Europe Embraces New U.S. Growth Model --- Following the path of America will require more government intervention in industrial and trade policy

"The European Union's economic planners might want to shout "U.S.A., U.S.A.!" Ironically, though, emulating America today would involve more state intervention.

The bloc's politics were shaken last week after Mario Draghi, the former European Central Bank president credited with saving the eurozone in 2012, published his long-awaited report on how to stop an economic stagnation that has been worsened by the competition posed by Chinese exports and the end of cheap Russian energy.

His demand for more joint debt has already been opposed by Germany, which is hardly a new controversy.

But this is a distracting political football. The crucial point of the report is that "the EU should aim to move closer to the U.S. example in terms of productivity growth and innovation," highlighting that no listed European company valued at more than 100 billion euros, equivalent to $111 billion, has been created in the past 50 years. In America, Apple, Microsoft, Nvidia, Amazon.com, Alphabet and Meta Platforms all surpass $1 trillion.

What does moving closer to the U.S. mean, though? Draghi emphasized the importance of the technology sector, saying it is responsible for almost all of the U.S. productivity outperformance over the past 20 years. He argues that "Europe cannot afford to remain stuck" in old industries.

This "vertical" emphasis on a single sector is a big departure from the post-1980s status quo, which has exhorted free markets, entrepreneurship and "horizontal" policies meant to boost the entire European economy such as educating the labor force and building up infrastructure. This view is enshrined in the very foundation of the European Union, the 1992 Maastricht treaty.

Why the U.S. is more productive is an old question. It was raised in 1928 by Allyn Young, the American chair of the London School of Economics. In a speech, he denied that the gap had to do with U.S. companies being better run. "The largest domestic market in the world," he argued, meant that "productive methods are economical and profitable in America which would not be profitable elsewhere." Over time, this leads to the most complex industries sprouting there.

The takeaway is that firms will only make big productivity-enhancing investments if they operate in growth sectors where it makes sense. This is why Europe has a gap in nonconstruction investment rates relative to the U.S.: Its top three research spenders in recent times have consistently been petroleum-car companies. In the U.S., by contrast, big R&D spenders were in automobiles and pharmaceuticals in the 2000s, then in software and hardware in the 2010s and more recently in digital applications.

But nations can't easily move into these more-complex sectors, because increasing returns to scale create a natural barrier against any entrepreneurial challenger.

Indeed, today's world of "winner-take-all firms," entrenched trade imbalances and agglomeration in a few metropolitan areas can't be fully explained by comparative advantages, or even the impact of misaligned exchange rates and capital flows.

Nor can the history of any nation that ever attempted to catch up economically. During its own catch-up phase to the U.K. in the 19th century, the U.S. was an ardent user of industrial protectionism. More-recent successes like Japan and South Korea have relied heavily on favored sectors and export markets.

The U.S. was a champion of multilateral free trade in the second half of the 20th century, and it had ample incentives to do so until very recently. But America started to change its mind as China became a direct competitor. Industrial subsidies and a vast domestic market are now helping the Asian country flood global markets with electric vehicles, solar panels and other advanced technologies made at a cost that is unachievable for lower-scale Western competitors.

The response came first through Donald Trump's tariffs, and then President Biden's Chips and Science Act and Inflation Reduction Act, which shoveled federal money at the domestic semiconductor, electric-vehicle and clean-energy industries. Despite growing pains, they have resulted in a boom in manufacturing construction.

But the EU has failed to react to the same extent, paralyzed by fractured governance, Germany's corporatist interests in China and Russia and an acute case of believing its own free-market propaganda.

Draghi's image as the ultimate technocrat gives him a shot at changing this, while avoiding a destructively protectionist turn. To do so, the document proposes a trade policy based on "a case-by-case analysis" of what will enhance productivity growth, and an industrial strategy based on picking sectors, rather than specific winners.

