Protectionism is a dead-end street for Europe, climate neutrality is the key

Disruption, transition, transformation, structural change – Europeans today face several megatrends – climate change and the need to decarbonise our economies; digitalisation and the need to re-think workplace organisation; de-globalisation and the need to remain economically relevant, writes Sandra Parthie, Head of the IW Brussels Office.

In the industrial sector, competition is getting ever fiercer and ever more global. For quite some time Europeans have been used to being global rule-makers, to being at the forefront of technological developments and to benefiting from an ever-increasing level of social and economic well-being.

All of these „certainties”, however, are being threatened now. Europe is at risk of becoming the third wheel to a Chinese-US dominated new global order.

„So what?”, some might ask. Well, here’s why this matters a lot, actually: Europe lacks natural resources and for centuries has based its economic prosperity and social well-being on international trade and on access to and use of resources, from silver to spices, to oil and gas.

It has often dominated its trading partners and shaped trading rules and norms in its interests. It has been able to do so because it had market power, was competitive and innovative.

Now, the situation is changing. Although the EU is working on completing its single market, many internal hurdles remain, many national interests are hindering the process. And while the Member States bicker over regulatory details, the overall market power of the EU is dwindling, especially in relation to Asia.

No less than 85% of economic growth until 2030 is forecast to happen outside the EU. Meaning in markets and according to rules and norms shaped by others, and where European values, from social protection to workers’ rights, social dialogue, labour and environmental standards, don’t play a role.

Meaning, too, that access to much-needed resources is becoming more difficult for European businesses and entrepreneurs. Not only because global demand and thus competition for these resources is increasing, but also because protectionism and coercive or retaliatory actions against countries, companies and economies are on the rise, too.

All these developments affect access to the resources, such as rare earths and raw materials, that our manufacturing industry needs to function and provide high-quality jobs.

Calling for strategic “autonomy” is not going to solve this issue. Turning protectionist and aiming for economic self-reliance is a dead-end street. Europe cannot be autonomous, due to its lack of resources. It has to continue fighting for a functioning international trade system.

But it needs a strategy on how to deal with this situation. Europe needs to reduce its one-sided dependencies wherever possible, change resource-intensive consumption and production patterns, increase its processing capacities and invest in, and develop, production facilities in future-oriented sectors, especially for high-value goods where it is essential to maintain the EU’s technological and innovation potential.

Sustainability and climate neutrality, therefore, are rightly becoming the guiding principles for our economic activities. A major factor influencing Europe’s competitiveness is energy – the way it is produced and how much it costs.

The recent rise in energy prices currently tops the agenda and is creating many headaches for private households, as well as industry and politicians. It also has a history of worrying geopolitical implications.

Europe still depends to a large degree on external producers for its energy supply. Changing this will positively affect our economies on several levels: investment in more renewable energies and a decentralised energy supply will boost European manufacturers, reduce CO2 emissions, reduce dependence on price-volatile fossil fuels, and lower energy prices in the long term.

It is therefore a policy priority for Europe.

At the same time, though, the EU is not a monolithic bloc. Thus, capacities for adapting to these new needs and dealing with the disruptors vary greatly from region to region, from member state to member state.

The transition needs investments into research and innovation, into infrastructure, into attracting businesses, into favourable production and manufacturing conditions for companies, into new technologies and materials. But also into support measures for workers and employees in sectors hit by structural change, into education, up-skilling and re-skilling.

Not all Member States are equally equipped to deal with these demands. In addition, the pandemic has worsened inequalities between member states, and governments find themselves with very different to-do or priority lists.

But these differences should not cloud the vision of political leaders – climate change will not wait for the next election, finances are available for digital and green investments, and improving the capacities and good governance of public administrations is not witchcraft, but a question of political will. Citizens are aware of the ongoing structural change.

Getting them to support political action to deal with it will involve broad consultation and communication activities, especially with the social partners and civil society representatives.

To the contribution on euractiv.com