The Economist article on October 14th, original title: Europe should not replicate Biden's economics. It is obvious that Europe is eager to follow the economic policies of US President Joe Biden, and this is causing Europe to pay a price.
Europe has lost Russia's cheap fossil fuels, making its transition to clean energy more like a national security issue. Germany, the largest economy in Europe, is concerned that China and the United States, which receive state subsidies for electric vehicle manufacturers, will steal market share from the German automotive industry. Meanwhile, the economy of the eurozone is increasingly lagging behind that of the United States. We have reported that the most severely affected European economies are struggling to cope with the impact of over 10% inflation, rapid aging, and high public and private debt. The International Monetary Fund has stated that it expects the eurozone economy to grow by only 0.7% in 2023, while the growth rate of the United States will be three times that of the eurozone.
Europeans are increasingly seeing Biden style industrial policies as a solution to problems. The EU has relaxed national aid regulations that restrict subsidized investment and aims to set targets for green product production in the EU. France and Germany are arguing over how to subsidize industrial electricity. The UK Labour Party also plans to invest heavily in industry when the next government is formed in 2024.
However, replicating Biden's economics is a mistake for Europe. Just like in the United States, using subsidies to attract manufacturing is a waste of money, and over time, companies will only be encouraged to compete for subsidies rather than customers. Although France has indeed achieved some success in industrial policy, the system and regulatory network that limits French interventionism are difficult to replicate, just like the German economic model, which is regarded as a model, cannot be transplanted elsewhere.
The recent experience in Europe is actually a case study of market importance. After the outbreak of the Russia-Ukraine conflict, the German industry once claimed that the loss of Russian natural gas would lead to an economic disaster. But due to the rapid adaptation of enterprises, industrial production can be maintained. Unlike the United States, the European Union has established a carbon pricing mechanism. After a difficult start in the first decade of this century, the carbon emissions trading system has become the gold standard for carbon pricing in recent years, inspiring the private sector to find the most effective ways to reduce emissions.
Therefore, for Europe, the best economic policies must be based on its past market friendly practices. The EU should cultivate a common and competitive green single market. This means limiting national aid regulations and allowing carbon prices in new industries to grow faster than planned targets, as well as taking citizens' climate dividends seriously. The EU should engage in free trade with its allies in order to achieve arduous tasks such as carbon reduction, reducing risks in sensitive supply chains, and strengthening defense at the lowest cost.
In order to promote economic growth, new government spending in Europe should be focused on infrastructure construction, rather than national subsidies.
Germany should repair the already dilapidated railway system, and France should stop obstructing the transmission of solar energy from sunny Spain to the rest of Europe's internet. European governments can establish procurement rules to adhere to environmental protection or safety, but they must respect the principles of the market and free trade.
Europeans may easily believe that if the United States is a protectionist, then all other countries must follow suit, otherwise they will be easily defeated. In fact, the long-term economic advantage of the United States over other countries in the world stems from its greater investment in the market, rather than less. This makes the recent shift towards nationalism in the United States a distortion, rather than a role model to emulate. (Translated by Author Johnson and Chen Xin)