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The EU must become less “passive” in defending its economic interests against the threat of countries such as China that have “unfair advantages”, former Italian Prime Minister Mario Draghi has said.
The economic bloc should be ready to use more tariffs and subsidies, Draghi said in comments that signal he is likely to favor a more interventionist industrial policy in his report due next month on how to fix Europe’s faltering competitiveness.
Speaking just days after the EU announced significantly higher tariffs on imports of Chinese electric vehicles, Draghi said: “We do not want to become protectionist in Europe, but we cannot be passive if the actions of others threaten our prosperity.
“Even recent US decisions to impose tariffs on China have implications for our economy through export diversion,” he said, adding that Europe faces greater challenges than the US because it is “more vulnerable to both trade inaction and retaliation.”
Draghi was commissioned by the European Commission to prepare a report on how the EU can deal with its eroding global competitiveness amid growing concerns that the region’s economy has lost ground compared to the US and China as it has been hit harder by the coronavirus pandemic and the Russian invasion . Ukraine.
The former President of the European Central Bank spoke in Spain, where he received the Carlos V European Award from King Felipe VI of Spain. for contribution to the region.
The EU told carmakers on Wednesday that it would temporarily raise tariffs on imported Chinese electric vehicles from 10 percent to as much as 48 percent, depending on how much they benefit from state subsidies.
The move follows the US decision to quadruple tariffs on Chinese imports of electric cars to 100 percent this year. But it was opposed by some EU members, including Germany, where officials and executives fear their carmakers could suffer the brunt of any retaliation from Beijing.
German Economy Minister Robert Habeck, who plans to visit China next week, said after the EU’s decision: “Tariffs are always a last resort as a political tool and often the worst option,” adding that a tariff war with Beijing risks “throwing the baby out with the bathwater.” bathtub”.
European manufacturers employed more than twice as many people as their US counterparts, Draghi said, adding that more than a third of European manufacturing output was shipped outside the EU, compared to just a fifth in the US.
The former ECB president cited estimates that China spent about three times the amount of Germany or France on industrial policy relative to the size of their economies. He said the EU should make more use of tariffs and subsidies “to offset the unfair advantages created by industrial policy and the devaluation of the real exchange rate abroad”.
Draghi warned that Europe was facing “a wave of cheaper and sometimes more technologically advanced Chinese imports”, saying that “there is ample evidence that part of China’s progress is due to significant cost subsidies, trade protection and demand suppression, which will lead to lower employment.” our economy”.
But tariff and subsidy increases should be done as part of a “pragmatic, cautious and consistent” approach, he said, while calling for efforts to revive multilateral trade rules and encourage more foreign direct investment in Europe.
Draghi recommended a “foreign economic policy” to reduce Europe’s dependence on countries it can no longer trust in strategic areas such as defence, space, critical minerals and pharmaceuticals, and said the EU could start “applying more explicit local content requirements for products EU-made and components’ in military procurement.
The former Italian leader appears to have acknowledged that the EU is unlikely to establish a permanent debt-issuing capacity to fund investment in areas such as defence, green energy and digitalisation – something he has long called for.
“The financing needs of the green and digital transition are huge and with limited fiscal space in Europe both nationally and at least for now at the EU level, it will have to be mostly provided by the private sector,” he said.