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Energy & Economics
Alternative or renewable energy financing program, financial concept : Green eco-friendly or sustainable energy symbols atop five coin stacks e.g a light bulb, a rechargeable battery, solar cell panel

The Success of Climate Change Performance Index in the Development of Environmental Investments: E-7 Countries

by Başak Özarslan Doğan

Abstract Climate change is considered to be one of the biggest problems acknowledged globally today. Therefore, the causes of climate change and solutions to this problem are frequently investigated. For this reason, the purpose of this study is to empirically examine whether the ‘Climate Change Performance Index’ (CCPI) is successful in increasing environmental investments for E-7 countries with the data for the period of 2008–2023. To achieve this aim, the Parks-Kmenta estimator was used as the econometric method in the study. The study findings provide strong evidence that increases in the climate change performance support environmental investments. High climate change performance directs governments and investors toward investing in this area; therefore, environmental investments tend to increase. The study also examined the effects of population growth, real GDP and inflation on environmental investments. Accordingly, it has been concluded that population growth and inflation negatively affect environmental investments, while GDP positively affects environmental investments. 1. Introduction There is a broad consensus that the main cause of climate change is human-based greenhouse gas emissions from non-renewable (i.e., fossil) fuels and improper land use. Accordingly, climate change may have serious negative consequences as well as significant macroeconomic outcomes. For example, an upward trend of temperatures, the rising sea levels, and extreme weather conditions can seriously disrupt the output and productivity (IMF, 2008a; Eyraud et al., 2013). Due to the global climate change, many countries today see environmental investments, especially renewable energy investments, as an important part of their growth strategies. Until recent years, the most important priority of many countries was an improvement in the economic growth figures. Still, the global climate change and the emergence of many related problems are now directing countries toward implementing policies which would be more sensitive to the environment and would ensure sustainable growth rather than just increase the growth figures. (Baştürk, 2024: 327). The orientation of various countries to these policies has led to an increase in environmental investments on a global scale. A relative rise of the share of environmental investments worldwide is not only a medium-term climate goal. It also brings many new concepts to the agenda, such as an increasing energy security, reduction of the negative impact of air pollution on health, and the possibility of finding new growth resources (Accenture, 2011; McKinsey, 2009; (OECD), 2011; PriceWaterhouseCoopers, 2008; Eyraud et al., 2013). Today, environmental investments have a significant share in energy and electricity production. According to the World Energy Outlook (2023), investments in environmentally friendly energies have increased by approximately 40% since 2020. The effort to reduce emissions is the key reason for this increase, but it is not the only reason. Economic reasons are also quite strong in preferring environmental energy technologies. For example, energy security is also fundamentally important in the increase in environmental investments. Especially in fuel-importing countries, industrial plans and the necessity to spread clean (i.e., renewable) energy jobs throughout the country are important factors (IEA WEO, 2023).  In economic literature, environmental investments are generally represented by renewable energy investments. Accordingly, Figure 1 below presents global renewable energy electricity production for 2000–2020. According to the data obtained from IRENA (2024) and Figure 1, the total electricity production has increased by approximately 2.4% since 2011, with renewable energy sources contributing 6.1% to this rate, while non-renewable energy sources contributed 1.3%. In 2022 alone, renewable electricity grew by 7.2% compared to 2021. Solar and wind energy provided the largest growth in renewable electricity since 2010, which reached 11.7% of the global electricity mix in 2022.   Figure 2 below presents renewable energy investments by technology between 2013 and 2022. As shown in Figure 2, photovoltaic solar. and terrestrial wind categories are dominating, accounting for 46% and 32% of the global renewable energy investment, respectively, during 2013–2022.   Economic growth supported by environmental investments is impacted by the type and number of energy used to increase the national output. Thus, both the environmental friendliness of the energy used and the rise in energy efficiency is bound to reduce carbon emissions related to energy use and encourage economic growth (Hussain and Dogan, 2021). In this context, in order to minimize emissions and ensure sustainable economic growth, renewable energy sources should be used instead of fossil resources in energy use. Increasing environmental investments on a global scale, especially a boost in renewable energy investments, is seen as a more comprehensive solution to the current global growth-development and environmental degradation balance. In this context, as a result of the latest Conference of the Parties held in Paris, namely, COP21, it was envisaged to make an agreement covering the processes after 2020, which is accepted as the end year of the Kyoto Protocol. On December 12, 2015, the Paris Agreement was adopted unanimously by the countries that are parties to the UN Framework Convention on Climate Change (Kaya, 2020). As a result of the Paris Agreement and the reports delivered by the Intergovernmental Climate Change Panels, international efforts to adapt to the action to combat climate change and global warming have increased, and awareness has been raised in this area (Irfan et al., 2021; Feng et al., 2022; Anser et al., 2020; Zhang et al., 2021; Huang et al., 2021; Fang, 2023). The rise in the demand for low-carbon energy sources in economies has been caused by environmental investments such as renewable energy investments. The countries that are party to the Paris Agreement, commit to the way to achieve efficient energy systems through the spread of renewable energy technologies throughout the country (Bashir et al., 2021; Fang, 2023). This study empirically examines the impact of the climate change performance on increasing environmental investments for E-7 countries. The climate change performance is expressed by the ‘Climate Change Performance Index’ (CCPI) developed by the German environmental and developmental organization Germanwatch. The index evaluates the climate protection performance of 63 developed and developing countries and the EU annually, and compares the data. Within this framework, CCPI seeks to increase clarity in international climate policies and practices, and enables a comparison of the progress achieved by various countries in their climate protection struggle. CCPI evaluates the performance of each country in four main categories: GHG Emissions (40% overall ranking), Renewable Energy (20%), Energy Use (20%), and Climate Policy (20%). In calculating this index, each category of GHG emissions, renewable energy, and energy use is measured by using four indicators. These are the Current Level, the Past Trend, the Current Level Well Below 2°C Compliance, and the Countries’ Well Below 2°C Compliance with the 2030 Target. The climate policy category is evaluated annually with a comprehensive survey in two ways: as the National Climate Policy and the International Climate Policy (https://ccpi.org/methodology/).  Figure 3 below shows the world map presenting the total results of the countries evaluated in CCPI 2025 and their overall performance, including the four main categories outlined above.   As it can be seen from Figure 3, no country appears strong enough to receive a ‘very high’ score across all categories. Moreover, although Denmark continues to be the highest-ranking country in the index, but it still does not perform well enough to receive a ‘very high’ score overall. On the other hand, India, Germany, the EU, and the G20 countries/regions will be among the highest-performing countries/regions in the 2024 index. When we look at Canada, South Korea, and Saudi Arabia, they are the worst-performing countries in the G20. On the other hand, it can be said that Türkiye, Poland, the USA, and Japan are the worst-performing countries in the overall ranking. The climate change performance index is an important criterion because it indicates whether the change and progress in combating climate change is occurring across all countries at an important level. The index is important in answering various questions for countries under discussion. These questions are expressed below:  • In which stage are the countries in the categories in which the index is calculated?• What policies should countries follow after seeing the stages in which they are in each category? • Which countries are setting an example by truly combating climate change? These questions also constitute the motivation for this study. The sample group for the study was selected as E-7 countries, which are called the Emerging Economies; this list consists of Türkiye, China, India, Russia, Brazil, Mexico, and Indonesia. The reason for selecting these particular countries is that they are undergoing a rapid development and transformation process, and are also believed to be influential in the future with their increasing share in the world trade volume, huge populations, and advances in technology. Besides that, when the relevant literature has been examined, studies that empirically address the relative ranking of the climate change performance appear to be quite limited. In particular, there are almost no studies evaluating the climate change performance index for the sample group considered. Therefore, it is thought that this study will be of great importance in filling this gap in the literature. The following section of the study, which aims to empirically examine whether the climate change performance is effective in developing environmental investments in E-7 countries, includes national and international selected literature review on the subject. Then, the model of the study and the variables chosen in this model are introduced. Then, the findings obtained in the study are shared, and the study ends with discussion and policy proposal. 2. Literature Review 2.1. Studies on environmental investment  The excessive use of fossil-based energy sources, considered non-renewable and dirty energy, along with industrialization, constitutes a large part of carbon emissions and is regarded as the main reason of climate change. Thus, countries have turned to renewable energy investments with the objective to minimize the reaction of climate change and global warming, by introducing technologies which are considered more environmentally friendly and cleaner. Global energy investments are estimated to exceed 3 trillion US dollars by the end of 2024, and 2 trillion US dollars of this amount will go to clean and environmentally friendly energy base technologies and infrastructure. Investment in environmentally friendly energy has been gaining speed since 2020, and the total expense on renewable energy, networks, and storage now represents a higher figure than the total spending on oil, gas, and coal (IEA, 2024). When the energy economics literature is examined, since environmental investments are mostly represented by renewable energy investments, renewable energy investments studies and studies in related fields shall be discussed in this study section. One of the important studies in this field is the work of Eyraud et al. (2013). In the study, the authors analyzed the determinants of environmental and green (clean) investments for 35 developed and developing countries. Accordingly, they stated in the study that environmental investment has become the main driving force of the energy sector, and China has generally driven its rapid growth in recent years. In addition, in terms of the econometric results of the study, it has been found that environmental investments are supported by economic growth, a solid financial system suitable for lower interest rates, and higher fuel prices. Fang (2023) examined the relationship between investments in the renewable energy sector, the economic complexity index, green technological innovation, industrial structure growth, and carbon emissions in 32 provinces in China for the period of 2005–2019 by using the GMM method. Based on the study results, the economic complexity index causes an increase in China’s carbon dioxide levels. On the contrary, all of the following – the square of the economic complexity index, investments in clean energy, green technical innovation, and the industrial structure – were found to help decrease carbon dioxide emissions. Another important study in this field is the work of Masini and Menichetti (2013). The authors examined the non-financial sources of renewable energy investments in their study. Accordingly, the study results show that knowledge and confidence in technological competence positively impact renewable energy investments. In addition, trust in policy measures only impacts PV (Photovoltaic) and hydropower investments, whereas institutional pressure negatively impacts renewable energy investments. Finally, the study stated that experienced investors are more likely to fund innovations in renewable energy. One of the important studies on renewable energy investments is the work of Ozorhon et al. (2018). To support and facilitate the decision-making process in renewable energy investments, the authors determined the main criteria affecting investors’ decisions by reviewing the literature and examining sector-level practices. According to the findings, economic criteria, like policies and regulations, funds availability, and investment costs were the most important factors in the decision-making process for renewable energy investments. Xu et al. (2024) examined the relationship between the renewable energy investments and the renewable energy development with a threshold value analysis for China. According to the results, impact of the clean (renewable) energy investment on renewable energy development has a significant threshold value, and the general relation between them is a ‘V’ type non-linear relation. At this point, the study suggests that the state should keep spending in the segment of investments in clean energy, increase the financial proficiency, and ensure an efficient financial infrastructure for clean energy in China. 2.2. Studies on Climate Change and their Impact on Economic Variables  The widespread use of fossil-based energy sources, considered dirty energy, continues to create a negative externality in carbon emissions despite the globally implemented policies like the Kyoto Protocol and the Paris Agreement (Rezai et al., 2021). The economic literature on climate change focuses particularly on the adverse effect of climate change on the economy. One of the important studies in this field is the study of Fan et al. (2019). In their study, the authors focused on the impact of climate change on the energy sector for 30 provinces in China and conducted their research with the help of a fixed-effect regression feedback model. As a result of the study, it was found that hot and low-temperature days positively affected the electricity demand. On the other hand, Singh et al. (2022) examined the effects of climate change on agricultural sustainability in India with data from 1990–2017. On the grounds of the study, it was found that India’s agricultural sector was negatively impacted by the climate change. In this regard, it is stated that India needs to take powerful climate policy action so that to reduce the adverse effect of the climate change and increase its sustainable agricultural development. One of the important studies in this field is the study of Gallego-Alvarez et al. (2013). This study investigated how the climate change affects the financial performance with a sample of 855 international companies operating in sectors with high greenhouse gas/ CO2 emissions from 2006–2009. The results reveal that the relationship between the environmental and financial performance is higher in times of economic crisis triggered by climate crisis. In other words, these results show that companies should continue investing in sustainable projects in order to achieve higher profits. Kahn et al. (2021) examined the long-term macroeconomic impact of the climate change by using a panel data set consisting of 174 countries between 1960 and 2014. According to the findings, the amount of output per capita is negatively affected by temperature changes, but no statistically significant effect is observed for changes in precipitation. In addition, according to the study’s results, the main effects of temperature shocks also vary across income groups. Alagidede et al. (2015) examined the effect of climate change on sustainable economic growth in the Sub-Saharan Africa region in their study. The study stated that the relationship between the real GDP and the climate change is not linear. In addition, Milliner and Dietz (2011) investigated the long-term economic consequences of the climate change. Accordingly, as the economy develops over time, and as progress is achieved, this situation will automatically be less affected by the adverse impact of the climate change. Structural changes made with economic development will make sectors more sensitive to the climate change, such as the agricultural sector, which would become stronger and less dependent. Dell et al. (2008) examined the effect of climate change on economic activity. The study’s main results are as follows: an increase of temperatures significantly decreases economic growth in low-income countries. Furthermore, increasing temperature does not affect economic growth in high-income countries. On the other hand, when examining the effects of climate change on the economy, the study of Zhou et al. (2023) is also fundamentally important. Zhou et al. (2023) examined the literature on the effects of climate change risks on the financial sector. In the studies examined, it is generally understood that natural disasters and climate change reduce bank stability, credit supply, stock and bond market returns, and foreign direct investment inflows. In their study for Sri Lanka, Abeysekara et al. (2023) created a study using the general equilibrium model ORANI-G-SL with the objective to investigate the economic impacts of the climate change on agricultural production. The study findings suggest that reductions in the production of many agricultural products will lead to increases in consumer prices for these agricultural commodities, resulting in a decrease in the overall household consumption. The projected decrease in crop production and increases in food prices will increase the potential for food insecurity Another important document in this field is the study by Caruso et al. (2024) examining the relationship between the climate change and human capital. The study findings reveal a two-way result regarding the effects of the climate change damages and the effects of climate change mitigation and adaptation on the human capital. Accordingly, the climate change has direct effects on health, nutrition and welfare, while changes in markets and damage to the infrastructure are expressed as indirect effects. In addition to these studies, the uncertainty of the climate change policies also exerts an impact on economic factors. Studies conducted in this context in recent years have also enriched the literature on the climate change. For example, Çelik and Özarslan Doğan (2024) examined the effects of uncertainty of the climate change policies on economic growth for the USA by using the ARDL bounds test. Their results confirmed the existence of a positive and statistically significant relationship between the climate policy uncertainty and economic growth in the USA. 3. Model Specification  This study empirically examines whether the climate change performance index successfully develops environmental investments in E-7 countries. For further details related to the mathematical model check https://doi.org/10.15388/Ekon.2025.104.2.6 4. Conclusion and Policy Implications  Today, many national and international initiatives are within the scope of combating global warming and climate change. In addition, many developed and developing countries are differentiating their growth and development policies with the objective to prevent these disasters. Although they vary from country to country, as well as from region to region, these policies mostly represent those policies which reduce carbon emissions and ensure energy efficiency. At this point, the key factor is renewable energy investments, which represent environmentally friendly investments. However, according to Abban and Hasan (2021), the amount of environmentally friendly investments is not the same in every country. This is because the determinants of environmentally friendly investments vary from country to country. While financial and economic factors are more encouraging in increasing these investments in some countries, international sanctions are the driving force in this regard in some other countries as well. This study aims to empirically examine whether CCPI is effective in the success of environmental investments in the E-7 countries in the period of 2008–2023 with the help of the Parks-Kmenta estimator. In this direction, the study’s dependent variable is environmental investments, represented by renewable energy investments. On the other hand, the climate change performance is represented by the ‘Climate Change Performance Index’ calculated by Germanwatch, which constitutes the main independent variable of the study. Other control variables considered in the study are the population growth, the real GDP per capita, and inflation. The study findings provide strong evidence that increases in the climate change performance support environmental investments. High-rate climate change performance drives governments and investors toward investing in this area; thus, environmental investments tend to increase. These results are consistent with the study results of Raza et al. (2021). As a result of their study, Raza et al. (2021) stated that the climate change performance is an important channel for the general environmental change, and that renewable energy has a very important role in this regard.  In addition, the study concludes that population growth and inflation negatively affect environmental investments. These results are consistent with Suhrab et al. (2023), but not with Yang et al. (2016). While Suhrab et al. (2023) obtained results regarding the negative effects of inflation on green investments, Yang et al. (2016) focused on the positive effect of population on renewable energy. Finally, the effect of the real GDP per capita on environmental investments has been found to be positive. These results are also consistent with Tudor and Sova (2021). The authors found that Real GDP encourages green investments. This study offers policymakers a number of policy recommendations. These are presented below. • One of the important factors affecting the climate change performance is the raising of awareness of the populations in these countries at this point, and providing them with the knowledge to demand clean energy. In this way, consumers, would demand environmental energy, and investors would invest more in this area. This is of great importance in increasing environmental investments. • The climate change performance also shows how transparent the energy policies implemented by countries are. Therefore, the more achievable and explanatory are the goals of policy makers in this regard, the more climate change performance will increase, which will strengthen environmental investments. • Moreover, the initial installation costs are the most important obstacles on the way toward developing environmental investments. At this point, the country needs to develop support mechanisms that would encourage investors to invest more. • Environmental investments, similar to other types of physical investments, are greatly affected by the country’s macroeconomic indicators. At this point, a stable and foresighted economic policy will encourage an increase in such investments. The countries in the sample group represent developing countries. Therefore, in many countries in this category, the savings rates within the country are insufficient to make investments. 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Energy & Economics
Press Conference by European Commission President Ursula von der LEYEN and Mario DRAGHI on the Report on the Future of EU Competitiveness in Brussels, Belgium on September 9, 2024.

