Europe: a major force in the global economy
The foreign trade ratio – the ratio of trade in goods and services to gross domestic product (GDP) – underlines the importance of trade for the EU. The export ratio of the 27 EU member states – the ratio of exports of goods and services to GDP – was 49.2 percent in 2019 (EU-28: 46.5 percent). However, imports are also important for the EU-27: the import ratio – the ratio of imports to GDP – was 45.3 percent in 2019 (EU-28: 43.4 percent). EU exports secure 36 million jobs in Europe. This figure has risen by two thirds since 2000.
Although the EU’s share of the world’s population is only just under seven percent, total EU-28 exports (goods) accounted for 15.8 percent of world exports in 2019 (including intra-EU trade). Total EU-28 imports (goods) in 2019 amounted to 15.4 percent of world imports (including intra-EU trade).
Investors from the EU represent 37.1 per cent of global stocks of foreign direct investment (FDI, 2018, UNCTAD). This makes the EU the world's largest source of cross-border investment. The EU is also the most important market for international investors, accounting for 31.2 per cent of direct investment stocks. International investment is an important driver of economic growth and jobs. 16 million jobs in the EU directly depend on FDI held by investors from third countries (2017: €6.3 trillion).
As a peace project, the EU has since its creation made an indispensable contribution to stability and security in Europe and its neighbourhood, as well as to economic development.
Major challenges: Corona virus, Brexit and rising protectionism
The EU faces major challenges, both at home and in the global economy. In a referendum in June 2020, a narrow majority of voters in the United Kingdom (UK) opted to leave the EU. On 31 January 2020 the UK left the European community after 47 years of membership. Preserving European unity, the coherence of the Single Market and limiting the damage for citizens and businesses are only three of the consequences the EU must master.
The COVID-19 pandemic has plunged citizens, societies and economies of all Member States into a serious crisis. The crisis has a massive impact on trade and economic growth. In addition to loss of production due to sickness of the workforce and production shutdowns caused by infection control measures, national export restrictions exacerbate the situation. Just-in-time production has become impossible. Unlike the last financial and economic crisis, trade is not expected to recover quickly.
Over the past 25 years, the World Trade Organisation (WTO) has been the backbone of the world trading system with its jointly agreed trade rules, liberalisation agreements and transparency and dispute settlement mechanisms. Germany and Europe have benefited considerably from open borders and reliable framework conditions. Unfortunately, the members of the WTO currently disagree on the future role of the organisation, which hampers the institution's ability to act. This has already led to a rise in protectionism and uncertainty on world markets.
Foreign direct investment is also facing more and more barriers. As the latest UNCTAD report on international investment policy shows, between November 2018 and February 2019 34 percent of global investment policies are restricting investment. The EU and many of its members - including Germany - have also tightened their investment screening systems.
Old and new partnerships
In addition, economic relations with important partners such as the USA and China have become much more conflictual.
The U.S. has been the EU’s largest and most important trading partner since the beginning of European trade data collection in 1988. It is and remains in the EU’s interest to maintain a community of shared values and good economic relations with the U.S. During the Trump administration, however, trade policy tensions have intensified in several areas. Tariffs on steel and aluminum, possible customs on European motor vehicles and their parts, the Airbus-Boeing dispute over subsidies and the new U.S. investigations into the safety risks posed by imports of electrical components and mobile cranes from the EU have increased trade policy tensions to a historically unusual degree.
After the U.S., China is Europe’s second most important trading partner. However, the systemic differences between the EU's open market economy and China's state-controlled hybrid economy have increasingly strained economic relations with the People's Republic in recent years. China has now become a global economic and technological heavyweight. The still existing asymmetries in market access in the areas of trade and investment are thus no longer acceptable to the EU. Chinese companies and their products have enjoyed largely free access to the EU Single Market since joining the WTO in 2001, while European companies are still discriminated against in China today. In addition, market distortions caused by Chinese subsidies and state-owned companies are increasingly observable on the European domestic market.
Africa is the fastest growing region in the world. Many African countries are promising economic partners and dynamic future markets for German and European industry. Compared to other regions of the world, German companies invest significantly less in Africa. For more investments, improvements in the conditions of the local economies are indispensable. This includes legal security, good governance, the fight against corruption, a reliable infrastructure and well-trained specialists and managers, and regional economic integration.
Strengthening capacity to shape the future
In order to effectively assert values, standards and interests internationally and act as independent power in the world, the EU must present itself to the outside world in a uniform, consistent and convincing manner. It must seek partners with common interests and work with them to shape the framework for world trade.
A strong common EU foreign, security and defense policy, embedded in the transatlantic alliance, supports the EU's ability to shape the world. To this end, EU member states should cooperate more closely among themselves in planning, research, development and procurement of technological capabilities and structures. The European Commission can initiate the necessary incentives, for example by establishing a European Defense Fund or Permanent Structured Cooperation.
In a world in which national silo-thinking is spreading, the EU must set a good example and promote open and rule-based trade. This includes working even harder for a reformed and strengthened WTO and pushing for the conclusion and implementation of bilateral trade and investment agreements, for example Free Trade Agreements with Mexico and Mercosur.
The EU must also sharpen its defense instruments to protect against unfair competition, increase its own competitiveness and set the course for a sustainable and fair economic partnership with China as well as with the United States. The rapid conclusion of a comprehensive investment agreement with China is just as important as an abolition of customs duties and mutual recognition of conformity tests with the U.S. In its Africa policy, the EU can give new impetus through the new EU-Africa Strategy providing for appropriate funding instruments, greater involvement of the private sector in cooperation and development cooperation, and the extension of the Green Deal to African countries.
A strong and increasingly digital Europe needs a secure and sustainable supply of raw materials. Raw materials are at the beginning of every value chain and as such an indispensable prerequisite for Industry 4.0 and future technologies such as electromobility. Worldwide, the demand for raw materials is growing rapidly while the concentration of supply is increasing. At the same time, Europe as an importer of numerous raw materials is dependent on free and fair global raw materials markets.