Allies but Rivals – US economy to master sedentary EU

3 min read

In 2008 the economies of the EU and US were almost the same size. In 2022 the US economy has already reached USD 25 trillion compared to USD 19.8 trillion of the EU combined with UK. A disturbing trend that is very likely to continue in the future, as Europe does not seem to be able to compete.

There are certain things and common values connecting Europe and the United States based on our mutual background. But there are not many people who would doubt that these powers are rivals when it comes to the economy. For the past few years, particularly since the pandemic and the beginning of the war in Ukraine, the gap between EU’s and USA’s economies has widened rapidly. Practical examples prove that while the US has consequently progressed with its protectionist policy, the EU is still to find a way to compensate its lag.

The introduction of the IRA (Inflation Reduction Act) was somewhat received with surprise in Brussels. Ever since the EU has tried to find a way to have access to the incentives which Canada or Mexico enjoy right now. The new law grants significant tax reduction to (among others) car manufacturers to produce their high voltage batteries in the US. The introduction of the law has obviously caused headaches in European capitals, especially in countries where bigger car producer companies have maintained their manufacturing capacities.

As a result of the law, European car manufacturers cannot sell their cars with tax reduction in the US, unless they produce these cars either in the US or in Canada or Mexico. The overall fear in Europe was that if there was no proper European reaction, then the European companies will start to look for capacity expansion on US soil especially on the long term. Bavarian BMW has already begun the construction of a new plant for the assembly of batteries in South Carolina while other big companies have started to adjust their market strategies as well.

The slow reaction time and the hesitation of the EU have perfectly showed why Europe has dropped behind the US in economic terms for the past 10-15 years. In the meantime the IRA case also proved that EU member states often prefer to find a solution on the national level, rather than waiting for a decision which suits all the countries in the EU. An understandable decision, which does not make the unity of the EU any stronger.

In this rather tense situation the sensitive case of the almost appointment of an American citizen as the Chief Economist in the European Commission has occurred (to be the first non-EU citizen taking up such a high-level post in the EU). While Fiona Scott Morton is undoubtedly a highly qualified economist with a lot of experience, for some nations her background (and not just her nationality) was unacceptable for the position. Even French President Emmanuel Macron gave voice to his surprise that none of the 27 member states was able to send an eligible candidate for the post. Finally, mostly based on the pressure from some other nations and EP groups, Morton stepped back from taking up the post.

Morton’s case was not the single one when the French (namely President Macron) have openly confronted US interests in Europe. While on the question of Russia and the war in Ukraine the two parts are mostly on the same side (however Europe has to face the economic consequences, not the US), there is much more concern when it comes to the relations with China.

The US has been for a long time trying to convince the European countries to restrict their economic cooperation with China. An initiative, which would put again the EU’s economy in a much more defenceless situation than that of the US. In economic terms, the EU could lose a lot more in China than in Ukraine. Economic relations with Russia were mostly based on energy trade. The relationship with China is much more complex, overarching many critical sectors. It should not surprise anyone though, that confronting China is not among the EU’s top priorities.

Macron has already pointed out the above mentioned complexities, when he contemplated the possible European reaction on a future escalation of the relation between Taiwan and China. Macron’s statement might have sounded harsh but actually it most probably goes in line with the general opinion of Europeans. A recently conducted survey shows that the majority of the Europeans sees China as a strategic partner more than a rival, and in case it happens, they would rather remain neutral in a possible US-China conflict. No wonder the European public don’t want to deal with another crisis when the Ukraine war is also far from being settled.

While the EU has seemingly showed a unity on moral questions of how to deal with Russia and Ukraine, this unity seems to be lacking when it comes to strategic economic decisions, that could also determine the welfare of the continent. It also seems like the EU sometimes has to be selfish and pushy to retain or increase its competitiveness. That is why they call it competition. Otherwise it will never catch up with its rivals.

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