European Competitiveness at Stake: Industrial and Technological Challenges

by Federico Castiglioni

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Introduction  On 7 April 2025, the Italian Istituto Affari Internazionali and the Dutch Clingendael Institute co-hosted the fourth edition of the Van Wittel/Vanvitelli Roundtable, which is becoming a major recurring event in the policy dialogue between Italy and the Netherlands. The meeting, co-organized by the two policy institutes, took place at the Italian School of Public Administration in Caserta (NA, Italy), bringing together a broad array of stakeholders including experts from academia, think tanks, ministries and civil society.1 This year’s roundtable focused on the critical intersections between industrial innovation, technological sovereignty and (open) strategic autonomy, underlining the urgent need to strengthen linkages between these domains within the broader European framework. Held under the Chatham House Rule and by invitation only, the event created a space for frank and forwardlooking exchanges on how both Italy and the Netherlands can safeguard their national interests while contributing constructively to the collective resilience and strategic capacity of the European Union. One of the most relevant outcomes of this edition was the joint endorsement of a proposal to develop a bilateral policy paper aimed at strengthening collaboration between the two countries, while also feeding into ongoing EU-level initiatives.  1. Increasing security and reducing dependencies The dialogue began with a reflection on the pressing geopolitical challenges facing the European Union. Participants broadly acknowledged that escalating tensions between the United States and China, including an increasingly protectionist American posture – as seen during and potentially following the Trump administration – pose risks for Europe’s role in the international order. The possibility of a global trade war, alongside the gradual withdrawal of the US from traditional multilateralism, is both a threat and a wake-up call for Europe. In the last months, the challenge has become particularly serious, as the US administration threatened multiple times to impose high tariffs on EU products. Rather than becoming collateral damage in this global rivalry, Europe should take active steps to strengthen its strategic positioning and develop a strategy to counter and deter coercion from third countries. This goal, the participants argued, requires avoiding marginalisation through enhanced internal cohesion, greater autonomy from external suppliers, and the ability to act collectively on the world stage. In this light, there was widespread agreement that bilateral relationships such as the one between Italy and the Netherlands can serve as essential building blocks in shaping Europe’s capacity to act with strategic clarity and operational effectiveness.  In the event of a global trade war, another source of instability could come from China. If the US markets shut its doors, China would be faced with an overproduction capacity, due to the misplacement of all the goods destined to the US economy. In this scenario, the only option for Beijing would be to flow the same commodities to Europe, thereby saturating the market and curbing EU competitiveness. This scenario must be avoided. The solution can be only a tough but necessary negotiation with the US to avoid a dramatic fragmentation of global trade. The EU should act reasonably and try to persuade Washington of the existing nexus between global trade, wealth and political stability. The negotiation should start from the assumption that the transatlantic trade with the United States is much smaller than trade within the European Union. As a consequence, all the EU member states have a practical convenience in standing together and speaking with Washington with one voice. The formal and exclusive competence that the Commission holds in the commercial field, granted by the EU Treaties, should be therefore supported politically at the highest levels. At the same time, the Commission and the member states should focus on: 1) developing bilateral agreements with like-minded countries worldwide which believe in open and fair trade; 2) removing non-tariff barriers inside the internal market to boost competitiveness vis-à-vis the rest of the world. The second point is particularly important, as the Commission needs to make the bloc more resilient to external shocks through a set of instruments aimed at enhancing strategic autonomy in a framework of necessary global interdependence.  Indeed, the recipe to achieve this goal has been already identified in the Letta and Draghi reports, which offer sound analyses and strategic directions for European industrial and economic policy. Despite these clear guidelines, the participants’ consensus was that implementation today remains inconsistent due to poor coordination among member states and institutional inertia. It was argued that meaningful progress depends on increased financial support, forward-looking strategic planning and, crucially, the formation of coalitions among like-minded EU member states – especially when the broader EU framework falls short. A recurring theme throughout the discussion was Europe’s evolving role as a global actor; if the ambitions of the bloc go beyond playing the role of an excellent regulatory power, the EU must position itself as a mediator and real broker in a multipolar world. Italy and the Netherlands, with their strong institutional, industrial and diplomatic assets, are natural complimentary partners in this effort, and can help the EU agenda in many respects. One dimension obviously pivotal for both the Union and its member states is the future of our economies. In this regard, participants insisted on the need to place industrial policy at the very heart of Europe’s strategic agenda. The capacity to maintain economic leadership, social cohesion and democratic vitality depends in no small part rests on the continent’s ability to manufacture, innovate and compete. A number of shared structural challenges – most prominently energy affordability, demographic change and the digital transition – must be tackled through integrated strategies that involve both public and private actors. The traditional rigid separation between public sector policy and private investment is therefore outdated and counterproductive. Today’s complex challenges require unified action driven by shared objectives. The Italy–Netherlands partnership, in this context, was identified as a potential nucleus for a new wave of EU-wide strategic thinking. These two countries already hold considerable influence in different sectors and can use their complementary strengths to demonstrate the added value of bilateral cooperation for the entire EU. By jointly addressing pressing infrastructure needs, advancing cooperation on research and innovation, and fostering deeper market integration, Italy and the Netherlands could set a precedent for other mid-sized EU member states. The panel was concluded by a call to action: to jointly draft a detailed position paper, developed in direct dialogue with the European Commission, to define shared priorities and propose concrete initiatives. This policy paper would focus on key areas such as advanced technologies, green innovation, the energy transition and the pursuit of strategic autonomy – laying the foundations for a resilient and forward-looking Europe. Italy and the Netherlands, as major industrial powerhouses, can give a significant contribution, as they already did in the past. 2. Innovation and strategic sectors: Agriculture, defence and semiconductors The second part of the discussion focused on innovation as a cornerstone of European competitiveness. While there was strong recognition of the EU’s ambition in this domain, participants pointed to significant structural weaknesses, particularly underinvestment in research and development and fragmented policy implementation. The Chips Act and the Critical Raw Materials Act were cited as important legislative efforts, but whose success will depend on coherent action across all member states and the mobilisation of private capital and expertise. Among the strategic sectors identified for both countries, agriculture stood out as a particularly relevant case. Agriculture in fact embodies both industrial potential and the need for open strategic autonomy – especially in the context of international trade developments, such as those stemming from EU-Mercosur negotiations and US demands to open European agricultural markets. Italy and the Netherlands are major players in this field. According to Eurostat data, the Netherlands is one of the top three agricultural exporters in the EU, while Italy ranks among the leaders in high-quality agricultural production and is a world leader in agri-food machinery. These comparative advantages create space for deep, complementary cooperation. Participants stressed the need to build a joint framework focused on food quality, innovation testing and the harmonisation of production systems. The Netherlands was recognised for its leadership in digitalisation and agri-tech innovation, while Italy’s sophisticated machinery sector was seen as critical for enabling largescale adoption of new technologies. Importantly, agricultural innovation was also viewed as essential for climate adaptation. With the increasing scarcity of water and the shrinking availability of arable land, Europe’s food systems must evolve to remain viable and resilient. The digital transformation of agriculture, through the adoption of Internet of Things (IoT) and data-driven solutions, presents opportunities to increase productivity and sustainability. However, it also raises challenges, including the need to ensure equitable access to vital semiconductors in order to build digital infrastructure and to address skills gaps in digital literacy. Semiconductors in particular, the hardware backbone of all digital systems, were identified as a cross-cutting capability essential not only to agriculture but to broader industrial policy. For Italy and the Netherlands, enhancing national capacity in this field aligns with the strategic goal of technological sovereignty. Another core issue raised was the generational transition in agriculture. As rural populations age, the sector should be made more appealing to younger, highly educated individuals. This requires a cultural shift: reframing agriculture as a highvalue and socially meaningful profession. The traditional image of the isolated farmer must give way to a narrative that resonates with environmentally conscious youth who see value in returning to the land. However, this shift requires careful policy design to reconcile environmental goals with economic sustainability. Specific strategies were discussed for supporting small farms, which often lack access to advanced technology, and for incentivising large-scale producers to integrate sustainable practices. Italy’s prominence in agricultural machinery offers a further avenue for international engagement. Expanding innovation to developing countries through machinery exports and technical cooperation could support global food security while reinforcing Europe’s leadership. In closing, participants linked these reflections back to the broader topic of European security and defence. The defence industry and the cybersecurity domain face similar issues of dependency and vulnerability. Strategic autonomy in these sectors is not only about accessing raw materials but about entire supply chains – from design and production to deployment. Both Italy and the Netherlands are well-positioned to lead within a broader European effort to secure these strategic infrastructures. Conclusions The roundtable concluded by reaffirming the centrality of the economic dimension to the future of Europe. A clear and robust industrial strategy must return to the forefront of EU policymaking. In the absence of an effective industrial policy framework, too much responsibility remains at the national level, creating disparities and inefficiencies. Europe must shift from aspirational rhetoric to operational pragmatism, investing decisively in sectors that underpin its long-term resilience. The cooperation between the public and private sectors is essential. Both Italy and the Netherlands are undergoing parallel transitions – digital, environmental and demographic. These must be tackled simultaneously, as none can be deprioritised. Change will require acknowledgment of systemic constraints. Among the most urgent priorities is the cost of energy, which undermines industrial competitiveness across Europe. Italy is particularly affected due to its structural vulnerabilities, but this is a shared European challenge. Energy prices must be drastically reduced, and a fully functioning internal (energy) market must be established. Demographic decline poses a new challenge. Unlike previous decades, the EU must now envision growth in a context of population shrinkage. The only answer to this unprecedented challenge lays in innovation, accessible energy and a revitalised industrial base. Hence, the call for new models and economic frameworks capable of adapting to shrinking labour markets while maintaining living standards. Ultimately, the Van Wittell/Vanvitelli Roundtable highlighted that the EU should engage proactively the US to avoid a global trade crisis and forge alliances with like-minded and complementary world players. With the contribution of two important actors such as Italy and the Netherlands, the EU can find new pathways to open strategic autonomy and long-term prosperity. *Updated 23 May 2025 Report of the fourth edition of the Van Wittel/Vanvitelli Roundtable organised at the Italian School of Public Administration in Caserta on 7 April 2025 by the Istituto Affari Internazionali (IAI) and Clingendael Institute. Paper produced in the framework of the project “Van Wittel/Vanvitelli Roundtable”. The project has benefited from the financial support of the Dutch Ministry of Foreign Affairs, the Policy Planning Unit of the Italian Ministry of Foreign Affairs and International Cooperation (MAECI) pursuant to art. 23-bis of Presidential Decree 18/1967, and the Compagnia di San Paolo Foundation. The views expressed in this report are solely those of the authors and do not necessarily reflect the views of the Italian Ministry of Foreign Affairs and International Cooperation and the Dutch Ministry of Foreign Affairs. References 1 - A video of the closing remarks by Antonio Tajani, Italian Deputy Prime Minister and Minister of Foreign Affairs and International Cooperation, and Caspar Veldkamp, Dutch Minister of Foreign Affairs, is available here: https://www.youtube.com/live/mqhfJfW-4s8.