In the case of semiconductors, it earmarks foundries focused on European strengths, such as automobiles and network equipment, as ripe for subsidies. In the space economy, it promotes targeted preference rules to scale up domestic companies. In solar technology, it suggests pushing back against Chinese trade practices and overcapacity, but also warns that retaliating too harshly could jeopardize the bloc's trade surplus in wind tech.

The so-called Washington consensus of the late 20th century preached free trade and laissez-faire economic management. Today, being Team U.S.A. means targeted protectionism and aggressive subsidies for high-tech sectors." [1]

The Global South does not and will not buy technologically backward and expensive US products. The Global South does not and will not buy technologically backward and expensive EU products too. Imitating the failed US strategy is a poor idea for Draghi.

1. Europe Embraces New U.S. Growth Model --- Following the path of America will require more government intervention in industrial and trade policy. Sindreu, Jon.  Wall Street Journal, Eastern edition; New York, N.Y.. 17 Sep 2024: B.11.

Our billions of euros are wasted every year to shoot the crows

 

"The 'unidentified flying object' that raised NATO fighter jets in Latvia turned out to be a flock of birds."

Kasmet švaisto mūsų milijardus eurų ir šaudo varnas.

"„Neatpažintas skraidantis objektas“, dėl kurio Latvijoje pakelti NATO naikintuvai, pasirodė esąs pulkas paukščių."

Akivaizdu, kad Amerikos pinigų davimas kai kurioms privilegijuotoms įmonėms, neturinčioms galimybių konkuruoti pasaulio rinkoje, ir kai kurioms tingioms profesinėms sąjungoms neveikia. „Globaliniai Pietūs“ perka kiniškus daiktus, o ne mūsų brangius, žemos kokybės, pakaitalus. Turime nustoti diskutuoti ir pradėti dirbti

 „Grupė aukšto rango JAV pareigūnų šią savaitę vyksta į Pekiną, kur vyksta aukšto lygio susitikimai, kuriais siekiama pabrėžti Vašingtono susirūpinimą dėl Kinijos prekių bangos, užliejančios pasaulio rinkas.

 

 Amerikos pareigūnai, vadovaujami Iždo departamento sekretoriaus tarptautiniams reikalams Jay Shambaugh, ketvirtadienį ir penktadienį surengs diskusijas su Kinijos kolegomis, pranešė iždo pareigūnas.

 

 Planuojami susitikimai yra penktasis praėjusiais metais abiejų vyriausybių sudarytos ekonominės darbo grupės posėdis, kuriuo siekiama sustiprinti bendravimą tarp dviejų didžiausių pasaulio ekonomikų sustiprėjusios konkurencijos metu. Grupėje taip pat yra Federalinio rezervo pareigūnai.

 

 „Svarbu, kad turėtume atsparų kanalą aptarti įvairias ekonomikos temas su mūsų kolegomis iš Kinijos, tose srityse, kuriose sutariame ir ypač tose srityse, kuriose nesutariame“, – sakė Shambaugh.

 

 „Kelionės metu tęsime diskusijas dėl Kinijos makroekonominio disbalanso ir pramonės politikos, kuri gali padaryti didelę žalą JAV ir kai kuriems kitiems pasaulio darbuotojams ir kitoms įmonėms“, – sakė jis.

 

 Naujojo pokalbių raundo metu JAV grupė, vadovaujama Shambaugh, turinčio ekonomisto išsilavinimą, sieks remtis perspėjimais, kuriuos per balandžio mėn. vizitą Kinijoje išsakė iždo sekretorė Janet Yellen, kad didžiulės Kinijos gamybos mašinos produkcija tapo per didelė, kad pasaulis įsisavintų.

