Trade Relations: The European Union is Closing More Doors on Itself

The world has been a small village for a decade now, and in this village, everyone wants a larger share of trade. Instead of increasing it as the second largest global market, the EU is increasingly shrinking it. It had to cut ties with Russia, and China is already ‘blacklisted’, as supported by the data. Official data, of course. According to Eurostat, China remains the number one place where the EU buys goods, but imports are decreasing, from about 630 billion euros in 2022 to 514 billion last year, while a huge deficit has begun to close.

While the figures with China are timidly declining, trade with Russia shows a drastic change. Total imports of Russian goods have shrunk by as much as 82 percent, primarily oil and gas. The fact that the EU imports this same ‘dirty’ hydrocarbon goods through third countries and has actually imported more, not less, is neither a secret nor has Lider failed to write about it. However, the question that determines the future of the EU – to whom will the EU sell its (overly) expensive products once it completely cuts off Russia and China – still has no answer.

The price of European products can be borne by the U.S., but the percentages of trade shift symbolically; after all, the U.S. carefully weighs what it will allow into its market, while simultaneously pushing its LNG to Europe. Meanwhile, Europe is pushing its green philosophy to at least establish itself as a player that someone asks something. In doing so, it only perceives peripherally that raw materials for the green business are mostly held by China. Where then will the raw materials come from, and to whom will it export? Has the EU cleverly or foolishly weighed in this geostrategic reshuffling?

Political scientist from Libertas University Jadranka Polović categorically states – it is not smart! – We are witnessing unprecedented deindustrialization and deagrarization of the continent, which are the consequences of the obsession of European bureaucrats with the green agenda (Green Deal) and the set absurd deadlines for achieving climate neutrality. At the same time, there are strong geopolitical pressures from powerful competitors, some of whom, like the U.S., are key allies of the EU.

Since the Green Deal implies a fundamental revision of the European energy system, it has been clear from the beginning that it will change the relations of the EU and its neighborhood, Eurasia/Mediterranean/North Africa, and redefine European geopolitical priorities. Namely, Europe’s exit from dependence on fossil fuels can negatively affect numerous regional partners in terms of their economic and political destabilization. It is particularly concerning that ‘green’ Europe is dependent on the import of raw materials.

However, Kristijan Kotarski from the Faculty of Political Science in Zagreb has a completely opposite opinion. Especially regarding ‘green’ trade and EU tariffs on electric cars from China. – The global trading system has rarely been as unbalanced in history as it is today, which is evident in the large gap between countries with a current account deficit in relation to countries with a surplus.

Countries with a deficit inevitably have a higher investment rate compared to the savings rate of all sectors. The opposite is true for surplus countries. China currently holds 18 percent of the world’s GDP, 31 percent of industrial production, and only 13 percent of global consumption, which is completely unsustainable. For years, China has transferred resources from households to the state and industry through policies of low interest rates, low input prices such as energy and land, a low renminbi exchange rate, and wage growth that lagged behind worker productivity, thereby paralyzing its domestic consumption.

Given that the Chinese leadership is reluctant to dismantle this growth model and stimulate domestic consumption, and it is reluctant because economic balancing inevitably means political balancing, i.e., redistribution of political power, I see an escalation of trade conflicts on the horizon.

It is clear that the EU must find a new market and a new niche for its products, but the question is where exactly. The greatest potential, without the American type of walls, is Latin America. However, the agreement with Mercosur, the economic and political organization that brings together Argentina, Brazil, Paraguay, and Uruguay, is still ‘stuck’. Talks about a free trade zone have been ongoing for 23 years, with a principled agreement reached in 2019, but the agreement has not yet been signed.

If signed, it would create one of the largest free trade zones in the world, with 700 million people. However, there is currently no zone, so the already expensive European products, burdened with tariffs and similar ‘decorations’, find it difficult to find a market there.

To whom will the EU export its overpriced products, and where will it import the most important resources? Find out in the new digital and printed issue of Lider.