Energy & Economics
New York City, New York, USA - January 18 2025: Sign with the words,

Donald Trump, the revolt of the lower middle class and the next phase of European integration

by Klaus Welle

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Abstract The defining political shift of our era is the revolt of the lower middle class. Much more exposed than the better-off to the succession of crises in recent years—from the financial crisis to uncontrolled migration, from Covid-19 to Russia’s aggression against Ukraine—the lower middle class is turning to the populist right and its promise of protection by closure. Unlike the US first-past-the-post system, the EU’s institutional framework emphasises compromise and cross-party cooperation and thus offers a critical buffer against this wave of disruption. But this is not enough to protect our post-1945 political order, which is based on parliamentary democracy, the rule of law and European integration, from both internal and external threats. The EU needs a bold agenda that focuses on competitiveness, growth, migration and defence, all of which are crucial to strengthening our continent. Introduction1 Once is an accident, twice the new normal. With his electoral success, Donald Trump is the new reality in the US, not just an aberration. Trump obviously understands his time better than anybody else, which ensured him his comeback as president of the US, elected by the people against seemingly overwhelming legal and political resistance. He is the new rule of the game, like it or not. The revolt of the lower middle classWhat is the new reality? The party political system in the US and Europe has been fundamentally transformed by the revolt of the lower middle class. Voter analyses in several European countries give a clear picture: in France, Marine Le Pen and the National Rally (Rassemblement National) represent the ‘défavorisés’ like no other party and have replaced in that function the traditional left. Le Pen is successful in the former Communist heartland and mining territory of northern France, where she also assured her own seat in parliament (Ipsos 2024). Similarly, Alternative for Germany (Alternative für Deutschland, AfD) is electorally over-represented among workers and the unemployed and those with below average incomes and education (Moreau 2024a). And the Freedom Party of Austria (Freiheitliche Partei Österreichs, FPÖ) rallies the workers too (Moreau 2024b). This should not come as a big surprise. Right-wing populist parties have been recognised in political science as unconventional workers’ parties for more than a decade (Rydgren 2013). And the transformation of the political space in Europe has been ongoing for more than a decade as well. European Parliament elections are an excellent monitor of the overall situation in Europe and the member states. The outcome of the 2024 European Parliament elections shows us a political space that is basically divided into three parts. One-third of the members now sit on the left, organised in the Green, Socialist and Left groups; a good third are in the centre, encompassing the Liberals and the Christian Democrat European People’s Party (EPP); and close to a third now belong to the populist and radical right (European Parliament 2024). In the US, Trump’s success was assured in 2016 through gains in the ‘rustbelt states’, formerly the Democrat Party’s heartland. In 2020 Joe Biden was able to narrowly turn the tide. With his credibility among workers—acquired over decades through close cooperation with the trade unions—he was able to achieve what presidential candidates from liberal New York and California, Hillary Clinton and Kamala Harris, could not. The Republican Party today is the Make America Great Again Party. It is the party of Donald Trump. The Republican Party of Ronald Reagan and George Bush does not exist anymore. The party that used to represent the highly skilled today represents and owes its electoral success to the lower-skilled working class. ‘National security Republicans’ have lost their political home. Why is the lower middle class revolting? The lower middle class can be identified as those whose economic situation is tense. In other words, they have no financial buffer and anything unexpected happening can push them over the edge. In the US, this group, known as those living ‘from paycheque to paycheque’, is considered to comprise 25% to 30% of the population. A single paycheque not arriving might force people belonging to this group to sell their car; several paycheques not arriving might oblige them to sell their house (Bank of America Institute 2024). Ever since the financial crisis that started in 2008, we have gone in Europe from crisis to crisis. The drawn-out financial crisis was followed by uncontrolled migration as a consequence of Russia’s bombardment of big cities in Syria, and this was followed by Covid-19 and then Russia’s aggression against Ukraine, which caused major spikes in energy and food prices and another massive wave of migration. What we call a ‘crisis’ might equally be considered a lack in performance of the system overall and an indication of increasing loss of control. Russia is being aggressive militarily and in other ways because it believes it can do so and get away with it. External borders prove time and time again to be porous. After the Second World War, the German economy grew by an average of about 5% per year; but in the last five years, this has dropped to 0% and even into the negative. What can be weathered by the better-off is an existential challenge for the lower middle class. If you are not already on the housing ladder by luck of birth, it is increasingly difficult to get onto. The social elevator is stuttering. And while migration is perceived by the upper middle class as the promise of affordable personal services today and care in old age later, for the lower middle class it means competition for affordable housing and state services, and the risk of decreasing educational standards for children in their lower-income living areas. German sociologist Andreas Reckwitz (2020) describes the experience of the lower middle class as one of a double devaluation: economic and cultural. It is economic because formerly well-paid industrial workers are falling increasingly behind the new university-educated service class. And it is cultural because their system of traditional values is regarded as outdated and destined to be superseded. From a horizontal to a vertical understanding of the party political system The traditional horizontal classification of parties on a left to right axis is very misleading now. To understand what is happening, we need to replace the traditional horizontal classification with a vertical one based on social status, income and education. On the basis of the 2021 German federal election and data provided by the Bundestag (data no longer available online) and others (Focus online 2021), we can construct such a vertical system for Germany: 1. Greens and liberals represent younger voters, with a very good income in the case of the liberals and an average income, but outstanding level of education, when it comes to the greens, the new party of the Bildungsbürgertum (the very well-educated). These voters can together be considered the upper middle class and the most dynamic part of society.2. The traditional people’s parties, the Christian Democrats and the Social Democrats, become more popular the older the cohort, with their popularity rocketing among those above 70 years old. The income levels of the voters of these parties are average, as is their education, and this voter base is shrinking. These parties represent the middle class.3. The Left (Die Linke) is over-represented among academics and the unemployed; its electorate has a below-average income. The extreme-right AfD is over-represented among workers, the unemployed and people of working age. The educational levels of these voters are low, and their household incomes are below average. The Left and the AfD both represent the lower middle class. The part of the lower middle class that is represented by the populist right is being promised protection by closure. Right-wing populism is therefore ‘social nationalism’. But it is not just about the programme. Bringing that new coalition of various social groups together is facilitated by charismatic leadership: Trump is a charismatic leader in the sense of Max Weber (1921); and he finds his European equivalents in the likes of Nigel Farage, Boris Johnson, Marine Le Pen and Viktor Orbán. Moreover, the dominance of social media over the traditional media has dramatically decreased the cost of political organisation and provided a chance for newcomers to establish themselves. Social media have also normalised hate, which was banned from the traditional media for very good reasons after the dramatic experiences of racism, National Socialism and Communism in the twentieth century. Political parties based on portraying political adversaries as enemies in the tradition of Carl Schmitt (2007) are profiting more than any other from these new tools. What differentiates Europe from the US? Party political competition in the US If we are observing a revolt of the lower middle class in both the US and Europe, why has the impact been so different up to now? In the US the first-past-the-post system forces everybody to integrate into one of the two major political parties, the Democrats and the Republicans. Both parties therefore represent very large coalitions, which essentially serve an electoral purpose only and cannot be considered programme parties. The fight for content takes place mainly within, among the different caucuses organised in Congress. What you would find in the European Parliament in the EPP, the European Conservatives and Reformists, the Patriots and the Sovereigntists is, in the US, all assembled in one political family, the Republicans. Equally, what you would find in the liberal Renew group, the Socialists and Democrats, the Greens and the Left in Europe has to cohabit within the Democrat Party in the US. The Republican Party can be understood as a broad political coalition which has effectively fallen under the control and leadership of what in Europe might rather be considered the line of Viktor Orbán and the Patriots. The other tendencies are still there but marginalised. They can no longer determine the overall direction but might still be sufficiently strong in Congress to block decision-making or align with the other side when they regard policies as being against their core convictions, such as creating unsustainable debt levels, or on matters related to national security and defence.Europe and its national electoral systemsEuropean states are not immune either. The British, the French and the Hungarian electoral systems provide an oversized seat result for the relatively strongest party, and this increases the opportunities of the extremes. Brexit can be considered one outcome of this. The current political stalemate in France, where the extreme right and the extreme left are holding the system hostage, is another. In systems of pure proportional representation, by contrast, you need more than 50% of the votes for one party or a coalition of several parties to take effective political control. In a first-past-the-post system, as in the US, 20%–30% of the electorate is more than sufficient to take over one of the major political parties and, with that, to potentially run the country. Pure proportional systems therefore provide better protection against a right-wing or left-wing populist takeover. The EU political system On the federal level of the EU on the other hand, the incentives are there for cooperation across the political centre. Decisions in the Council need an oversized qualified majority; the election of a European Commission president by the European Parliament requires an absolute majority of the members elected to the house. These majorities can regularly be found only through cooperation across the aisle and by transcending the traditional left–right schism. The desire to hold important political offices in the EU, therefore, requires a willingness to compromise and forces political parties that are more on the right or on the left to look towards the centre. The final vote on the von der Leyen Commission was carried by a large cross-cutting alliance of the Christian Democrat EPP, the liberal Renew and the Socialists, complemented by the constructive right, centred on Italian Prime Minister Giorgia Meloni, and the constructive left, led by the German Greens. The more radical elements of both the European Conservatives and Reformists and Green groups voted against. The institutional system has a strong impact on the political culture in the EU, which is a culture of cooperation. The political system favours the creation of unity—as the condition for stability on a historically, geographically and culturally divided continent—and therefore the centre. The absence of permanent coalitions and the lack of fixed roles of majority and minority in the division of power in the EU create the opportunity to integrate those on the very right and the very left who are not opposed to the system as such and whose primary aim is not to destroy it: the constructive right and the constructive left. Contrary to the US, where the destructive and anti-system elements can dominate the rest of their respective coalitions, inside the EU that destructive right and left find themselves isolated unless they stop being the system opposition. That is why Ursula von der Leyen was well advised to integrate Raffaele Fitto from Brothers of Italy (Fratelli d’Italia) as vice-president of the European Commission and, at the same time, to continue a constructive dialogue with the co-leader of the Green group Terry Reincke on the importance of climate change policies and actions to preserve the rule of law. Brothers of Italy had not only supported the new asylum pact, in contrast to Viktor Orbán, but had also supported Ukraine in a steadfast fashion, including in the vote to ensure Ukraine profits from the interest on Russian assets. Brothers of Italy is part of the constructive right, stabilising the political system of the EU. Is the EU therefore safe? The EU is a federal union of citizens and states and therefore dependent on support in each and every member state. It is only as strong as its weakest link. Even though, on average, support for EU institutions is close to historical highs and well above the support levels for national institutions, that is not enough (EU 2024). Before Brexit the EU’s weakest link in terms of overall support was the UK. Nowadays its weakest link is France, which is paralysed by the combination of a destructive right, on the one hand, and on the other, a destructive left which, in the form of France Unbowed (La France Insoumise), is holding the socialists and greens hostage. And both extremes are cooperating in the destabilisation of the state. That smells like Weimar. What needs to be done? An agenda for the next phase of European integration An agenda for strength In the worlds of Trump, Vladimir Putin and Xi Jinping, strength is the only thing that counts. Internationally and geopolitically, we are back in the world of nineteenth-century power politics. The rules of the game have changed, and the quicker we understand this the better. We are threatened at the same time from the inside and from the outside. From the inside, by the destructive nationalist populist right and left that are trying to hollow out the political order, established after 1945, based on parliamentary democracy, the rule of law and European integration. From the outside, by aggressive nationalist power politics. And more often than not, these two are connected. The seatbelts need to be fastened. Defending ourselves from threats both inside and outside has to start with the recognition that we are confronted with real issues, not just imagined ones. Hyper-inflation was real and is still stored in today’s price levels. The accumulated inflation during Joe Biden’s four-year term was above 20% (US Bureau of Labour Statistics n.d., author’s calculations), and it will not have been very different in Europe. Growth rates are very low, while debt is rising, and with it the difficulty of states to intervene in times of absolute need. Uncontrolled mass immigration happened. Our capacity to defend our continent is seriously compromised. International respect comes from strength, not from weakness. This is not a case for mass psychotherapy, but political action: the political agenda has to change. The European Parliament nowadays plays a key role in setting the agenda for the upcoming legislative term. Ursula von der Leyen had to negotiate with all the political forces of good will about the programme for the next five years to have any chance of being elected by an absolute majority of the members of the house. The need for the Commission president to negotiate the programme also changes the role of the European political foundations. The Wilfried Martens Centre for European Studies has contributed hundreds of precise policy proposals to the process of reflection in a document entitled The 7Ds for Sustainability. This text centres on defence, debt, digitalisation, demography, democracy, decarbonisation and de-risking globalisation in order to enrich the debate and help set a new agenda (Wilfried Martens Centre for European Studies n.d.). The outcomes of the European elections matter, as they should. With the Greens and the Liberals having together lost more than 50 seats and the so-called progressive majority between the Liberals, Greens, Socialists and the far left having disappeared, European Commission priorities for this legislature have markedly changed. Competitiveness and security, comprising both defence and migration, including border protection, have become the top two priorities. This is underpinned by the different composition of the European Commission and the European Council. With half of the members of both institutions coming from the EPP and the EPP occupying the centre space in the European Parliament as well, concerns about competitiveness, migration and defence, critical to strengthening our continent, which is being challenged from both within and without, now have a stronger voice. An agenda for growth: implementing the Draghi report Like every other policy paper, the Letta and Draghi reports can and are being discussed in detail. But no one can dispute the competence of Mario Draghi in matters monetary and economic. The Draghi report will therefore provide a most important reference point. His report comprises six basic truths that will inspire the legislative proposals of the European Commission in this term, even more so as it was requested by the European Commission president herself. Draghi brings everybody face to face with his or her responsibilities. From my personal reading, his report can be summarised as follows: • Investment is the precondition for future growth. Europe is lagging behind in high-tech investment and has largely lost the new digital economy race. This can be identified as the key reason for the difference in per capita growth between the US and the EU. Mid-tech–based industry, such as the car industry, which provides our current economic backbone, is coming under increasing competitive pressure from China.• Without investment, annual productivity growth falls behind. Europe could maintain and improve its living standard by considerably increasing female and older-age participation in the workplace. Worsening demographics make that quantitative input increase more difficult.• The EU has to return to the strategy of scaling through the development of its own internal market, especially in the less-integrated areas of the service sector.• The Banking Union and the Capital Markets Union are critical to assisting high-tech investors in their efforts to scale beyond national boundaries. Given that high-tech means not only high return but also high risk, venture capital is necessary to accompany that growth.• We have regulated for risk and not for opportunity, as is typical for ageing societies. The regulatory burden has to be reduced.• Common public debt has to come in as a residual answer, dependent in volume on the progress in the above-mentioned areas. Consensus on common European debt could be achieved in the area of defence, which could be considered a European public good. Common European financing would also contribute to more equal burden sharing. An agenda for migration Migration is at the core of right-wing populist parties’ growth. It brings together social and cultural challenges: social challenges in the form of competition for scarce public services and support, and cultural ones in the form of a challenge to traditional constructions of national and cultural identity. Here society is falling apart. What is a promise of improved personal services for the upper middle class and the liberal and green parties representing them is, for the lower middle class, a threat of lower salaries and increased competition for state services, including education. Experiences during the negotiations to form the current Swedish and Finnish governments showed that a tough policy on migration was the one area where populist parties were not ready to adapt or compromise. Preliminary voting analysis from the European Parliament demonstrates that while right-wing populist parties show some diverging views on economics, they clearly differentiate themselves from other political forces on the cultural axis of the political divide (Welle and Frantescu 2025). We have experienced a radicalisation of our political space following the events of mass migration, both in the Mediterranean and following Russia’s aggression in Syria and Ukraine. Russia even actively tries to destabilise its neighbours by transporting refugees to their common borders or via Belarus. Denmark is the only country in the EU that has managed to reduce established right-wing populist parties back to single digits. It has done so by establishing a consensus in society on a tough migration policy that is being continued by its current Social Democrat–led government. At the same time, Denmark represents a country with one of the highest standards of societal development. ‘Going to Denmark’ is even a reference in international development policy. Danish migration policy will therefore need to be studied in more detail so as to understand how far it can provide guidance for the EU as a whole or not. Speedier implementation of the migration pact voted on in the European Parliament in April 2024 therefore has to be a prime priority. But it cannot be the last step. Integration capacity has to become critical to migration policy. An agenda for defence Those who cannot defend themselves are inviting their stronger neighbours to aggress them. A look at maps of Russia over the last 500 years shows us that Russia has expanded continuously at the expense of its weaker neighbours—from basically the city territory of Moscow to becoming the largest state on earth. The military submission of its neighbours is the Russian business model. The peaceful and voluntary integration of the European space, based on the rule of law, is the business model of the EU. These concepts are now geographically colliding. And the grey zone in between, at the very least, is now in danger of Russian aggression and occupation, as demonstrated in Ukraine, where Russia is trying to reintroduce the logic of nineteenth-century empire to the European continent. The US will focus its own efforts increasingly on Asia and the attempt to contain China. Europe will therefore have to provide the lion’s share of its own conventional defence. This can only be effectively organised by making use of the possibilities provided by the EU. The Martens Centre has provided a plan in 10 steps—the European Defence Pyramid—on how to achieve a viable European defence under changed geopolitical circumstances. Starting with more basic ideas at the beginning, it has now been outlined in considerable detail with the help of external experts in The 7Ds for Sustainability – Defence Extended (Ciolan and Welle 2024). Progress is already visible. The Martens Centre suggested the creation of the office of a European defence commissioner and a standing defence committee in the European Parliament. Both are now reality. The proposed increase in financial support for military mobility has now been achieved through the decision of the European Commission to allow the use of regional funds for this purpose. And the new defence commissioner has suggested the creation of an ‘EU DARPA’2 for military research, as developed in the concept papers. Living in dangerous times Europe is being simultaneously challenged internally and externally: internally by right-wing populist parties, which have now conquered nearly 30% of the political space; externally by Russia, which is trying to reintroduce the nineteenth-century rules of empire through military aggression with at least the benevolent acceptance of China. These challenges are not unrelated. Some of the populist parties on the right and left openly make the case for China and Russia. Viktor Orbán’s Hungary has even been rewarded by China with massive investments and the status of an ‘all-weather partner’. Ever since the collapse of the Soviet Union in 1991, we have been living in a world of cooperation. System competition between East and West was replaced by globalisation. System seemingly did not matter anymore. Production went wherever it was the cheapest. Communist China became the capitalists’ best friend in exchange for the transfer of superior technology. In analogy to Lenin, China sold the capitalists the rope with which to hang themselves. The price paradigm replaced the security paradigm. With China now so strong that it can and does challenge the US economically and politically for number-one status globally, and strongly on the rise militarily, this phase has ended. China is preparing for the military strangulation, if not occupation of Taiwan, as demonstrated by its ever more menacing sea exercises around the island every year. Russia waged a war against Ukraine only days after establishing a ‘no limits partnership’ with China, testing the global order established after 1945 when conquering and annexing the territory of a weaker neighbour was outlawed. The West is being challenged both in Asia and in Europe. To defend our European way of life we need to be strong economically and militarily. We need to close the rifts in our societies and constructively end the revolt of the lower middle class. System competition is back, and the security paradigm has replaced the price paradigm. Cite:  Welle, K. (2025). Donald Trump, the revolt of the lower middle class and the next phase of European integration. European View, 0(0). https://doi.org/10.1177/17816858251345566 Footnotes 1. This article is a revised version of an article that originally appeared on the website of the research centre Groupe d’études géopolitiques on 19 March 2025 with the title ‘Trump and the next phase of European integration’. See https://geopolitique.eu/en/2025/03/19/after-trump-the-next-phase-of-european-integration/. Used by permission.2. The Defense Advanced Research Projects Agency is a US Department of Defense agency focused on developing breakthrough technologies for national security. References Bank of America Institute. (2024). Paycheck to paycheck: What, who, where, why? 22 October. https://institute.bankofamerica.Com/content/dam/economic-insights/paycheck-to-paycheck-lower-income-households.pdf. Accessed 24 April 2025.Ciolan I. M., Welle K., eds. (2024). The 7Ds for sustainability – Defence extended. https://www.martenscentre.eu/publication/the-7ds-defence-extended/. Accessed 24 April 2025.EU. (2024). Standard Eurobarometer 102 – Autumn 2024. https://europa.eu/eurobarometer/surveys/detail/3215. Accessed 24 April 2025.European Parliament. (2024). European Parliament 2024–2029. Constitutive session. https://results.elections.europa.eu/en/european-results/2024-2029/. Accessed 24 April 2025.Focus online. (2021). Wer wählte wie? Die Analyse. Frauen und Rentner lassen Union abstürzen, die Jungen bestimmen die Kanzlermacher. 27 September. https://www.focus.De/politik/deutschland/bundestagswahl/analyse-der-bevoelkerungsgruppen-wer-waehlte-wie-akademiker-und-reiche-waehlen-gruen-renter-spd_id_24280744.html. Accessed 24 April 2025.Ipsos. (2024). Sociologie des électorats – Législatives 2024. 30 June. https://www.ipsos.com/sites/default/files/ct/news/documents/2024-06/ipsos-talan-sociologie-electorats-legislatives-30-juin-rapport-complet.pdf. Accessed 24 April 2025.Moreau P. (2024a). AfD: The German far-right at a dead end. Fondapol, 6 November. https://www.fondapol.org/en/study/afd-the-german-far-right-at-a-dead-end/. Accessed 24 April 2025.Moreau P. (2024b). The FPÖ and the challenge of Europe: Ideological radicalism and electoral constraints in Austria. Fondapol, 29 October. https://www.fondapol.org/en/study/the-fpo-and-the-challenge-of-europe-ideological-radicalism-and-electoral-constraints-in-austria/. Accessed 24 April 2025.Reckwitz A. (2020). Society of singularities. Cambridge: Polity.Rydgren J., ed. (2013). Class politics and the radical right. London: Routledge.Schmitt C. (2007). The concept of the political. Chicago: University of Chicago Press.CrossrefUS Bureau of Labour Statistics. (n.d.). CPI inflation calculator. https://www.bls.gov/data/inflation_calculator.htm. Accessed 24 April 2025.Weber M. (2010). Politik als Beruf [Politics as a vocation], 11th edn. Berlin: Duncker & Humblot.Welle K., Frantescu D. (2025). (Forthcoming study on voting behaviour in the European Parliament in the 2019–24 legislature).Wilfried Martens Centre for European Studies (n.d.). Publications: The 7Ds. https://www.martenscentre.eu/publication/#the-7ds. Accessed 24 April 2025.