 

 Silpnos paklausos šalyje metu Pekinas padidino savo gamybos pajėgumus ir išsiuntė perteklinius pajėgumus į užsienį. Šis politikos pasirinkimas atspindi Kinijos lyderio Xi Jinpingo akcentavimą sukurti visa apimančią pramonės tiekimo grandinę, kuri gali sumažinti Kinijos priklausomybę nuo užsienio produktų, bet padidinti likusio pasaulio priklausomybę nuo Kinijos.

 

 Iki šiol tokia politika suspaudė pramonės šakas visame pasaulyje, sukeldama naujo pasaulinio prekybos karo šmėklą. Daugelis Kinijos prekybos partnerių – nuo ​​JAV, Europos iki net kai kurių Azijos šalių, kurios laikomos gana draugiškomis Pekinui, kelia muitus ir kitas prekybos kliūtis, siekdamos apsisaugoti nuo pigių kiniškų prekių.

 

 Vašingtonas, Briuselis ir kitos sostinės baiminasi, kad Kinijos eksporto banga, dažnai gaunama, naudojant valstybės subsidijas, gali užgožti jų pačių pramonės šakas, dėl ko pasikartos vadinamasis Kinijos šokas, kai XXI amžiaus pradžioje Kinijos eksportas, pvz., plienas, sutrikdė pasaulines rinkas.

 

 Šį kartą akcijos yra didesnės daugeliui išsivysčiusių pasaulio šalių, nes Kinija savo politiką nukreipia tiesiai į Vakarų norimas puoselėti pramonės šakas, pavyzdžiui, elektrines transporto priemones ir atsinaujinančią energiją.

 

 Tuo tarpu Pekinas atmetė perspėjimus apie perprodukciją, kaip JAV vadovaujamų Vakarų pretekstą slopinti Kinijos kilimą. Pekinas taip pat žengia į priekį su savo iššūkiu JAV pramonės praktikai Pasaulio prekybos organizacijoje.

 

 Be išorinės kritikos, Pekinas taip pat susiduria su spaudimu iš vidaus. Nereikalingos gamyklos sumažino įmonių pelną, iššvaistė pinigus ir susilpnino produktyvumo augimą. Daugelis Kinijos ekonomistų ragino vyriausybę perkelti savo paramą iš gamybos į namų ūkius, kad būtų padidintas vidaus vartojimas.

 

 Tačiau vadovybė kol kas nerodė noro keisti politiką. Vietoj to, JAV ir Kinijos santykiuose besitęsiant įtampai, Xi vadovybė paspartino pramonės pastangas, daugiausia dėmesio skiriant elektromobiliams, puslaidininkiams ir dirbtiniam intelektui bei atsinaujinančiajai energijai – sektoriams, kurie laikomi pagrindiniais Kinijos pastangomis nukonkuruoti JAV.

 

 Liepos mėn. kalboje Užsienio santykių taryboje Shambaugh pareiškė, kad JAV yra susirūpinusios dėl Pekino „aiškios tendencijos šiandien dar labiau stumti gamybą, kaip Kinijos augimo variklį“, o tai smarkiai paveikė Amerikos įmones ir darbuotojus.

 

 Shambaugh sakė, kad JAV delegacija darbo grupės susitikime taip pat kalbės apie bendradarbiavimo su Kinija sritis, tokias kaip skolos ir finansavimo iššūkiai, su kuriais susiduria daugelis besivystančių šalių.

 

 Kinija išleido trilijoną dolerių, kad padidintų jos įtaką visoje Azijoje, Afrikoje ir Lotynų Amerikoje per jos Juostos ir kelio infrastruktūros programą." [1]

Tai, kad mes norėtume puosėlėti elektrines transporto priemones ir atsinaujinančią energiją, bet nesugebame, yra ne pasaulio, o mūsų, Vakarų, problema. Greitai kaistantis pasaulis mūsų nelaukia.

 

1. World News: Fear of China Export Wave Spurs New Talks --- U.S. delegation to visit Beijing, bring up concerns about overproduction. Wei, Lingling.  Wall Street Journal, Eastern edition; New York, N.Y.. 17 Sep 2024: A.16.

