Europe in the Age of Geoeconomics

The website of the Konrad Adenauer Foundation (Germany) has posted an article Europe in the Age of Geoeconomics by Tim Peter.

The article is a critique of the Buy European program designed to protect the European market amid global trade wars.

This program is intended to prioritize European manufacturers’ products in public procurement. The aim is to strengthen the competitiveness of Europe's own industry and make the European economy as a whole more resilient.

The Buy European program should be the last resort, to be used in narrowly defined areas only, the author says. This is due to the fact that free trade takes priority for the EU.

The EU cannot continue to play soccer while its major trading partners play rugby. However, the EU must not allow this approach to undermine its international trade agenda. The European market remains open to other manufacturers and suppliers and thus part of the international division of labor and the associated efficiency gains.

Why should the EU conclude trade agreements with the Mercosur countries, India, and Australia, only to then restrict market access for them in a roundabout way? The Buy European concept can create a false sense of European competitiveness – being competitive in the European market but not globally. However, export-oriented industries in particular must take the global market as their benchmark and view competition as a fitness center.

The implementation of the Buy European program also raises a number of questions. Will it apply to procurement departments only or to all institutions that use public funds? Which groups of goods will it cover? What percentage of European-made components should a product contain to be considered ‘European’? And, finally, there is the question of how the inevitable growth of program documentation can be aligned with the bureaucracy reduction goal.

The Buy European program would be the last resort, as it largely excludes international partners. International alliances (Made with Europe), e.g. with a minimum price secured for critical raw materials, would be preferable.

To counter unfair competition, it would be better to use other measures, such as targeted countervailing duties. These are more open, as they continue to allow trade with all other partners. Thus, countervailing duties on electric vehicles from China partially offset the latter’s unfair competitive advantage resulting from subsidies, tax advantages and an undervalued yuan.

Buy European could be used as one of several instruments in a set of measures in narrowly defined areas. Public procurement could be used to maintain a certain industrial capacity in the EU for strategic reasons. For example, a core capacity for steel production in Europe could be retained for security reasons.