The global economy is dividing into trading blocs in parallel with the tectonic movements that are causing the international order to drift. This diagnosis, in a very pessimistic tone, was issued by the President of the ECB, Christine Lagarde, during a bankers’ forum in Paris, during which she expressed the urgency for Europe “to articulate all its resources in areas such as defense and climate. struggle or “increased productivity to confront a planet divided into blocs 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 lost his place in the world. Because its progress in digital innovation, energy neutrality and its traditional defense of the free market “are under attack” in a hostile climate of “growing divergences between industrialized allies” on issues such as technology regulation, sustainability or commercial and industrial relations. .
These are “priorities, unifying geostrategic criteria and putting all financial funds at the service of competitive challenges, energy transition and security and more effective management of public resources focused on guaranteeing the welfare state and the rights that we, the citizens of the Union, have given ourselves. In a clear allusion, although without expressly citing it, to the return of Donald Trump who, according to him, will “plunge” the United States into a “new era of protectionism” which will “irreparably harm the European economy”.
The ECB’s top executive is not the only one to criticize the Old Continent in monetary matters. The head of the Bundesbank, Joachim Nagel, assured Time that German GDP would lose one point of its dynamism if the Trump 2.0 version imposed the spiral of customs duties on foreign products which, in the case of European products, could increase by 10%, without excluding increases of up to 20 %. This last scenario, severe, led the Bank of Spain to predict a decline of three points in the euro zone economy during the first year of its hypothetical entry into force, which would lead to a recession of 2.6 %.
But Nagel suggests another collateral damage. According to him, policies Trumpists They will generate “greater inflationary volatility”, with price increases and therefore a return to the rise in the cost of money; at least by the ECB.
Lagarde preferred to focus on one of the thorny questions in her predecessor’s report on competitiveness at the ECB. Like Mario Draghi, he specified that “reviving productivity and removing barriers to capital” in the internal market will be decisive in channeling savings and investment towards the private sector and encouraging innovation. “We cannot consider ourselves a losing 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 world order, he said.
Globalization enters UVI
Nagel clarified his dire predictions from Tokyo. “Signs of geoeconomic collapse are increasingly evident and, unfortunately, we could add another brick to this vertical wall if we do not restore cooperation and free trade. » Otherwise, “asset volatility and episodes of inflation will return”. For the head of the Bundesbank – who is identified as the standard bearer of hawks from the Executive Committee of the ECB – “Trump’s re-election suggests changes in the economic order” and fears of commercial “explosions”.
Diplomatic rhetoric has become more common since 5N. The recent G20 summit in Rio de Janeiro left signs of division within the global governance forum over war – in Ukraine and the Middle East – and trade. And not just between industrialized and emerging powers. Europe fears the most shock in the rules of free transit of goods, services and capital with Trump since the Smoot-Hawley Act which indiscriminately increased import tariffs in 1930 to stop production deterioration, asset flight and recessionary phase left by the Great Depression.
“The US elections have catapulted risks to the global economy. » This is also the vision of French Governor François Villeroy de Galhau and the consensus of international observers and market analysts. With effects in the “short, medium and long term”, specifies Olli Rehn, his Finnish monetary counterpart. At a time when German GDP was going to fall into recession for the second year due to the weakness of its industry and its foreign sector, very sensitive to the drop in demand from world trade, specifies Nagel, with an uncertain election date in sight – the 23F- and its productive model of reduced energy prices showing structural cracks.
All this increases the risk of contagion to the euro zone. This is what the two Greek political and monetary authorities think. Yannis Stournaras, director of the Bank of Greece since 2014, is categorical: “If I could, I would advise our American allies not to increase rates. » Not only because it would “lead to a recession” in Europe, but also because of the threat of the United States also entering into a policy of recession. red numbers and decades of free market prosperity are buried. This is exactly the question to which his Prime Minister, the conservative Kyriakos Mitsotakis, is alluding, by demanding from Brussels a trade agreement with Washington: “customs duties are synonymous with protectionism”. Mitsotakis was one of the few European leaders who listened to Trump during his first term and one of those who congratulated the Republican by telephone.
Especially, if the decouplingas experts see, is forged with China. Stephen Orlins, who chairs the National Committee on U.S.-China Relations, think tank The American considers it “highly probable”. But “this would have serious repercussions for businesses in both markets as they fear that Washington and Beijing could engage in tariff increases and vetoes in the name of national security.” This shock wave would generate “a catastrophic scenario of tensions” in sensitive areas such as technological innovation, value chains or maritime and logistics routes or even “devastating disruptions” in sectors, consumers, businesses and capital markets.
Sectors, companies and markets take shelter
Several multinationals are already admitting changes in their business strategies due to Trump’s future tariffs: 10% in general, 20% on certain European products, 60% on China, with the possibility of doubling them on certain items from the giant Asian and Mexican. The CEOs of Aibus, Honda, Puma, Ikea, Ralph Lauren and BMW say they have prepared contingency plans. Fears that extend to specific activities such as shipping companies or renewable energies or to investment portfolios focused on bond issues.
This upheaval in the economic climate could lead to significant geostrategic changes. The EU – warns Mary Lovely, analyst at the Peterson Institute – “would be faced with the situation of deepening its commercial ties with China” rather than with its transatlantic ally. In fact, “this is what is happening”: as the United States reduced its manufacturing dependence on Beijing between 2018 and 2023, the flow of goods between the countries asian giant and Europe are either maintained or increased, which “creates a potential collision between the EU and the Trump administration for reasons of state.”
Orlins hits the nail on the head. Geopolitical tensions mix with economic tensions in a “too ambiguous identification” of this concept of national security, which adds tensions to investments, trade and technological cooperation and which has given the first signs 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 – as part of the so-called phase 1 agreement – advantages to Beijing to correct future tariffs. This agreement (Phase Two) would harm Europe because several of its main 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 impaired” . 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 specifies.
All of these options will pass into 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 designed for the mandate Trump 2.0.
A banker at the forefront of the trade war
Lutnick is the chief executive of Cantor Fitzgerald and sees tariffs as a tool to “preserve American jobs”, supports deregulation of cryptocurrencies, where his fund manager has invested “hundreds of millions of dollars” in bitcoins, and pretends to dream of the moment. in which the United States is exempt from personal income tax. His conversion to MAGA forced him – he admits – to abandon the years spent defending demanding rules of the game towards the bigtech. He now aligns himself with Elon Musk’s theses and promises “loyalty and fidelity” to Trump.
Divergent regulatory approaches in the digital order will separate Europe from America under the Trump administration – anticipates technology consultant Holly Fechner of Covington – and “accelerate the decoupling» between the United States and China, as the next tenant of the Oval Office pointed out. For Fechner, the so-called freedom of action will instead leave “a path strewn with pitfalls” for American technological innovation companies. Without subsidies, with exorbitant external sourcing rates, export controls and direct and indirect restrictions on every last commercial or digital vestige that points to raw materials or manufacturing or merchant costs that are at any given time passed into the hands of the Chinese, “the next four years will be more complex for them.
Elvire Fabry, of the Jacques Delors Institute, warns that European companies will also “face obstacles” in this fragmentation of globalization into blocs, driven by the fight for global hegemony between the two superpowers, but also by their collision on industrial aid and customs tariffs. technological advances, which “will change the value chains of the EU and the rest of the planet”.
