The world economy is bifurcating into commercial blocs in parallel to the tectonic movements that are causing the drift of the international order. The diagnosis, with a high pessimistic tone, was issued by the president of the ECB, Christine Lagarde, at a bankers’ forum in Paris in which she conveyed the urgency for Europe to “articulate all its resources in areas such as Defence, the climate fight or the “increased productivity to confront a planet divided into blocks of geopolitical, economic, technological and commercial rivalry.”
Lagarde urged the EU to abandon false humility and adopt a role of economic leadership and political influence. Even if he has lost his place in the world. Because its progress in digital innovation, energy neutrality and its traditional defense of the free market “are being attacked” under a hostile climate of “growing divergences between industrialized allies” on issues such as the regulation of technologies, sustainability or commercial and industrial relations. .
It is a question of “priorities, of unifying geostrategic criteria and of putting all financial funds at the service of competitive challenges, the energy transition and security and with a more efficient management of public resources focused on guaranteeing the Welfare State and of Law that we, the citizens of the Union, have given ourselves. In a clear allusion, although without expressly citing him, to the return of Donald Trump who, in his opinion, will “plunge” the US into a “new era of protectionism” that will “irremediably harm the European economy.”
The top leader of the ECB is not the only critical monetary verse of the Old Continent. The head of the Bundesbank, Joachim Nagel, assured Die Zeit that the German GDP will lose one point of its dynamism if the Trump 2.0 version imposes the spiral of tariffs on foreign products that, in the case of European products, could rise by 10%, without ruling out increases of up to 20%. This last, severe scenario has led the Bank of Spain to predict a three-point decline in the euro economy in the first year of its hypothetical entry into force, which would cause a recession of 2.6%.
But Nagel advances another collateral damage. In his opinion, the policies trumpists They will generate “greater inflationary volatility”, with price increases and, therefore, a return to the increase in the cost of money; at least by the ECB.
Lagarde preferred to focus on one of the thorny issues in the Competitiveness report of her predecessor at the ECB. Like Mario Draghi, he specified that “the revival of productivity and the lifting of barriers to capital” in the internal market will be decisive in channeling savings and investment to the private sector and encouraging innovation. “We cannot see ourselves as a losers club among independent economies,” he warned, and even less so, “in a world that is fragmenting into geopolitical blocs dominated by the two superpowers.” Europe “should restore its vision of leadership and shared interests” to influence the global order, he asserted.
Globalization enters the UVI
Nagel specified his dark predictions from Tokyo. “The signs of geoeconomic breakdown are increasingly evident and, unfortunately, we could be putting another brick in this vertical wall if we do not restore cooperation and free trade.” Otherwise, “asset volatility and inflation episodes will return.” For the head of the Bundesbank – who is identified as the standard bearer of the falcons of the Executive Committee of the ECB – “Trump’s re-election envisions changes in the economic order” and fears of commercial “explosions”.
Diplomatic rhetoric has increased in frequency since 5N. The recent G-20 summit in Rio de Janeiro left signs of division in the global governance forum over war – in Ukraine and the Middle East – and trade. And not only between industrialized and emerging powers. Europe fears the greatest shock in the rules of the freedom of transit of goods, services and capital with Trump since the Smoot-Hawley Act that indiscriminately raised import tariffs in 1930 to stop the deterioration of production, asset leaks and the recessionary phase left by the Great Depression.
“The American elections have catapulted risks to the global economy.” It is also the vision of the French governor, François Villeroy de Galhau and the consensus of international observers and market analysts. With effects both “in the short, medium and long term”, clarifies Olli Rehn, his Finnish monetary counterpart. At a time when the German GDP would fall into recession for the second year due to the weakness of its industry and its foreign sector, very sensitive to the decline in demand from world trade, Nagel clarifies, with an uncertain electoral date in sight – the 23F- and its productive model of reduced energy prices showing structural cracks.
All this increases the danger of contagion to the euro area. This is what the duo of political and monetary authorities in Greece believe. Yannis Stournaras, head of the Bank of Greece since 2014, is emphatic: “If I could, I would advise our American allies not to raise rates.” Not only because it would “lead to a recession” in Europe, but because of the threat of the US also entering into red numbers and decades of free market prosperity are buried. Exactly the issue that his prime minister, the conservative Kyriakos Mitsotakis, alludes to in demanding a trade agreement with Washington from Brussels: “tariffs are synonymous with protectionism.” Mitsotakis was one of the few European leaders who tuned in to Trump in his first term and one of those who has congratulated the Republican by telephone.
