and its supply chains from China is not borne out by the data.
Through its missions and governance, Horizon Europe does not meet the innovation challenge and anchors our industry in the mid-tech range. This report argues that current European efforts, while laudable, are insufficient, in both quantity and quality. Important reforms are required to enable Europe to compete in the value-creating space.
This essay examines the international trade policies of the two presumed Candidates for president in 2024, Joseph Biden and Donald Trump.
A key factor that policy often overlooks is substitutability. Almost every raw material has substitutes. A combination of substitution and some stock piling would be sufficient to de-risk the supply of raw materials to a large extent.
On November 9th, the Institute for European Policymaking organized its first in-person event in Brussels: The Impact of IRA on the EU Industrial Policy: Challenging Conventional Wisdom.
The reduction in trade needed to achieve our climate ambitions would be out of reach. Border Carbon Adjustment is the way to go, but leakages remain sizeable.
L'Inflation Reduction Act (IRA), firmato dal Presidente degli Stati Uniti Joe Biden quasi un anno fa (agosto 2022), è il primo importante provvedimento per contrastare il cambiamento climatico che il parlamento degli Stati Uniti abbia mai approvato. La ragione principale di questo successo è che l’IRA non impone oneri all’industria USA ma garantisce molti sussidi.
A detailed analysis suggests that the handicap for European producers in the US market will be limited. This small negative effect is likely to be overwhelmed by the much-increased market, implying that the IRA leads to increased opportunities for exports of electric vehicles and renewable inputs to the US. Our calculations suggest that over time the US market for electric vehicles could increase by a factor of 4 and renewables installations should also increase by hundreds of percent. A commentary by Daniel Gros.
In this Working Document, we do not try to provide an overall evaluation of the IRA or its cost-effectiveness with regard to addressing climate change and US emissions. Rather, we investigate its impact on the US market and on EU export opportunities, concentrating on the material content of the IRA – not its intention.
As a possible reform of its dispute settlement procedures, the WTO membership should consider carving out trade actions taken under the national security exception (GATT Article XXI) as a case where trading partners have the right to bring non-violation claims but do not have the right to bring violation claims.
American protectionism has been reinvented in the name of “national security”. Yet, the belief that a country can achieve its own “nationally security” unilaterally is debatable.