The new protectionism

The geopolitical tensions exacerbated by the war in Ukraine, the energy shock and, more recently, the shift in trade policy operated by the US have combined to make the axis of globalization rotate in a worrying direction for the European Union, at least for the moment. Although the shock is being less intense in Spain, the general trend is the same as the one that runs through the rest of the European continent.

It is a fact that the EU’s trade with the exterior has become abruptly unbalanced, to the point of generating red numbers in the current account balance for the first time since the 2008 crisis. One of the main factors is the appearance of a deficit with the US, something unheard of since records exist and which is undoubtedly due to the boom in US liquefied gas purchases. On the other hand, the large imbalance in trade with the Asian giant has remained practically intact, so that the European bloc emerges as the most affected by the global polycrisis.

Similarly, it should be worrying that Europe is losing ground in terms of foreign direct investment, that is, the injection of external funds into the productive fabric, discounting financial capital flows. In the last two years, the EU received 12.4% of global foreign direct investment, almost half the amount before the pandemic. Meanwhile, the US and China have climbed the receiver rankings, taking up virtually everything lost by Europe.

But the growing divergence of trade policies between large blocs could aggravate the competitiveness gap. The Inflation Reduction Act (IRA) stands out, a program implemented by the Biden Administration in order to promote the ecological transition. The budget allocation is colossal, 369,000 million dollars, and the goal laudable. But in practice, the measures incorporate all kinds of subsidies that will only be granted to consumers who buy products such as electric vehicles. made in america. Or to both national and foreign companies that produce green technology on American soil. Therefore, in commercial terms, the IRA is assimilated to an instrument to protect local industry and attract companies created in other countries.

Faced with this offensive, the current inaction of the EU, based on a naive vision of the virtues of globalization even when it proceeds asymmetrically, threatens relocations in key sectors for our economy. On the other hand, be careful with trying to compete in subsidies: an agreement is not in sight to create a joint European budget at the level of the IRA. Community partners with more fiscal leeway might be tempted to deploy all available ammunition to protect their own competitiveness (for which they would need a relaxation of competition rules). But history and common sense show that an escalation of protectionism would be ruinous for states. In addition, the fragmentation would affect the negotiating weight of the EU, when the union is an asset to preserve in case of unfair competition and to invoke trade sanctions, an eventuality foreseen in the communiqué of the last European summit.

In short, today the sustainability of European growth does not depend mainly on budget allocations, but on how to incorporate the geopolitical dimension into an economic model based on competition and free trade. A decisive challenge for the ability to decide our future and that should make its way into the debate.

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