Energy & Economics
Economical relationship between EU European union and India international trade of Europe, India, international trading, economics concept, investments, flags set on coin euros background

EU–India Free Trade Agreement and its Possible Economic and Geopolitical Ramifications.

by Krzysztof Sliwinski

Abstract The EU-India–Trade Agreement (FTA) negotiations, relaunched in 2022 after a nine-year hiatus, represent a significant step towards deepening economic and geopolitical ties between the European Union (EU) and India. The agreement, with its potential to eliminate tariffs, reduce non-tariff barriers, and enhance market access, particularly in services such as telecommunications, could substantially increase trade volume between the two entities, offering promising economic prospects. By creating a combined market of over 1.5 billion people, the FTA offers significant economic opportunities in sectors such as chemicals, machinery, and transport equipment. More importantly, it serves as a geopolitical tool aligned with the EU’s Indo-Pacific strategy, aiming to strengthen partnerships with like-minded democracies and potentially counterbalance China’s increasing influence, reassuring them about its geopolitical implications. Therefore, this study examines the potential economic and geopolitical opportunities and challenges associated with the EU-India FTA. It concludes that, perhaps unsurprisingly, much depends on the foreign and security policies of great powers such as the US, China, and Russia. Key Words: EU, India, Free Trade Area, Geopolitics Introduction Negotiations regarding the EU-India Free Trade Agreement (FTA) were initially launched in 2007. The talks were suspended in 2013 due to a gap in ambition and resumed after a nine-year pause with a formal relaunch on June 17, 2022, announced by Union Minister Piyush Goyal and European Commission Executive Vice-President Valdis Dombrovskis in Brussels.[i] This relaunch also included separate negotiations for an Investment Protection Agreement (IPA) and an Agreement on Geographical Indications (GIs), reflecting a broader agenda to enhance bilateral economic relations. The EU is India's largest trading partner, accounting for €124 billion in goods trade by 2023 (12.2% of the total Indian trade). India is the EU’s ninth-largest trading partner, representing 2.2% of the total trade in goods. Trade in services reached €59.7 billion in 2023, nearly double the 2020 level, with a significant portion being digital services, highlighting the growing economic interdependence.[ii]       *Data acquired from the European Commission at: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india_en Negotiation Rounds and Progress Since the relaunch, ten rounds of negotiations have been conducted, with the following timeline detailing key developments:   ·         Acquired through Grok. Prompt: What is the latest on the EU – India FTA Negotiations? At: https://x.com/i/grok?conversation=1922705918707265888 (14 May 2025) What is so important regarding FTAs? Free Trade Areas (FTAs) have become the cornerstone of international trade policy by reshaping global economic landscapes and geopolitical dynamics. These agreements aim to reduce trade barriers and foster economic cooperation among member states; however, their implications extend far beyond mere economic exchanges. Economic Consequences of Free Trade Areas One of the primary economic consequences of FTAs is the creation of new trade opportunities among the member states. By reducing tariffs and non-tariff barriers, FTAs encourage specialisation and efficiency and increase trade volumes. For instance, the African Continental Free Trade Area (AfCFTA) is expected to boost intra-African trade by creating a single market for goods and services that can unlock regional value chains and enhance economic integration.[i]  Similarly, the ASEAN-China Free Trade Area (ACFTA) has expanded trade between Indonesia and China, although the benefits may be asymmetric, with Indonesia's imports growing faster than exports.[ii] However, FTAs can also lead to trade diversion, in which member states import goods at the expense of non-member countries. This phenomenon can harm non-members by reducing market access and undermining global trade liberalisation efforts.[iii] For example, the Trans-Pacific Partnership (TPP), which never entered into force,[iv] and the Transatlantic Trade and Investment Partnership (TTIP), which shared the same fate, were criticised for potentially marginalising non-member states and creating a fragmented global trade system.[v] FTAs often attract foreign direct investment (FDI) by creating more integrated markets. For instance, the Regional Comprehensive Economic Partnership (RCEP) has stimulated FDI inflows into member states such as Japan, Australia, and New Zealand, contributing to GDP growth.[vi] Similarly, establishing Free Trade Zones (FTZs) in China has promoted financial employment and industrial upgrading, particularly in the middle and western regions, balancing regional development.[vii] However, the benefits of FTAs are not always distributed evenly. Some studies suggest that while FTAs may boost economic growth for member states, non-members may experience adverse impacts such as reduced trade volumes and deteriorating terms of trade.[viii] Geopolitical Consequences of Free Trade Areas FTAs often serve as tools for geopolitical influence, allowing powerful states to shape their global economic order. For example, the TTIP and TPP were partly designed to counterbalance China's rising economic influence and establish new trade standards.[ix] Similarly, the RCEP has reinforced China's economic leadership in Asia, while the United States–Mexico–Canada Agreement (USMCA) has allowed the United States to maintain its influence in North America.[x] For smaller countries like Vietnam, FTAs can enhance international recognition and strategic balancing between major powers, contribute to regional integration and stability, influence internal political legitimacy and power dynamics, and provide tools to manage geopolitical risks and external shocks. FTAs, especially New Generation Free Trade Agreements (NGFTAs) such as the EU-Vietnam Free Trade Agreement (EVFTA), act as economic instruments and geopolitical tools that shape Vietnam's global and regional order position.[xi] The geopolitical implications of FTAs are evident in their impact on international trade governance. The proliferation of mega-regional trade agreements has challenged the multilateral trading system under the World Trade Organization (WTO), creating a fragmented trade landscape.[xii] This shift has raised concerns about the marginalisation of developing countries and the erosion of global trade rules. FTAs can also mitigate interstate conflict by increasing war costs. For instance, the African Continental Free Trade Area (AfCFTA) catalyses regional peace, fostering economic interdependence and reducing the likelihood of conflict.[xiii] Similarly, the ASEAN-China Free Trade Area (ACFTA) has strengthened economic ties between Indonesia and China, reducing potential geopolitical tensions in the region.[xiv] FTAs are not always effective in preventing conflict. In some cases, they may exacerbate tensions by creating unequal benefits or excluding certain states. For example, the TPP and TTIP have been criticised for their exclusionary nature, which may have contributed to trade tensions between member and non-member states.[xv] FTAs often serve as building blocks for broader regional integrations. For instance, the EU began a series of FTAs and customs unions before evolving into a deeply integrated economic and political bloc. Similarly, AfCFTA is part of a broader vision for African economic integration, aiming to create a single market and customs union. The proliferation of FTAs has also raised concerns regarding the future of multilateralism. The Doha Round of WTO negotiations has stalled, and the rise of mega-regional trade agreements has further fragmented the global trade system.[xvi] This has led to calls for a more inclusive and equitable approach to trade governance that ensures that developing countries are not left behind.Free trade has profound economic and geopolitical consequences. It shapes global trade patterns, influences regional stability, and affects the distribution of wealth and power. Although FTAs offer significant economic growth and integration opportunities, they also pose inequality, exclusion, and sustainability challenges. EU – India FTA Opportunities Economic The potential Free Trade Agreement (FTA) between the EU and India presents significant economic opportunities for the EU driven by eliminating trade barriers, increased market access, and deeper economic integration. First, the services sector is a critical area where the EU can benefit significantly from an FTA with India. The EU's services exports to India could more than double, while India's services exports to the EU would increase by approximately 50%.[xvii] This growth is attributed to reduced trade barriers and the liberalisation of sectors such as telecommunications, which has been identified as a key area for reform. Arguably, half of the predicted export expansion is driven by reforms to domestic regulations, particularly in the telecommunications sector, which could further enhance the EU's competitive position in the Indian market. The FTA is expected to eliminate tariffs and reduce non-tariff barriers, creating a more level-playing field for the EU businesses in India. The FTA of EU-Indian trade could approximately double, particularly in business services.[xviii] This liberalisation would increase trade volumes and lead to structural changes in both economies, with the EU potentially gaining a competitive advantage in high-value-added sectors. The FTA would create a combined market of over 1.5 billion people, enabling the EU and India to reap the benefits of economies of scale. This integration would be particularly beneficial for manufactured goods, such as chemicals, machinery, and transport equipment, where intra-industry trade could lead to efficiency gains and cost reductions. These economies of scale could also give the EU a competitive edge in global markets, helping to stimulate economic growth and job creation.[xix] Geopolitics and security The EU–India FTA is an economic arrangement and a geopolitical tool that aligns with the EU's broader objectives in the Indo-Pacific region. The EU's geopolitical position and security interests are central to understanding the opportunities and challenges presented by the FTA. The EU's engagement with India through the FTA is deeply rooted in its Indo-Pacific strategy, formally launched in 2021. This reflects the EU's ambition to strengthen its presence in the Indo-Pacific region, an area increasingly characterised by multipolar competition, particularly between the United States and China. The EU's strategy is driven by recognising that the Indo-Pacific is the "pivotal region" of the 21st century, and its economic and security dynamics will shape global governance.[xx] While the EU's new strategy does not take a confrontational stance towards China, it reflects increased concerns about Beijing’s growing assertiveness and the implications of the US-China rivalry for Europe. The strategy advocates for a multifaceted engagement with China, encouraging cooperation and protecting EU interests and values. An FTA with India is a key component of the EU’s strategy. India's growing economic and political influence in the Indo-Pacific region makes it a critical partner for the EU. The EU views India as a like-minded democracy that shares concerns about China's assertiveness and the need for a rule-based international order. This alignment creates a unique opportunity for the EU to deepen its strategic partnership with India by leveraging economic cooperation to strengthen geopolitics.[xxi] The EU's engagement with India is part of its broader effort to strengthen security cooperation in the Indo-Pacific region. The EU and India share concerns regarding maritime security, cybersecurity, and the challenges posed by China's growing influence in the region. The FTA can serve as a foundation for deeper collaboration on security issues such as counterterrorism, non-proliferation, and disaster management.[xxii] The EU's security strategy in the Indo-Pacific also emphasises the importance of upholding a rule-based international order. An FTA with India can help promote this objective by reinforcing shared norms and standards in trade, investment, and intellectual property rights. This alignment is critical in China's increasing assertiveness and need for like-minded partners to counterbalance its influence.[xxiii] The EU's approach to an FTA is also shaped by its identity as a normative power. The EU has historically sought to promote its values, such as human rights, environmental sustainability, and social justice, through trade agreements. The FTA with India allows for advancing these values by incorporating labour rights, environmental protection, and sustainable development clauses.[xxiv] However, its geopolitical and economic realities constrain the EU’s ability to promote its normative agenda. The EU must be pragmatic and balance its value-based approach with the need to secure concessions on market access and other economic interests. This tension is evident in EU trade policy, where strategic and economic interests often precede normative objectives.[xxv] EU – India FTA Challenges Existing literature on the challenges the EU–India FTA poses is sparse. Generally, scholars admit that FTA, especially those negotiated by the EU, can face varying degrees of politicisation and contestation from civil society, as seen with TTIP and CETA.[xxvi] This finding suggests the potential for public opposition to new FTAs. In addition, the EU often pursues ambitious agreements beyond tariff reductions, including behind-the-border measures and regulatory cooperation.[xxvii] While FTAs aim to boost trade, their impact can be uneven. Some agreements have failed to entirely realise the expected benefits of trade and investment flows.[xxviii] There are also concerns that FTAs may reduce policy space for developing country partners to pursue alternative development strategies.[xxix] Economic However, several economic challenges regarding the EU-India negotiated FTA can be easily identified. To begin, the talks were stuck for nearly two decades, mainly because the EU and India had different goals. The EU wants deeper integration, including investment and competition policies, whereas India prefers a more limited agreement. This has led to repeated delays, and little progress has been made. Specifically, market access has been a point of contention, especially in sensitive sectors such as agriculture and automobiles. India imposes high tariffs on EU cars (60-100%) compared to the EU's 6.5% on Indian cars, and it protects its agricultural sector, making it difficult for EU farmers to enter the market. The EU also wanted India to open up services such as accountancy and legal work, but India resisted due to fears of competition.[xxx] The EU has strict rules, such as the Carbon Border Adjustment Mechanism (CBAM) and sustainability directives, which India sees as overregulatory and burdensome. This creates friction, as India worries these rules could act as trade barriers. There are also issues with intellectual property rights, where the EU wants stronger protection, but India resists keeping generic drugs affordable.[xxxi] Finally, the EU has invested heavily in India, around €100 billion by 2020, but India's decision to end bilateral investment treaties in 2016 and stalled talks on investment protection since 2023 creates uncertainty. There is also a trust deficit, with India fearing EU regulatory overreach and the EU worrying about compliance.[xxxii] Geopolitics and security As mentioned above, the EU's engagement with India is part of its broader strategy to deepen ties with the Indo-Pacific region. This strategy is driven by the need to counterbalance rising powers like China and enhance its global influence. The EU's Indo-Pacific Strategy and the Global Gateway Initiative reflect this ambition, emphasising the importance of strategic partnerships with like-minded actors such as India.[xxxiii] China's growing economic and military presence in the Indo-Pacific region poses a significant challenge for the EU and India. The EU has expressed concerns about China's assertive behaviour in the South China Sea and its Belt and Road Initiative (BRI), which is seen as a tool for expanding Chinese influence.[xxxiv] The EU and India share a common interest in promoting rules-based international order and countering China's increasing dominance. This alignment has been a key driver of their strategic partnership, with both sides seeking to enhance trade, technology, and security cooperation.[xxxv] The Russia-Ukraine war has further complicated the geopolitical landscape, with significant implications for EU-India relations. While the EU has strongly supported Ukraine, India has maintained a more neutral stance by prioritising its strategic partnership with Russia.[xxxvi] This divergence in approach has created tensions, particularly in terms of energy security and sanctions, which could impact FTA negotiations. The EU and India face various traditional security challenges that affect their strategic partnerships and FTA negotiations. China's military modernisation and assertive behaviour in the Indo-Pacific region have heightened security concerns for the EU and India. The EU has expressed support for India's role in maintaining regional stability, particularly in China's actions in the South China Sea and along the India-China border.[xxxvii] The EU and India are also concerned about regional instability, including Myanmar and the Korean Peninsula. These issues underscore the need for enhanced security cooperation between the two partners.[xxxviii] As for non-traditional security challenges, climate change and energy security are key areas of cooperation between the EU and India. The EU has emphasised the importance of transitioning to renewable energy sources, while India has sought to balance its energy needs with environmental concerns.[xxxix] In addition, the increasing importance of digital technologies has highlighted the need for cooperation in cybersecurity and data protection areas. The EU and India are interested in collaborating with digital infrastructure and innovation.[xl] Conclusion According to the European Parliament, “India was among the first countries to establish diplomatic relations with the European Economic Community in 1962. With the formal establishment of the EU in 1993, India signed a Cooperation Agreement in 1994, which opened the door to broader political interaction between the two. […] The relationship was upgraded to a 'Strategic Partnership' during The Hague's 5th India-EU Summit in 2004. From 1980 to 2005, EU-India trade grew from €4.4 billion to €40 billion. The EU was India's largest trading partner at the time, accounting for 22.4% of Indian exports and 20.8% of imports”.[xli] Despite these incentives, India's historical emphasis on autonomy and self-reliance can sometimes clash with the EU's multilateral approach.[xlii] Further, India's complex relationship with Russia, particularly its continued reliance on Russian defence technology, presents a challenge for closer EU-India security cooperation.[xliii] Finally, although the EU and India share concerns about China's growing influence, their strategies for managing this challenge may differ. 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The Evolution of India’s Position Towards the Liberal International Order and Its Significance for the EU–India Strategic Partnership (pp. 253–273). Springer, Cham. https://doi.org/10.1007/978-3-030-65044-5_12[38] Dominguez, R., & Sverdrup-Thygeson, B. (2021). The Role of External Powers in EU–Asia Security Relations (pp. 415–435). Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-69966-6_19[39] Reiterer, M. (2023). The Indo-Pacific taking centre-stage for the EU’s security policy. EuZ – Zeitschrift Für Europarecht. https://doi.org/10.36862/eiz-euz022[40] Kirchner, E. J. (2022). EU Security Alignments with the Asia-Pacific. Asian Affairs, 53(3), 542–560. https://doi.org/10.1080/03068374.2022.2082165[41] Singh, M. (2021). Multilateralism in a Changing Global Order: Prospects for India–EU Cooperation (pp. 275–290). Springer, Cham. https://doi.org/10.1007/978-3-030-65044-5_13[42] Aspengren, H. C., & Nordenstam, A. (2021). What Strategies Can Do for Strategic Partnerships: Lessons from the EU’s Strategy on India (pp. 67–85). Springer International Publishing. https://doi.org/10.1007/978-3-030-65044-5_4[43] Delivorias, A., & Mácsai, G. (2024). EU-India free trade agreement. In BRIEFING International Agreements in Progress. European Parliament. https://www.europarl.europa.eu/RegData/etudes/BRIE/2024/757588/EPRS_BRI(2024)757588_EN.pdf  [44] Sinha, Aseema, and Jon P. Dorschner. 2009. “India: Rising Power or a Mere Revolution of Rising Expectations?” Polity 42 (1): 74. https://doi.org/10.1057/pol.2009.19.[45] Chandrasekar, Anunita. 2025. “It’s Time to Upgrade the EU-India Relationship.” https://www.cer.eu/insights/its-time-upgrade-eu-india-relationship.[46] Gare, Frédéric and Reuter Manisha. “Here be dragons: India-China relations and their consequences for Europe”. 25 May 2023. https://ecfr.eu/article/here-be-dragons-india-china-relations-and-their-consequences-for-europe/

Energy & Economics
Comparison of Drought and flood metaphor for climate change and extreme weather.

