There greater openness of Europe to tradewhich coincided with the creation of the EU single market and the signing of the United Nations General Agreement on Tariffs and Trade (GATT), was a success story. He claims it S&P Global Ratingswhich estimates that this openness has made the average EU citizen €19,000 richer and contributed to around 5% of the cumulative increase in GDP per capita since the mid-1990s, mainly by boosting labour productivity. However, according to the rating agency, there are signs of tiredness in this strategy.
The dynamics of trade
The trade surplus of the EU, which remains significant, at 3.7% of GDP in 2023, has fallen by almost a full percentage point since its peak in 2015. Global trade growth has slowed to 2% per year on average since the pandemic, down from 5.7% over the previous 25 years. This deceleration is largely attributable to the pandemic and geopolitical developments that have limited the expansion of value chains and trade in intermediate goods. However, Europe is also losing market sharemainly in favor of China, in international trade in goods, which accounts for the lion’s share of global trade.
The harmfulness of tariffs
Many European sectors are so intertwined with the US and China through exports, value-added content in final demand and technology, that restrictions commercial or the increase of rates would prove harmful to them, S&P argues.
The weakness in technology
Europe is largely absent from some major disruptive technologies, such as blockchain, computer vision and genome editing, unlike the US and China. This is despite many of the patents for these technologies coming from research conducted in European universities. Europe’s absence from these new technologies has raised concerns that its long-term commercial competitiveness is in danger of falling victim to the “intermediate technology trap”whereby R&D and innovation are concentrated in low-growth, medium-tech sectors, dominated by established firms that are little disturbed by new entrants or disruptive innovations. The European automotive sector is often cited as an example of such a scenario.
S&P’s conclusions
“Since the protectionism is not in the DNA or in the interest Europe, the region should address its declining share of global trade by restoring competitiveness to avoid the middle-of-the-road technology trap,” said Sylvain Brower, chief economist at S&P Global Ratings EMEA.
“This should include further integration (especially in energy and capital markets), major investments and initiatives to promote theinnovation“, he added.
“If Europe succeeds in seize these opportunitiescould still escape the jaws of the intermediate technology trap,” the report concludes.
