A quest for global economic raceEconomy 22 March 2021
The last couple of months were marked by outrageous battle within the economy field among the most influential global economies. Even the transatlantic partners – the EU and the USA have experienced lower level of confidence in each other, not only in economy but in the political sphere as well. This analysis presents an overview of how the biggest economic superpowers are to be together in times of the crisis such as the COVID-19, as well as to determine what will be the path for further global economic race.
In 2017, the EU Commission praised itself as the Gross Domestic Product (GDP) of the European Union with 27 Member States (EU) represented 16.0% of world GDP, expressed in Purchasing Power Standards (PPS). At the same time, the PR China and the United States were the two largest economies, with shares of 16.4% and 16.3% respectively. Other countries (outside the EU) with a share larger than 1%. These data were published by the Global Office of the International Comparison Program (ICP) at the World Bank and are the result of the 2017 round of the ICP. The ICP is a worldwide statistical partnership to collect comparative price data and compile detailed expenditure values of countries’ GDP, and to estimate purchasing power parities (PPPs) for the world’s economies. Using PPPs instead of market exchange rates to convert currencies makes it possible to compare the output of economies and the material welfare of their inhabitants in real terms (that is, controlling for differences in price levels). In his commentary for the “Federalist Debate”, Professor George Irvin claimed that many Europeans were “deeply ambivalent” about the economic performance of the EU. “The EU was meant to bring us a golden future, but instead it has brought us stagnation, unemployment and social discontent” has become a familiar refrain. He concludes that if were to compare the economic performance of the European Union and the USA, it would not lead that America has the most dynamic economy, or that it has performed better in the past or will do so in future. The most important feature of the comparison is neither the growth nor the unemployment record of the US and the EU. It is, rather, that US growth, unlike that in the EU, is funded by a dangerously high mountain of foreign debt. US external indebtedness, in turn, is driven by the US house-price bubble, enabling US consumers to spend more than they earn. Ironically, it is the EU which, together with China and Japan, continues to lend the money to the US which keeps their households spending and their economy growing.
In November 2020, the EU economy and trade ministers have gathered to discuss the “trade war measures” on safeguards for steel. The conclusions of the meeting said that the EU must insist on opposition to the US imposing new tariffs on steel and aluminum. The EU must use every opportunity, in line with WTO rules, to prevent additional burdens on the steel industry, they believed. Escalation of tensions in the steel sector must be avoided as much as possible. Future decisions about steel safeguards should be adopted solely on the base of a comprehensive analysis, he also said. As regards the trade dispute over US subsidies to aircraft maker Boeing, ministers believed that a unified response was required from the EU, adding it also must be proportionate with the severity of violations.
Reuters reports that the EU Commission President, Ursula von der Leyen defended the EU’s effort in vaccination against COVID-19, saying the “EU lagged rivals by three to four weeks because of a more rigorous approvals process”. She also added that supply problems should start to ease but acknowledged that increasing production remained a challenge. If Europe’s recovery is slow in coming, the risk is that it suffers more so-called “scarring”, or longer-term damage to its economy. Reuters also reports that a big concern for the EU is long-term and youth unemployment, which has only started improving in recent years after the 2008/09 financial crisis. “COVID-19 threatens to undo the last decade of progress: policymakers must act to avoid Europe’s youth suffering the scarring effect”. Some estimates regarding the unemployment in EU countries for workers aged 15-24 increased in the second quarter of 2020 to 16.4% from 14.9% in the same period a year before. Unemployment among those aged 55-64 even fell slightly to 4.8% from 5.1% a year earlier.
The economic competition between the EU and the USA is a never-ending story, and it remains to be seen what the causes and consequences of the economic race within the third decade of the XXI Century will be. One variable is sure, the new player – China will further deepen this competition and lead the extreme consequences towards the West.