Global Climate Agreements: Successes and Failures

by Clara Fong , Lindsay Maizland

International efforts, such as the Paris Agreement, aim to reduce greenhouse gas emissions. But experts say countries aren’t doing enough to limit dangerous global warming. Summary Countries have debated how to combat climate change since the early 1990s. These negotiations have produced several important accords, including the Kyoto Protocol and the Paris Agreement. Governments generally agree on the science behind climate change but have diverged on who is most responsible, how to track emissions-reduction goals, and whether to compensate harder-hit countries. The findings of the first global stocktake, discussed at the 2023 UN Climate Summit in Dubai, United Arab Emirates (UAE), concluded that governments need to do more to prevent the global average temperature from rising by 1.5°C. Introduction Over the last several decades, governments have collectively pledged to slow global warming. But despite intensified diplomacy, the world is already facing the consequences of climate change, and they are expected to get worse. Through the Kyoto Protocol and Paris Agreement, countries agreed to reduce greenhouse gas emissions, but the amount of carbon dioxide in the atmosphere keeps rising, heating the Earth at an alarming rate. Scientists warn that if this warming continues unabated, it could bring environmental catastrophe to much of the world, including staggering sea-level rise, devastating wildfires, record-breaking droughts and floods, and widespread species loss. Since negotiating the Paris accord in 2015, many of the 195 countries that are party to the agreement have strengthened their climate commitments—to include pledges on curbing emissions and supporting countries in adapting to the effects of extreme weather—during the annual UN climate conferences known as the Conference of the Parties (COP). While experts note that clear progress has been made towards the clean energy transition, cutting current emissions has proven challenging for the world’s top emitters. The United States, for instance, could be poised to ramp up fossil fuel production linked to global warming under the Donald Trump administration, which has previously minimized the effects of climate change and has withdrawn twice from the Paris Agreement. What are the most important international agreements on climate change? Montreal Protocol, 1987. Though not intended to tackle climate change, the Montreal Protocol [PDF] was a historic environmental accord that became a model for future diplomacy on the issue. Every country in the world eventually ratified the treaty, which required them to stop producing substances that damage the ozone layer, such as chlorofluorocarbons (CFCs). The protocol has succeeded in eliminating nearly 99 percent of these ozone-depleting substances. In 2016, parties agreed via the Kigali Amendment to also reduce their production of hydrofluorocarbons (HFCs), powerful greenhouse gases that contribute to climate change. UN Framework Convention on Climate Change (UNFCCC), 1992. Ratified by 197 countries, including the United States, the landmark accord [PDF] was the first global treaty to explicitly address climate change. It established an annual forum, known as the Conference of the Parties, or COP, for international discussions aimed at stabilizing the concentration of greenhouse gases in the atmosphere. These meetings produced the Kyoto Protocol and the Paris Agreement. Kyoto Protocol, 2005. The Kyoto Protocol [PDF], adopted in 1997 and entered into force in 2005, was the first legally binding climate treaty. It required developed countries to reduce emissions by an average of 5 percent below 1990 levels, and established a system to monitor countries’ progress. But the treaty did not compel developing countries, including major carbon emitters China and India, to take action. The United States signed the agreement in 1998 but never ratified it and later withdrew its signature.  Paris Agreement, 2015. The most significant global climate agreement to date, the Paris Agreement requires all countries to set emissions-reduction pledges. Governments set targets, known as nationally determined contributions (NDCs), with the goals of preventing the global average temperature from rising 2°C (3.6°F) above preindustrial levels and pursuing efforts to keep it below 1.5°C (2.7°F). It also aims to reach global net-zero emissions, where the amount of greenhouse gases emitted equals the amount removed from the atmosphere, in the second half of the century. (This is also known as being climate neutral or carbon neutral.) The United States, the world’s second-largest emitter, is the only country to withdraw from the agreement, a move President Donald Trump made during his first administration in 2017. While former President Joe Biden reentered the agreement during his first day in office, Trump again withdrew the United States on the first day of his second administration in 2025. Three other countries have not formally approved the agreement: Iran, Libya, and Yemen. Is there a consensus on the science of climate change? Yes, there is a broad consensus among the scientific community, though some deny that climate change is a problem, including politicians in the United States. When negotiating teams meet for international climate talks, there is “less skepticism about the science and more disagreement about how to set priorities,” says David Victor, an international relations professor at the University of California, San Diego. The basic science is that:• the Earth’s average temperature is rising at an unprecedented rate; • human activities, namely the use of fossil fuels—coal, oil, and natural gas—are the primary drivers of this rapid warming and climate change; and,• continued warming is expected to have harmful effects worldwide. Data taken from ice cores shows that the Earth’s average temperature is rising more now than it has in eight hundred thousand years. Scientists say this is largely a result of human activities over the last 150 years, such as burning fossil fuels and deforestation. These activities have dramatically increased the amount of heat-trapping greenhouse gases, primarily carbon dioxide, in the atmosphere, causing the planet to warm. The Intergovernmental Panel on Climate Change (IPCC), a UN body established in 1988, regularly assesses the latest climate science and produces consensus-based reports for countries. Why are countries aiming to keep global temperature rise below 1.5°C? Scientists have warned for years of catastrophic environmental consequences if global temperature continues to rise at the current pace. The Earth’s average temperature has already increased approximately 1.1°C above preindustrial levels, according to a 2023 assessment by the IPCC. The report, drafted by more than two hundred scientists from over sixty countries, predicts that the world will reach or exceed 1.5°C of warming within the next two decades even if nations drastically cut emissions immediately. (Several estimates report that global warming already surpassed that threshold in 2024.) An earlier, more comprehensive IPCC report summarized the severe effects expected to occur when the global temperature warms by 1.5°C: Heat waves. Many regions will suffer more hot days, with about 14 percent of people worldwide being exposed to periods of severe heat at least once every five years. Droughts and floods. Regions will be more susceptible to droughts and floods, making farming more difficult, lowering crop yields, and causing food shortages.  Rising seas. Tens of millions of people live in coastal regions that will be submerged in the coming decades. Small island nations are particularly vulnerable. Ocean changes. Up to 90 percent of coral reefs will be wiped out, and oceans will become more acidic. The world’s fisheries will become far less productive. Arctic ice thaws. At least once a century, the Arctic will experience a summer with no sea ice, which has not happened in at least two thousand years. Forty percent of the Arctic’s permafrost will thaw by the end of the century.  Species loss. More insects, plants, and vertebrates will be at risk of extinction.  The consequences will be far worse if the 2°C threshold is reached, scientists say. “We’re headed toward disaster if we can’t get our warming in check and we need to do this very quickly,” says Alice C. Hill, CFR senior fellow for energy and the environment. Which countries are responsible for climate change? The answer depends on who you ask and how you measure emissions. Ever since the first climate talks in the 1990s, officials have debated which countries—developed or developing—are more to blame for climate change and should therefore curb their emissions. Developing countries argue that developed countries have emitted more greenhouse gases over time. They say these developed countries should now carry more of the burden because they were able to grow their economies without restraint. Indeed, the United States has emitted the most of all time, followed by the European Union (EU).   However, China and India are now among the world’s top annual emitters, along with the United States. Developed countries have argued that those countries must do more now to address climate change.   In the context of this debate, major climate agreements have evolved in how they pursue emissions reductions. The Kyoto Protocol required only developed countries to reduce emissions, while the Paris Agreement recognized that climate change is a shared problem and called on all countries to set emissions targets. What progress have countries made since the Paris Agreement? Every five years, countries are supposed to assess their progress toward implementing the agreement through a process known as the global stocktake. The first of these reports, released in September 2023, warned governments that “the world is not on track to meet the long-term goals of the Paris Agreement.” That said, countries have made some breakthroughs during the annual UN climate summits, such as the landmark commitment to establish the Loss and Damage Fund at COP27 in Sharm el-Sheikh, Egypt. The fund aims to address the inequality of climate change by providing financial assistance to poorer countries, which are often least responsible for global emissions yet most vulnerable to climate disasters. At COP28, countries decided that the fund will be initially housed at the World Bank, with several wealthy countries, such as the United States, Japan, the United Kingdom, and EU members, initially pledging around $430 million combined. At COP29, developed countries committed to triple their finance commitments to developing countries, totalling $300 billion annually by 2035. Recently, there have been global efforts to cut methane emissions, which account for more than half of human-made warming today because of their higher potency and heat trapping ability within the first few decades of release. The United States and EU introduced a Global Methane Pledge at COP26, which aims to slash 30 percent of methane emissions levels between 2020 and 2030. At COP28, oil companies announced they would cut their methane emissions from wells and drilling by more than 80 percent by the end of the decade. However, pledges to phase out fossil fuels were not renewed the following year at COP29. Are the commitments made under the Paris Agreement enough? Most experts say that countries’ pledges are not ambitious enough and will not be enacted quickly enough to limit global temperature rise to 1.5°C. The policies of Paris signatories as of late 2022 could result in a 2.7°C (4.9°F) rise by 2100, according to the Climate Action Tracker compiled by Germany-based nonprofits Climate Analytics and the NewClimate Institute. “The Paris Agreement is not enough. Even at the time of negotiation, it was recognized as not being enough,” says CFR’s Hill. “It was only a first step, and the expectation was that as time went on, countries would return with greater ambition to cut their emissions.” Since 2015, dozens of countries—including the top emitters—have submitted stronger pledges. For example, President Biden announced in 2021 that the United States will aim to cut emissions by 50 to 52 percent compared to 2005 levels by 2030, doubling former President Barack Obama’s commitment. The following year, the U.S. Congress approved legislation that could get the country close to reaching that goal. Meanwhile, the EU pledged to reduce emissions by at least 55 percent compared to 1990 levels by 2030, and China said it aims to reach peak emissions before 2030. But the world’s average temperature will still rise more than 2°C (3.6°F) by 2100 even if countries fully implement their pledges for 2030 and beyond. If the more than one hundred countries that have set or are considering net-zero targets follow through, warming could be limited to 1.8˚C (3.2°F), according to the Climate Action Tracker.   What are the alternatives to the Paris Agreement? Some experts foresee the most meaningful climate action happening in other forums. Yale University economist William Nordhaus says that purely voluntary international accords like the Paris Agreement promote free-riding and are destined to fail. The best way to cut global emissions, he says, would be to have governments negotiate a universal carbon price rather than focus on country emissions limits. Others propose new agreements [PDF] that apply to specific emissions or sectors to complement the Paris Agreement.  In recent years, climate diplomacy has occurred increasingly through minilateral groupings. The Group of Twenty (G20), representing countries that are responsible for 80 percent of the world’s greenhouse gas pollution, has pledged to stop financing new coal-fired power plants abroad and agreed to triple renewable energy capacity by the end of this decade. However, G20 governments have thus far failed to set a deadline to phase out fossil fuels. In 2022, countries in the International Civil Aviation Organization set a goal of achieving net-zero emissions for commercial aviation by 2050. Meanwhile, cities around the world have made their own pledges. In the United States, more than six hundred local governments [PDF] have detailed climate action plans that include emissions-reduction targets. Industry is also a large source of carbon pollution, and many firms have said they will try to reduce their emissions or become carbon neutral or carbon negative, meaning they would remove more carbon from the atmosphere than they release. The Science Based Targets initiative, a UK-based company considered the “gold standard” in validating corporate net-zero plans, says it has certified the plans of  over three thousand firms, and aims to more than triple this total by 2025. Still, analysts say that many challenges remain, including questions over the accounting methods and a lack of transparency in supply chains. Recommended Resources This timeline tracks UN climate talks since 1992. CFR Education’s latest resources explain everything to know about climate change.  The Climate Action Tracker assesses countries’ updated NDCs under the Paris Agreement. CFR Senior Fellow Varun Sivaram discusses how the 2025 U.S. wildfires demonstrate the need to rethink climate diplomacy and adopt a pragmatic response to falling short of global climate goals. In this series on climate change and instability by the Center for Preventive Action, CFR Senior Fellow Michelle Gavin looks at the consequences for the Horn of Africa and the National Defense University’s Paul J. Angelo for Central America. This backgrounder by Clara Fong unpacks the global push for climate financing.

Energy & Economics
United Arab Emirates, Kuwait, Qatar, Bahrain, Saudi Arabia, Yemen and Oman. GCC Gulf Country Middle East Flag 3D Icons. 3D illustration of GCC Country Flags arranged in around the GCC Logo

