The European Union in The Mirror: Were we alone in the Universe?

Miguel Ángel Ortiz-Serrano

7 mins - 27 de Marzo de 2023, 07:05

The dissolution of the USSR in 1991 seemed to guarantee a unipolar world, with the United States as the guarantor of the international economic and geopolitical system. On the European continent, the decade of the 1990s was knockdown realities as if it were a domino effect: Yugoslavia collapsed in a series of violent wars whose end obeyed the military interests of a reinforced NATO; the newly founded Russia plunged into a process of economic lethargy and socio-political depression whose consequences continue to affect large parts of its former sphere of influence; and the former Soviet nations joined the idea of the nascent European Union, whose constituent countries enjoyed high levels of economic growth, competitive industries, and social welfare. In this new geopolitical order, Europe, the US and its ilk were thus alone in the Universe, whose destiny would convert them into high-tech exporting powers, while the countries of the periphery would be limited to being mere suppliers of raw materials, cheap manufactures, and intermediate products. Through a rapid process of financial deregulation and globalisation, the Western model spread like an oil slick across the globe: European and American manufacturing firms sharply increased their profit rates, offshored much of their physical capital and invested vast sums in distant nations whose governments welcomed them with open arms. The enthusiasts of the new globalisation claimed that, with the socialist threat removed, it would be the market rather than state initiative that would ensure progress in the long run, as if it were a revival of the late 19th century.

Without paying much attention to what was happening in other parts of the world and in a flagrant excess of vanity, the thesis of the End of History seemed valid for a while; until 2008 came along and changed the geopolitical, economic and commercial framework forever. In reality, this process of transformation had already begun decades earlier, with the rise of the so-called Asian Tigers. However, it was not until the late 1990s that this process of change accelerated with the emergence of China as an exporting power, whose model was replicated by various nations in its sphere, turning Southeast Asia into one of the main centres of world trade, going from being an economically marginal and unimportant region to representing 41% and 36.8% of global exports and imports in 2021.

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Notwithstanding, the interesting thing about this is not the raw data - which is plain to see and can easily be consulted by anyone - but the consequences that China’s development has had on long-term growth plans in neighbouring countries and in the West. Despite the complexity of the Asian continent, its linguistic and cultural diversity, political differences, and even military rivalries, China has managed to establish itself as the leading exporter and importer in Asia in products that are increasingly less intensive in the use of massive and precarious labour, developing industries with high added value in information technology, transport, and energy management. Consequently, its neighbours have strengthened their trade networks with Asia, adapting their model to the productive realities of their own countries in order to develop competitive productive sectors in the long term, which has led Asia to increasingly trade and invest with and in Asia, respectively, in an attempt to wean itself off its dependence on exports to other parts of the world. Without going any further, the Chinese government's plan for the coming decades is no longer geared towards the massive export of manufactured goods in line with the post-1991 Western model but rather towards strengthening trade ties with its neighbours (and non-neighbours, such as Africa or Latin America) and developing active industrial policies that guarantee the energy and technological independence of China and its entire area of influence.

While Asia was becoming more dynamic, dogmatism overtook the Eurozone from 2008 onwards, with a recession and subsequent measures that depressed the southern economies in particular for many years, damaging among other things the competitiveness of their already-weakened industry. During the years of crisis and the latest pandemic, many extreme right-wing political parties have tried to use the rise of Asia’s strength for victimisation and electioneering purposes, wielding an economic threat that is not really an economic threat. Stanig and Colantone (2019) called it the ‘China Shock’, finding a significant relationship between exposure to imports from China and voting for the far right from the early 1990s to 2016. But what European country has not been exposed to trade with China? Precisely, the post-Soviet framework of the victorious West advocated trade openness and freedom of capital. As can be seen in the graph, the most important European economies increased their imports of Chinese products as soon as China developed full trade capacity, already in the 1990s.
Graph 1.- The 'China Shock' in Western Europe: European imports of Chinese products as a percentage of total imports. 
Source: Stanig & Colatone, 2019. 
And yet, China no longer wants to be an exporter of cheap manufactures, but has embarked on a long road to stimulate domestic demand through the design of an ambitious industrial policy strategy, even at the cost of losing representation in the context of international trade, as Dadush points out in his questioning of the concept of ‘Deglobalisation’.

Whether this strategy will bring them success in the future remains to be seen, but the decisions taken by this country in economic and industrial matters have affected even its fiercest competitors. While in 2017 the Trump administration was waging a trade war with China, the US government is being more pragmatic at the beginning of 2023, with the Biden administration more focused on restoring the US economy's competitive capacity by promoting various long-term growth projects that put an end to 50 years of austerity and orthodoxy in the country. And what about Europe? It is difficult to say. While authors such as Tamames and Steinberg consider that the era of post-2008 economic orthodoxy is over, the fact is that the long-term plan is not clear - or is not conveyed to the public. The plans for fiscal governance do not indicate that member states’ budgetary capacity will be made much more flexible, and the much-lauded Banking Union of a few years ago remains in a drawer waiting for Germany to decide whether its neighbours are part of the same ecosystem or whether it prefers to continue with the disparities that have increased north-south inequality. On the other hand, the ECB’s monetary policy does not seem to be able to control inflation, and much of the European population considers that it lacks real democratic mechanisms, contributing to the stereotype of the Brussels bureaucrat.  Perhaps most glaringly, however, despite a crisis in 2008 that swept the south of the continent, a pandemic that collapsed the European economy for two years, and a war in Ukraine that has been a humanitarian drama - and caused a multitude of problems for member states - there remains a huge gap between partners in agreeing on crucial issues such as the EU’s energy independence, the role of the state in the coming decades, and the industrial and economic legacy we will leave to the next generations. We are no longer alone in this Universe, and in such a multipolar world where other nations are pursuing their own interests and economic growth - which is only fair - we cannot fold our arms and rely on the market, as if we were still in 1991.

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