Above all, if the decouplingas experts see, is forged with China. Stephen Orlins, who chairs the National Committee on US-China Relations, think tank American, believes it “highly probable.” Although “it would bring severe repercussions to companies in both markets due to fear that Washington and Beijing would engage in tariff increases and vetoes in the name of national security.” This shock wave would engender “a catastrophic scenario of tension” in sensitive areas such as technological innovation, value chains or maritime and logistics routes or “devastating disruptions” in sectors, consumers, companies and capital markets.
Sectors, companies and markets take shelter
Several multinationals already admit changes in their corporate strategies due to Trump’s future tariffs: 10% in general, 20% on certain European products, 60% on China, with the option of doubling them on certain items from the Asian giant and Mexico. The CEOs of Aibus, Honda, Puma, Ikea, Ralph Lauren and BMW say they have contingency plans ready. Fears that extend to specific businesses such as shipping companies or renewables or investment portfolios focused on bond issues.
This upheaval in the economic climate could lead to significant geostrategic shifts. The EU – warns Mary Lovely, an analyst at the Peterson Institute – “would be faced with the situation of deepening its commercial ties with China” instead of with its transatlantic ally. In fact, “this is what is happening”: while the US has reduced its manufacturing dependence on Beijing between 2018 and 2023, merchandise flows between the asian giant and Europe are either maintained or have increased, which “creates a potential collision between the EU and the Trump Administration for reasons of State.”
Orlins puts his finger on the sore spot. Geopolitical tensions mix with economic tensions in a “too ambiguous identification” of this concept, national security, which adds tension to investments, trade and technological cooperation and which has aired the first sign of decoupling between the two superpowers precisely in the field of digital innovation.
Alicia García-Herrero, analyst at the Bruegel Institute, opens up some alternatives. He says he does not rule out that Trump offers, as in 2019 – in the so-called Phase One pact – advantages to Beijing that correct future tariffs. This agreement (Phase Two) would harm Europe because several of its leading sales to China, such as components and materials for the aerospace industry or certain capital flows that could once again monopolize American companies, “would be seriously altered.” For the EU, “a bifurcation of globalization in two could be even more beneficial than a climate of post-tariff understanding between Trump and Xi Jinping,” he clarifies.
All of these options will pass through the hands of Howard Lutnick, Elon Musk’s favorite for Treasury Secretary, who will ultimately take charge of Commerce, where he will launch the aggressive Project 2025 that the Heritage Foundation has devised for the Trump 2.0 mandate.
A banker at the forefront of the trade war
Lutnick is the chief executive of Cantor Fitzgerald and understands tariffs as a tool to “preserve American jobs”, supports the deregulation of cryptocurrencies, where his fund manager has invested “hundreds of millions of dollars” in bitcoins, and claims to dream of the moment in which the US is free from personal income tax. His conversion to MAGA has required him – he admits – to leave behind his years of defending demanding rules of the game towards the bigtechs. Now he aligns himself with Elon Musk’s theses and promises “loyalty and fidelity” to Trump.
The divergent regulatory approaches in the digital order will separate Europe from the America of the Trump Administration – anticipates Holly Fechner, of Covington, a technology consultant – and “will accelerate the decoupling” between the US and China, as, on the other hand, the next tenant of the Oval Office has emphasized. For Fechner, the supposed freedom of action will instead leave “a rocky path” for American technological innovation firms. Without subsidies, with sky-high external supply rates, export controls and direct and indirect restrictions on the slightest commercial or digital vestige that points to raw materials or manufacturing or merchant charges that have at some point passed through Chinese hands, “The next four years will be more complex for them.”
Elvire Fabry, from the Jacques Delors Institute, warns that European companies will also “face obstacles” in this fragmentation into blocks of globalization, driven by the fight for world hegemony between both superpowers, but also by their collision over industrial aid. trade tariffs and technological advances, which “will alter the value chains of the EU and the rest of the planet.”
#Concern #financial #world #breakup #globalization #blocks #return #Donald #Trump
