Europe’s economy is under attack from all sides: After Putin’s shock, now it’s Xi’s turn. Trump threatens to deliver the final blow

Europe has never stood out for its dynamism, but today it shows that it is stagnating in every way. After the energy crisis triggered by Russia, Europe is now dealing with an explosion of cheap imports from China, and in less than a year, Donald Trump could be back in the White House, from where he threatens to introduce huge tariffs on European exports, writes The Economist.

This is not the best time for Europe to face three shocks at the same time. The continent now more than ever needs strong economic growth to support the defense budget, especially after US support for Ukraine dried up, and to meet the goals of the green energy transition.

European voters are increasingly disillusioned with EU policies, and many of them have started to support far-right parties such as the Alternative for Germany.

At the same time, the problems of aging population, overly strict regulations and inadequate market integration have not gone away either.

European capitals are in a frenzy as governments try to find solutions. Although the shocks facing Europe have their origins outside the EU space, any error made by European politicians could make the situation even worse.

The good news is that the energy shock is past the point of maximum pain: gas prices are way down from their peak. Unfortunately, the other shocks have only just begun to be felt.

Chinese President Xi Jinping is using subsidies to boost domestic manufacturing, which already accounts for a third of global goods production. The Chinese leader is relying on foreign consumers to support economic growth.

China is focusing on green products, especially electric cars, where its global market share could double to a third by 2030.

This would end the dominance of European brands such as Volkswagen and Stellantis. From wind turbines to railway equipment, European manufacturers are looking eastward.

From November, they could look westward with the same concern. The last time he was president, Trump imposed tariffs on steel and aluminum imports, which ultimately also affected supplies from Europe. The EU retaliated with similar measures introduced on motorcycle and whiskey imports until the two sides reached an agreement in 2021, when the US was already under Joe Biden.

Trump is currently threatening to impose 10 percent tariffs on all imports, and his advisers say they will go even further with these protectionist measures.

What could Europe do? The path before him is full of pitfalls. One of the mistakes would be for the EU to maintain an overly restrictive economic policy at a time of vulnerability – a mistake the European Central Bank has made in the past.

Another pitfall would be for Europe to copy the protectionist policies of America and China, unleashing a long series of subsidies for the most important industries. Subsidy wars are zero-sum games and only waste resources.

Unlike what is happening in the US and China, trade makes economies richer, even when the partners are protectionist. A production boom in America is a chance for European factories to supply parts, and cheap imports from China will make the transition to green energy easier and cost less to consumers who have suffered greatly during the energy crisis.

While America is throwing public money at industry, Europe should be investing in infrastructure, education and research and development. Instead of imitating Chinese interventionism, Europe should take note of the advantage that a vast domestic market offers to Chinese firms.

Such an open agenda in a protectionist period might seem naïve. But open markets have the potential to boost Europe’s economic growth as the world around changes. As the shocks come, politicians must remain firmly anchored in reality.

Editor: Raul Nețoiu

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