Diversification nations: The Gulf way to engage with Africa

by Corrado Čok , Maddalena Procopio

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Summary -The UAE, Saudi Arabia and Qatar have longstanding political and security interests in north and east Africa.- But the late 2010s saw a “geoeconomic turn” in their foreign policy. This has led the three Gulf states to make inroads into sub-Saharan Africa.- Energy and infrastructure are at the heart of this new economic involvement. These sectors serve Gulf interests, but they are also where Africa’s needs are greatest.- This is improving the image of Gulf states in Africa. This ties in with a trend among African governments to diversify their own international partners and foster competition among them.- The EU and its member states remain influential in Africa, but their involvement is declining. The Gulf expansion in Africa could exacerbate this—unless Europeans find a way to respond. The geoeconomic turn Africa is big business in today’s geopolitics and geoeconomics. “Great powers” have returned to compete on the continent, with rising powers like Turkey and Gulf monarchies snapping at their heels. African leaders, meanwhile, are capitalising on the fragmentation of the global order to foster competition among all these powers. In this evolving landscape, the United Arab Emirates, Saudi Arabia and to a lesser extent Qatar are looking beyond their traditional African interests. The three Gulf states have long extended their reach into east and north Africa. There, they have worked to secure land and trading routes, extract resources and project influence over their preferred versions of Islam. In so doing they have tried (and spent big) to empower friendly governments and political actors through a combination of diplomatic, economic and security-related assistance. This political-military posturing has often drawn them into competition with one another—for instance through their involvement in the conflicts in Yemen and Libya. The UAE has been by far the most assertive of the three states in this regard, with recent Emirati involvement in Sudan’s civil war prompting regional and international condemnation. Despite these political interests, the late 2010s saw a “geoeconomic turn” in the foreign policy of the Gulf powers. This has led them to make inroads deeper into Africa. The covid-19 pandemic and falling oil prices hit sectors crucial to these states economies: aviation, for instance, as well as tourism and logistics. These oil and gas producers also know that fossil fuels will be out of the picture at some point in the future, thanks to the global energy transition. With its booming markets and rich natural resources, sub-Saharan Africa brings opportunities for Gulf states to diversify their economies. Moreover, African governments offer them backing to pursue a dual approach to the energy transition: no pressure to lose the oil and gas right now (and Africa offers plenty of prospects in that regard) but opportunities also position themselves as leaders in sectors vital to future economies—from renewables to minerals. Such pragmatic engagement should guarantee Gulf states greater returns than costly security politics in their “near abroad”. This could all affect European interests in Africa, not least because the continent is also becoming a crucial partner for Europeans to sustain and diversify their own energy supplies. In our 2024 paper “Beyond competition” we examined the UAE’s involvement in African energy sectors, setting out how Europeans might mitigate the risks that poses and grasp the opportunities. This policy brief expands on that research. First, it breaks down the UAE’s, Saudi Arabia’s and Qatar’s geoeconomic activities in sub-Saharan Africa, zooming in on energy as a central focus of their strategy. Next, it analyses the divergences in the Gulf states’ economic expansion, and how these interact with their traditional African interests. Finally, it explains how Europeans should grapple with this emerging phenomenon. Africa and a fragmenting global order Over the past five years, economic and geopolitical turmoil has changed how big and rising powers compete in Africa—and how African countries relate to the rest of the world. This is the case for both political and economic engagement. Africa The African embrace of diversification reflects a broader movement within the global south that advocates a reimagined global order. Within this, a key demand is for equity, inclusivity and agency in global governance structures—indicating a deliberate pivot away from historical dependencies on Western-led models. This includes traditional frameworks of aid and development. This multipolar moment gained momentum as the tumult of the post-covid years and Russia’s invasion of Ukraine intensified. As Western states focused on economic and geopolitical upheavals closer to home, many African leaders saw neglect and self-centredness. This was exemplified in African criticism of Western vaccine hoarding, and then of the redirection of aid to Ukraine at the expense of African crises. So African leaders have increasingly sought out alternative partners.   But these developments only exacerbated a more longstanding trend. From the early 2000s onwards, Western engagement with Africa has steadily declined. Other powers—such as China, Turkey and Russia—have expanded their influence. Indeed, Russia and China in particular have leveraged African aspirations and grievances against Western-led frameworks. This has helped them legitimise their political, economic and military projection in Africa. It could also open up space for stronger West-free alliances, such as through the BRICS+ grouping (which the UAE joined and to which Saudi Arabia was invited in 2024). Gulf The African embrace of multipolarity resonates with Gulf powers, which underpin their own foreign policy with an aim to cultivate partnerships across the east-west and north-south spectrum. Gulf states do not explicitly adopt anti-Western rhetoric. But, to address their domestic imperatives, they are strategically tapping into African governments’ call for alternative partners. The three states offer their African partners development cooperation and financing that depart from the Western model. They tend to offer a more flexible and rapid deployment of funding. Their state-backed economic models also align political agendas with strategic investments. This allows them to leverage their financial resources to fill the capital and political void left by other international players. Such alignment is timely and could be mutually beneficial as African and Gulf states navigate the shifting dynamics of global power distribution. It also seems to be boosting Gulf states’ political capital with African governments. But the monarchies’ strategic interests may not always line up with Africa’s long-term development goals, which could foster extractive and exploitative relationships. Their expansion in Africa could also reduce the space for Europeans to rebuild their ties with the continent. Europe Europeans maintain a significant presence in Africa. But the fragmenting global order could challenge their status, particularly in the face of the second Trump presidency and its implications for Western unity. European economic engagement in Africa has been declining for some time, just as Western governance, aid and financing models are meeting competition For now the EU remains sub-Saharan Africa’s largest trading partner, with trade flows between the two regions valued at approximately $300bn annually. Yet, the EU’s share of trade with sub-Saharan Africa has dropped significantly since 1990. This reflects competition from countries like China, whose rapid ascent is evident in its large increases of both imports and exports with the region. Indeed, China now rivals the EU in terms of imports to sub-Saharan Africa.   Sub-Saharan Africa’s imports from China have grown especially in the consumer-goods sector, but also increasingly in the energy and other industrial sectors. The EU, meanwhile, continues to dominate in imports of high-value goods such as machinery, chemicals and vehicles. Sub-Saharan Africa exports primarily raw materials, minerals, and oil to Europe, akin to its exports to other regions, such as China and the Gulf countries. Emerging players like the UAE have witnessed a steady growth in their overall share (though percentages do not reach 10% of the total yet). Gulf-Africa (geo)economic relations on the riseInvestment and finance The scale of Gulf financial engagement in Africa underscores the monarchies’ expansion. In 2022 and 2023 the Gulf Cooperation Council states collectively funnelled nearly $113bn of FDI into the continent, exceeding their total investments over the previous decade ($102bn). The UAE, Saudi Arabia and Qatar are investing most in sectors that not only reflect their interests, but in which Africa’s needs are greatest: energy and climate and infrastructure It is the infrastructure (and connectivity) investments that form the backbone of their expansion. Interests among the states overlap, but the UAE invested first and by far the most in ports, logistics networks and special economic zones. Saudi Arabia is the main investor in roads. All three states have stakes in sub-Saharan Africa’s air connectivity, though Saudi Arabia to a lesser extent to date.  These investments open up new opportunities across the continent. They also boost the Gulf states’ geostrategic presence, helping to fill a gap in Africa’s infrastructure that China has only partially filled over the last 20 years—while the EU is only now trying to launch a comeback with the Global Gateway. Moreover, Gulf states are helping to fill the funding gap that Western financiers left as they withdrew. In 2021, for example, the UAE pledged $4.5bn to support energy transition efforts in Africa. This financial commitment is meant to support green energy, infrastructure development and the wider energy transition. In March 2024, four Emirati banks helped the Africa Finance Corporation (AFC) raise $1.15bn in the largest syndicated loan ever pooled together by the AFC. Saudi Arabia, which has long provided development assistance to Africa through the Saudi Development Fund, signed a 2023 memorandum of understanding with the AFC to jointly finance infrastructure across the continent. In late 2024 the Saudi government pledged $41bn through a mix of financing tools to finance start-ups, provide import-export credit and spur private sector growth in Africa over the next 10 years. In 2022 Qatar pledged a $200m donation for climate adaptation projects in African countries vulnerable to the impacts of climate change, including funding for drought and flood mitigation programmes, as well as renewable energy access in off-grid communities. In 2024 it contributed to the creation of Rwanda’s Virunga Africa Fund I, launched with $250m to strengthen social services and private sector growth in innovative domains in Rwanda and the rest of Africa. However, many of the investments and deals are opaque and come with limited accountability. This raises questions about whether Gulf-Africa financial and investment partnerships will truly be mutually beneficial. The balance of power often tilts in favour of the Gulf monarchies due to their financial strength, which may lead to asymmetrical outcomes—including a potential increase of debt burdens in Africa. Despite focusing on critical sectors for Africa’s development, these investments may not shift the underlying dynamics of extractivism that have historically characterised Africa’s relations with external players. As the trade data clearly show, this includes the Gulf states. Trade The UAE’s foreign policy has long been more focused on trade than that of the other two Gulf states. Accordingly, trade (including those goods it re-imports and exports via its economic zones) between the UAE and sub-Saharan Africa has grown robustly over the past decade. Qatar and Saudi Arabia, meanwhile, have seen more limited change. The UAE ventured early into trade, logistics and services to secure sustainable revenues—particularly Dubai, an emirate with very limited oil reserves. Emiratis have undertaken extensive expansion of port and transport infrastructure across Africa (led by logistics giants such as the Dubai-based DP World and, more recently, Abu Dhabi Ports). This has helped turn the UAE into a trade gateway between Africa and the world.   The composition of Gulf-Africa trade reveals deeper dynamics in the economic relationship. In line with their global trading patterns, fuels and hydrocarbon derivatives dominate Emirati, Qatari and Saudi exports to sub-Saharan Africa. This reflects the centrality of fossil fuels in Gulf states’ expansion in the continent. The population of sub-Saharan Africa is rapidly growing; the region is also industrialising and urbanising at pace. The whole of Africa’s energy demand will likely increase by 30% by 2040—including fossil fuels. This creates new markets for Gulf states in sub-Saharan Africa. Sub-Saharan African exports to the Gulf, meanwhile, are largely made up of metals and minerals, including gold, as well as agricultural products. This underscores how the export relationship is largely extractive. Gold trade is particularly notable in the sub-Saharan Africa-UAE relationship, helping consolidate the country as a key global importer and refiner of the precious metal.   These trade patterns highlight mutual dependencies but also expose structural imbalances. Sub-Saharan Africa’s export profile—heavily skewed toward raw commodities—limits its benefits to African states, while Gulf countries capitalise on higher-value imports and exports. Energy diplomacy and the green transition Africa’s vast natural resources mean the continent is central to the global energy transition. Alongside reserves of oil and gas, it boasts plentiful minerals essential for renewable technologies (such as lithium, cobalt and rare earth elements), abundant solar energy potential, and well-preserved forests for carbon offset. This, combined with the region’s large and increasing energy demand, helps centre energy and climate in the Gulf’s African expansion. A rapid transition away from fossil fuels is unrealistic for the Gulf states, given their reliance on them for export revenues and GDP. In Africa, meanwhile, oil and gas still account for 40% of energy consumed by end users (its final energy consumption). As discussed, this creates new markets for Gulf states in which they can help meet Africa’s current and future demand. But Africa also acts as a gateway to new energy value chains. Gulf leaders know the hydrocarbon era is waning. This means they could lose the leverage oil and gas brought them in global energy governance. To maintain their relevance, they aim to lead in green economies too. They therefore work to integrate Africa’s energy markets and resources into their broader strategy for sustainable economic transformation. Hydrocarbons Gulf countries’ economies are betting on African governments’ interest in further exploiting their oil and gas resources to increase revenues and fulfil growing demand. Saudi Arabia and the UAE are mostly eyeing investments in distribution (downstream), and transportation and storage (midstream); while they have traditionally shown limited interest in Africa’s oil and gas exploration and production (upstream). Qatar, by contrast, is more focused on exploring upstream production and increasing its stakes in Africa’s LNG sector. This aligns with Qatar’s unique energy profile as a leader in the global LNG market. It also gels with its long-term strategy to consolidate global dominance in natural gas, especially as the energy transition increases demand for cleaner-burning fuels like gas. The UAE might be eyeing Africa’s LNG sector as well, as it expects natural gas to contribute more significantly to its energy mix by 2050, but currently relies on Qatar for nearly one-third of its supply. Africa may prove helpful in expanding gas investments. Emirati energy giant Abu Dhabi National Oil Company, for example, has a stake in Mozambique’s Rovuma LNG project and a gas deal with BP in Egypt.   African countries find common ground with the Gulf states in resisting the rapid phase out of oil and gas advocated by advanced economies. For African nations, oil and gas remain vital sources of revenue, industrial growth and energy security; Gulf states need these resources as they are integral to their global influence and economic diversification efforts. This challenges the European position on oil and gas, and their reciprocal alignment could cement stronger consensus around a dual approach to the energy transition. Green value chains The UAE’s “We the UAE 2031” vision and Saudi Arabia’s “Vision 2030” are economic reform plans that include commitments to diversify their economies away from hydrocarbons. This underscores their leaders’ recognition that fossil fuels may not be around forever, but mainly that green value chains hold great value. The UAE and Saudi Arabia (but much less so Qatar) are therefore investing in the green energy transitions, both at home and abroad. Their investment also allows them to maintain their influence in global energy decision-making, including the speed and pathways to a net-zero world and economy. With its abundant solar and wind resources, sub-Saharan Africa is an ideal testing ground for Gulf countries to expand their renewable energy expertise. It is also an environment in which they can develop scalable projects and build exportable green technology capacities. All three Gulf states are investing in solar and wind plants across sub-Saharan Africa. They have also shown appetite in other renewable fields, such as batteries, green hydrogen and thermal energy. The UAE leads in this through its companies Masdar and AMEA Power; Saudi Arabia’s ACWA Power is also getting in on the act. Qatar has been eyeing opportunities for investments, though it favours joint or brownfield investments in large foreign companies’ projects to limit risks and costs.   