Obviously, giving America's money to some preferred companies with no ability to compete and to some lazy trade unions doesn't work. Global South is buying Chinese stuff, and not buying our expensive, low quality, replacements. We have to stop talking and start working

 

"A group of senior U.S. officials is traveling to Beijing this week for a round of high-level meetings intended to underscore Washington's concerns over a wave of Chinese goods flooding world markets.

The American officials, led by Jay Shambaugh, the Treasury Department's undersecretary for international affairs, will hold discussions with their Chinese counterparts on Thursday and Friday, a Treasury official said.

The planned meetings are the fifth gathering of an economic working group formed by both governments last year to enhance communication at a time of heightened competition between the world's two-largest economies. The group also includes Federal Reserve officials.

"It's important that we have a resilient channel to discuss a range of economic topics with our [China] counterparts, in areas where we agree and especially in areas where we disagree," Shambaugh said.

"During our trip," he said, "we will further our discussions on China's macroeconomic imbalances and industrial policies that risk causing significant harm to workers and firms in the U.S. and around the world."

With the new round of conversations, the U.S. group led by Shambaugh, an economist by training, will seek to build on the warnings expressed by Treasury Secretary Janet Yellen during her April visit to China that the output by China's enormous manufacturing machine has gotten too large for the world to absorb.

At a time of weak demand at home, Beijing has ramped up its manufacturing capacity, and sent excess capacity overseas. The policy choice reflects Chinese leader Xi Jinping's emphasis on building up an all-encompassing industrial supply chain that can reduce China's reliance on foreign products but increase the rest of the world's dependence on China.

So far, such a policy has had an effect of squeezing industries around the world, raising the specter of a new global trade war. Many of China's trading partners, from the U.S., Europe to even some in Asia that are considered relatively friendly to Beijing, are raising tariffs and other trade barriers aimed at fending off cheap Chinese goods.

The fear shared by Washington, Brussels and other capitals is that a wave of Chinese exports, often made with the help of state subsidies, could overwhelm their own industries, leading to job losses and business closures in a repeat of the so-called China shock, when Chinese exports such as steel disrupted global markets at the start of the 21st century.

This time, the stakes are higher for many in the developed world, as China is aiming its policy directly at the heart of the industries the West wants to foster itself, such as electric vehicles and renewable energy.

Meanwhile, Beijing has dismissed warnings about overproduction as a pretext by the U.S.-led West to suppress China's rise. Beijing is also moving forward with its own challenge to U.S. industrial practices at the World Trade Organization.

The external criticism aside, Beijing also faces pressure from within. Unneeded factories have sapped corporate profits, wasted money and weakened productivity growth. Many economists in China have urged the government to shift its support from manufacturing to households to bolster domestic consumption.

However, the leadership so far has shown little willingness to change the policy. Instead, as the strain in U.S.-China relations continues, the Xi leadership has accelerated an industrial drive centered on EVs, semiconductors and artificial intelligence, and renewable energy -- sectors seen as key for China's efforts to outcompete the U.S.

In a July speech at the Council on Foreign Relations, Shambaugh said the U.S. is concerned about Beijing's "clear preference today to push manufacturing even further as China's growth driver," with the significant spillover to American firms and workers.

Shambaugh said the U.S. delegation will also talk about areas of cooperation with the Chinese side in the working-group meeting, such as the debt and financing challenges faced by many developing countries.

China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its Belt and Road infrastructure program." [1]

 The fact that we want to foster electric vehicles and renewable energy, but can't, is not the world's problem, but ours in the West. A rapidly warming world is not waiting for us.

1. World News: Fear of China Export Wave Spurs New Talks --- U.S. delegation to visit Beijing, bring up concerns about overproduction. Wei, Lingling.  Wall Street Journal, Eastern edition; New York, N.Y.. 17 Sep 2024: A.16.