Though several of these commitments are today pledges, their involvement could potentially contribute to expanding access to energy in Africa, helping address the continent’s critical energy deficit. Their dual-track approach to the energy transition allows them to advocate for a pragmatic transition that balances decarbonisation with energy security and economic development, enhancing their reputation among African governments as forward-thinking states on energy. Critical minerals At the same time, the UAE and Saudi Arabia are investing in mineral value chains. This underlines the strategic importance of these resources in their economic diversification and technological ambitions. Gold is the top import product from Africa to the UAE. But other minerals such as copper also rank high in Emirati imports—and in those to Saudi Arabia as well. These minerals are the backbone of the green economy. They are also critical for the digital transformation (including AI and defence, with the UAE eyeing dual-use minerals as it develops its national defence industry), but also infrastructure. In line with its trade-focused foreign policy, the UAE is seemingly more interested in tapping into the trade of these commodities. Saudi Arabia, meanwhile, seems keen to access raw resources for import, necessary to boost its industrial ambitions at home. Under Vision 2030, Saudi Arabia aims to develop domestic manufacturing and high-tech industries, such as electric vehicles and renewable energy technologies. Accessing African minerals aims to support this strategy by providing the necessary input for domestic production, and enabling Saudi Arabia to move up the value chain.   For African countries, the global race for critical minerals is a unique opportunity to move beyond their traditional role as providers of raw commodities. Many African governments recognise the potential of these resources to catalyse industrialisation, create jobs and generate more value domestically. This shift in perspective has led to increasing demands for investments that prioritise local processing and manufacturing rather than merely extracting and exporting raw materials. However, the extent to which Gulf players will align with these aspirations remains uncertain. Where the Gulf states diverge Despite some similar drivers, Emirati, Saudi and Qatari approaches in Africa vary significantly. The nuances stem from the states’ different domestic imperatives and foreign policy strategies. Although the shift to geoeconomics is clear, this underlines how the three states—especially the UAE—could still influence security across the continent as well as in their traditional regions of interest. Country profiles The UAE lacks significant domestic industrial capacity (except for the gold sector). This means it needs bigger and better trade routes to secure its revenues. Here, Africa’s expanding consumer markets and its centrality in green value chains offers an opportunity. Abu Dhabi adopts a risk-prone, largely state-backed, approach—though this is mitigated by a strong orientation towards economic returns. The UAE’s presence is becoming increasingly entrenched across the African continent. Despite focusing outwardly on economics, the UAE’s ability to leverage political influence to safeguard its interests has not gone away, as its involvement in Sudan shows. This politico-security approach is less visible in other parts of Africa, though it remains a tool that could shape Emirati-African relations in the years ahead. As the UAE’s economic interests expand in Africa, its leaders may find they have more to protect—which could increase the risk of them deploying the security approach.  The UAE’s energy diplomacy reinforces the idea that the country’s involvement in Africa will extend beyond economic ventures: the 2024 COP28 climate conference in Dubai, for instance, laid bare Emirati ambitions to position the UAE as a global leader in the energy transition. African alignment with the monarchy on the need for a dual approach makes Africa a key arena for Abu Dhabi to mobilise consensus. Saudi Arabia faces urgent domestic socio-economic imperatives linked to a growing population (largely under the age of 25) and high unemployment rates. This contrasts with the UAE and Qatar, which grapple with a shortage of domestic workforce. Africa is therefore appealing as a contributor to Riyadh’s economic transformation programme, which envisages a strong diversification of the economy. Green value chains rank high amid these efforts. But internal socio-economic constraints and the urgency of domestic reforms have prompted Riyadh to adopt a risk-averse stance. This has resulted in cautious and geographically limited engagement across the African continent. This caution contrasts with Riyadh’s more interventionist posture in the 2010s in the near abroad. Its aggressive policies to gain allies on the African side of the Red Sea strained rivalries with its neighbours. This included, for instance, the monarchy’s war against Houthis in Yemen from 2015, and its interference that contributed to the ousting of Sudan’s president Omar al-Bashir in 2019. Saudi Arabia now relies more on soft power and economic diplomacy, leveraging its traditional leadership of the Muslim world and development aid to advance its influence. This has led it towards a new approach largely oriented towards stabilisation—especially in the Horn of Africa—and multilateral dialogue. Yet, as Riyadh seeks to balance economic imperatives with geopolitical caution, its engagement in Africa remains transactional. Today, it is driven by immediate strategic needs rather than a long-term vision. Qatar, unlike the UAE and Saudi Arabia, is less constrained by energy transition-related pressures. Its reliance on gas provides Doha with greater economic stability (albeit vulnerable to overdependence on gas for revenues) and a competitive edge in the global energy market. Qatar has not to date significantly changed its approach to Africa, which is characterised by a focus on selective, strategically significant investments that hold both political and economic relevance. These targeted initiatives aim to strengthen bilateral ties in key sectors rather than pursuing broad-based engagement. This restraint is a reflection of Doha’s limited institutional knowledge of Africa and an overall risk-averse foreign policy, which often leads to it to engage in brownfield investments rather than expand into new ventures. Qatar, similar to Saudi Arabia, pursues a soft-power approach to political affairs on the continent. This is characterised by a strong emphasis on conflict mediation. It has played key diplomatic roles in past negotiations, such as in the Darfur conflict, the Eritrea-Djibouti border dispute and Somali reconciliation efforts. More recently, in March 2025 it hosted mediations between the Democratic Republic of Congo and Rwanda, managing to bring both sides to the table where other negotiators failed. This approach aims to enhance its global standing as a facilitator of dialogue and peace. Its Africa strategy is a balancing act between economic priorities and broader diplomatic ambitions.   What this means for Europe The EU and its member states will have to work with Gulf states in Africa. If they fail to do so, their political and economic decline on the continent could accelerate. This would also likely open up space for power blocs such as Gulf-China and Gulf-Russia partnerships to deepen their relations with African countries. But a lack of engagement with Gulf states also means Europeans would miss out on opportunities. Crucially, Europeans could benefit from collaboration with Gulf powers to align with African governments in shaping reciprocal green industrial transitions. These risks and opportunities stem from the strengths and weaknesses of Gulf states’ involvement in Africa.   These features also create synergies between Europe and Gulf states in Africa. The EU and its member states can add unique value to sectors vital to Gulf states’ interests, which could help mitigate the risks both sides face. Gulf countries, for example, would benefit from European technological know-how and innovation in sectors such as renewable energy. Moreover, Europeans have extensive experience and interest in human capital development; Saudi Arabia’s and Qatar’s soft-power approach means they have a growing interest in providing education and training. This could combine to help build the skilled and educated workforce that Africa’s rapid development and industrialisation requires. More synergies exist in Europeans’ longstanding political and institutional presence across Africa, as well as their focus on regulatory frameworks and experience dealing with African markets and governance structures. This could all be of use to the less Africa-experienced Gulf countries, helping to minimise their exposure to political and economic uncertainties. Europeans would gain reciprocal benefits through access to Gulf states’ financial resources, their capacity to roll out large scale projects, and their work to expand connectivity. The monarchies are also building greater influence in forums such as the UN and the G20, and more specifically in the energy sector (the COP climate conferences, for example, but also Saudi Arabia’s Future Minerals Forum). Through this, Europeans could leverage their relations with Gulf states in Africa to respond to the demands of the global south for equality in global governance. This would not only bolster Europe’s role in Africa’s sustainable growth but also help Europeans maintain a competitive edge in the evolving global energy and geoeconomic landscape. African governments would also benefit. Cultivating a diverse range of international partners lies at the heart of their newly enhanced bargaining geopolitical and economic power. This means that fostering Europe-Gulf cooperation could be vital for Africans to mitigate the risks of a declining European presence and the expanding (but still nascent) expansion by Gulf states. How Europeans should respond Initially, the EU and its member states should focus on four opportunities for cooperation with Gulf and African states. 1.Energy cooperation and access. The growing presence of Gulf states in Africa’s energy transition means Europeans can help improve access to (clean) energy across the continent. Gulf states are investing in power-generation projects and transport networks. These could enhance Africa’s economic growth, contribute to its market expansion (also through regional integration), and make the continent more attractive for other investors. Europe’s technological expertise in renewable energy complements the Gulf states’ investment capabilities and ambitions in this sector. a.Opportunity: Europeans should consider joint investment with Gulf states in Africa’s renewable energy projects. The UAE’s Masdar and Saudi Arabia’s ACWA Power can roll out large-scale renewable projects. European governments and companies would benefit from collaboration with such companies and with African governments, not only to help boost Africa’s renewable capacity but also to reduce the risks and costs of investment. For example, the government of Mauritania is already collaborating with the UAE’s Infinity Power and the German developer Conjuncta to develop a 10 gigawatt green hydrogen plant in the country. European energy companies should also leverage Qatar’s risk-aversion and interest in reducing risks via partnerships to expand their operations (as hinted at in a 2024 deal between Italy’s Enel Green Power and the Qatar Investment Authority). b.Risk: If Europeans do not take up such opportunities, Gulf countries could end up dominating Africa’s renewables sector. Their involvement in the continent’s energy market expansion may prioritise Gulf-centric policies over European or African climate and energy as well as industrial interests. Without a stronger European presence, Europe risks missing opportunities to contribute shaping Africa’s energy landscape in a way that aligns with both European interests and global climate objectives. 2.Cross-regional infrastructure development. The Gulf states’ investment in infrastructure and regional connectivity mean Europeans could help boost Africa’s economic growth and stimulate investors’ interest. Given the sheer scale and complexity of these projects, trilateral cooperation would help distribute costs, risks and expertise. By proactively collaborating with Gulf states, in particular the UAE and Saudi Arabia, Europeans can secure a role in Africa’s infrastructure transformation. This would help them ensure that major projects also align with European trade interests and long-term strategic priorities. a.Opportunity: The EU and member states should cooperate with Gulf and African states on infrastructure, focusing on the UAE’s maritime and logistics capabilities and Saudi Arabia’s substantial infrastructure investment. This would enable them to accelerate critical projects, from roads to power plants and energy distribution systems. Europeans should also collaborate with Gulf and African states on cross-regional railways. Trilateral cooperation on such initiatives as the “Lobito Corridor” (linking Angola, DRC and Zambia) would contribute to the development of high-impact infrastructure that no single state could easily undertake alone. b.Risk: If Europe does not do this, it risks being sidelined from new trade corridors and supply chains that will shape the continent’s economic and geopolitical landscape. Control over critical infrastructure—ports, railways, logistics hubs and energy networks—is a vital tool of geoeconomic influence, determining who facilitates and benefits from Africa’s economic growth. If Europe remains passive, Gulf and other external actors could shape Africa’s infrastructure in ways that reduce European access, limit European firms’ market participation and weaken Europe’s overall influence on regional economic integration. 3.Capacity building and human capital development. Africa’s rapid development requires an educated and skilled workforce. Saudi Arabia and Qatar have a growing interest in education and vocational training, an area in which Europeans have extensive experience. This is another potential area for trilateral cooperation. a.Opportunity: The EU and member states should collaborate with African and Gulf countries to launch joint capacity-building initiatives. Europeans would bring a unique contribution to these efforts through their experience in advanced training models, institution-building and regulatory frameworks. Moreover, African countries should proactively coordinate new Gulf efforts with European know-how, particularly in vital sectors such as energy and infrastructure. b.Risk: Inaction from European and African governments could mean Gulf-led training programmes shape Africa’s workforce according to the monarchies’ strategic priorities. This risks limiting European influence in Africa’s future development. It could also compromise European access to a skilled African workforce—essential to ensure foreign investors can ensure they meet African demands for local content. 4.Financial instruments and investment mechanisms. Africa’s development requires significant capital inflows, but investors often see the continent as high risk. The Gulf states’ growing role as both a financier and developer of Africa’s energy infrastructure presents opportunities for joint de-risking strategies. This would help both European and Gulf investors to overcome these risks. By pooling resources and expertise, Europe and Gulf countries can expand the capital available to fill Africa’s financing gaps—particularly for large-scale energy and infrastructure projects. a.Opportunity: European financial institutions should work with their African counterparts and Gulf investors and developers to de-risk their investment in Africa. This should include, for example, the European Investment Bank and European Bank for Reconstruction and Development, but also member states’ development banks such as the KfW (Germany) or Cassa Depositi e Prestiti (Italy). Such collaboration would help them de-risk investments and roll out large-scale infrastructure and energy projects, or scale up existing ones. This collaboration would appeal particularly to risk-averse countries such as Saudi Arabia and Qatar. b.Risk: Without this, Gulf investors could increasingly dominate Africa’s investment landscape. This shift could result in financial structures that, while effective for Gulf interests, may not align with European business practices, regulatory standards or long-term sustainability goals. That would likely result in European companies facing a more competitive and opaque investment environment. It could also erode Europe’s ability to promote investments that meet both Africa’s needs and European objectives. These four initial opportunities could act as a testing ground for trilateral cooperation. This, in turn, may create new synergies between all three parties. Europeans would then be well placed to build on this initial engagement to safeguard its geopolitical and geoeconomic interests in Africa; while developing new partnerships with rising powers that may benefit Europeans well beyond the continent.  Acknowledgements We would like to thank the Bill and Melinda Gates Foundation for their generous support that allowed us to organise workshops and conduct extensive research and travel. We are immensely grateful to Kim Butson, our editor, for helping us keep a clear direction, and for her unwavering patience especially in the last editorial phases. And to Nastassia Zenovich for giving such a great visual shape to our ideas. We are also very thankful to the entire ECFR Africa and MENA teams’ colleagues for regular brainstorming and helping us challenge our assumptions. Last but not least, this paper would not have been possible without the many officials, diplomats, experts and thinkers in Europe, Africa and the Gulf, who generously dedicated their time and ideas, contributing significantly to shaping this project.This article was first published by the European Council on Foreign Relations (ECFR) [here].

Energy & Economics
Nottinghamshire, UK 03 April 2025 : Attitudes of UK broadsheet newspaper after Trump unleashes Liberation Day Tariff announcement

The EU at the Crossroads of Global Geopolitics

by Krzysztof Sliwinski

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Abstract This study examines the short-term, medium-term, and long-term implications of recent "tariff wars" on the European Union (EU). The imposition of tariffs by the United States, particularly the "Liberation Day" tariffs announced by President Trump on April 2, 2025, led to significant disruptions in global supply chains, negatively impacted GDP growth, increased financial market volatility, and exacerbated geopolitical tensions. The EU faces challenges in navigating this shifting geopolitical landscape while maintaining its economic interests and influence. However, the EU has opportunities to leverage these conflicts to strengthen its internal market, foster international cooperation, and emerge as a more resilient global actor. The paper concludes by discussing the potential end of transatlanticism, the future of the EU, and the implications for globalisation in light of the current "tariff chaos." Keywords: Tariffs, Geopolitics, European Union, Trade Wars Introduction Before we examine the topic of tariffs, let us recall that the terms "tariff war" or "trade war" are not strictly academic. International Security scholars generally believe that the notion of war is reserved for military conflicts (both domestic and international) that involve at least a thousand casualties in any given year.[1] One of the most prominent sources in this regard is the Armed Conflict Dataset Codebook, published by the Uppsala Conflict Data Program at the Department of Peace and Conflict Research, Centre for the Study of Civil Wars, and the International Peace Research Institute at Uppsala University in Uppsala.[2] Therefore, "tariff war" or "tariff wars" are more journalistic and hyperbolic. Hence, they are used in this study with quotation marks. Journalists and commentators from various backgrounds often use inflated language to impress their readers. On the other hand, wars are cataclysmic events that have game-changing consequences. In this sense, some tools that state leaders use to achieve political and economic goals, such as tariffs, may have short- and long-term outcomes. Nonetheless, scholars who tend to be precise in their explanations will mainly discuss economic competition rather than "economic war" or "wars." This study investigates the short-, medium-, and possible long-term implications of "tariff wars" on the European Union. These implications appear multifaceted and encompass stability, political relationships, and a broader international order."Liberation Day" On April 2, US President Trump announced new tariffs under the banner of "Liberation Day" – a minimum baseline of 10 per cent tariffs on goods imported from all foreign countries and higher, reciprocal tariffs on nations that impose tariffs on US exports.[3]  Crucially, the White House claims that the new tariffs are reciprocal: "It is the policy of the United States to rebalance global trade flows by imposing an additional ad valorem duty on all imports from all trading partners except as otherwise provided herein. The additional ad valorem duty on all imports from all trading partners shall start at 10 per cent, and shortly thereafter, the additional ad valorem duty shall increase for trading partners enumerated in Annex I to this order at the rates set forth in Annex I to this order. These additional ad valorem duties shall apply until such time as I determine that the underlying conditions described above are satisfied, resolved, or mitigated".[4] We did not have to wait for strong reactions to occur worldwide. China vowed to retaliate against the 34 per cent tariffs imposed by the US on Wednesday (April 2 2025) and protect its national interests while condemning the move as "an act of bullying".[5] Doubling down, a few days later, Trump threatened a 50 per cent tariff on China on top of previous reciprocal duties,[6] to which Chinese President Xi Jinping already replied hawkishly.[7] In an equally hawkish response, the Trump administration declared that Chinese goods would be subject to a 145 per cent tariff.[8] In a twist of events, on April 9, the US  declared a 90-day-long pause for previously declared tariffs covering the whole world (keeping a minimum of 10 per cent, though) except against China.[9] The next couple of weeks will show whether the world will enter the "tariff arms race" or we will enter some "tariff détente". Importantly, as one can surmise, "Xi has sold himself domestically and internationally as the guy standing up to America, and people that want to stand up to America should get in line behind Chairman Xi".[10] For the EU, European Commission President Ursula von der Leyen described US universal tariffs as a significant blow to the world economy and claimed that the European Union was prepared to respond with countermeasures if talks with Washington failed. Accordingly, the EU was already finalising a first package of tariffs on up to 26 billion Euro ($28.4 billion) of US goods for mid-April in response to US steel and aluminium tariffs that took effect on March 12.[11] Consequently, on April 7, 2025, a meeting was organised in Luxembourg[12] regarding the EU's response to US tariffs on steel and aluminium and the preparation of countermeasures, which included a proposal to impose 25 per cent tariffs on US goods. Interestingly, the "Liberation Day" tariffs do not include Russia. According to numerous commentators, this indicates Moscow's importance as a future trade partner once the Ukrainian war is over. However, the official explanation issued by the White House suggests that the existing sanctions against Russia "preclude any meaningful trade."[13] Tariff imposition: short, medium and long-term consequences Several observable phenomena can be identified regarding their economic ramifications: First, the imposition of tariffs can lead to significant disruptions in global supply chains, thereby affecting industries that rely heavily on international trade. This disruption can lead to increased costs and reduced competitiveness for EU businesses, particularly in sectors such as agriculture and manufacturing.[14] While national measures may yield political and economic benefits in the short term, it is essential to note that global prosperity cannot be sustained without cooperative and stable international trade policies. Second, the Gross Domestic Product is likely to be impacted. The imposition of tariffs has been shown to negatively affect GDP growth. For instance, the US-China "trade war" decreased the GDP of both countries, which could similarly affect the EU if it becomes embroiled in similar conflicts.[15] Third, we examine volatility in the financial markets. "Tariff wars" contribute to financial market volatility, which can cause a ripple effect on EU economic stability. This volatility can deter investment and slow economic growth.[16] Fourth, political targeting and retaliation. "Tariff wars" often involve politically targeted retaliations, as seen in the US-China trade conflict. The EU has been adept at minimising economic damage while maximising political targeting, which could influence its future trade strategies and political alliances.[17] Fifth, global alliances are shifting. The EU may need to reconsider its trade alliances and partnerships in response to these shifting dynamics. This could involve forming new trade agreements or strengthening existing ones to mitigate the impact of "tariff wars."[18] Next, increased geopolitical competition and economic nationalism can exacerbate tensions between major powers, potentially leading to a crisis in globalization. As an aspiring global player, the EU must navigate these tensions carefully to maintain its influence and economic interests.[19] Social impacts should also be considered. "Trade wars" can lead to changes in employment and consumer prices, thus affecting the EU's social equity and economic stability. These changes necessitate policies that enhance social resilience and protect vulnerable populations.[20] Does Team Trump have a plan? The tariffs imposed by the Trump administration appear to be part of a broader strategy that Trump describes as a declaration of economic independence for the US, notably heralding them as part of the national emergency. The long-term effects of this strategy depend on how effectively the US can transition to domestic production without facing significant retaliation or trade barriers from other nations. Notably, the US dollar's status as the world's primary reserve currency has been supported by military power since the introduction of the Bretton Woods system. The US military, especially the US Navy, has helped secure trade routes, enforce economic policies, and establish a framework for international trade, favouring the US. dollar. The countries that subscribed to the system also gained access to the US consumer market. Importantly, what is explained by the Triffin Dilemma, back in the 1960s, the US had a choice: to either increase the supply of the US Dollar,  sought after by the whole world as a reserve currency and international trade currency and that way to upkeep global economic growth, which was pivotal for the US economy or to end the gold standard. In 1971, the US finished its Bretton Woods system. What followed was a new system primarily dictated by neoliberalism based on low tariffs, free capital movement, flexible exchange rates and US security guarantees.[21] Under that neoliberal system, reserve demand for American assets has pushed up the dollar, leading it to levels far in excess of what would balance international trade over the long run.[22] This made manufacturing in the US very expensive, and consequently, the deindustrialisation of the US followed. Therefore, it appears that Trump wants to keep the US dollar as the world's reserve currency and reindustrialise the US. According to Stephen Miran, chair of the Council of Economic Advisers (a United States agency within the Executive Office of the President), two key elements to achieve this goal are tariffs and addressing currency undervaluation of other nations.[23] The second element in that duo is also known as the Mar-a-Lago Accord.[24] Scott Bessent, 79th US Secretary of the Treasury, picked up this argument.[25] In a nutshell, the current "tariff chaos" is arguably only temporary, and in the long term, it is designed to provide an advantage for the US economy.A readjustment of sorts fundamentally reshapes the existing international political economy. Whether or not this plan works and achieves its goals is entirely different. As market analysts observe, "For the past two decades, the US has focused on high-tech services like Amazon and Google services, which have added to a service surplus. However, the real sustainable wealth comes from the manufacturing of goods, which, for the US, went from 17 per cent in 1988 to 10 per cent in 2023 of GDP. The entire process of building goods creates many mini ecosystems of production/capital value that stay in a country for many decades. […] Initially, the Chinese started in low-tech and low-cost labour manufacturing before 2001, but shifted towards becoming major manufacturers of high-tech products like robotics and EV automobiles. […] For President Trump to levy high tariffs on the Chinese in the current moment, he is doing everything that he can to resuscitate US manufacturing".[26] EU's options The EU and the US share the world's largest bilateral trade and investment relationship, with 2024 data showing EU exports to the US at 531.6 billion euros and imports at 333.4 billion euros, resulting in a 198.2 billion Euro trade surplus for the EU.[27] While the EU faces significant challenges due to "tariff wars," there are potential opportunities for positive outcomes. The EU can leverage these conflicts to strengthen its internal market and enhance its role in global trade. By adopting proactive trade policies and fostering international cooperation, the EU can mitigate the negative impacts of "tariff wars" and potentially emerge as a more resilient and influential global actor. However, this requires careful navigation of the complex geopolitical landscape and a commitment to maintaining open and cooperative trade relations. It seems likely that the EU can leverage recent US tariffs to strengthen ties with China and India, potentially reducing its dependency on US trade. China is the EU's second-largest trading partner for goods, with bilateral trade at 739 billion euros in 2023, though a large deficit favouring China (292 billion euros in 2023).[28] The EU's strategy is to de-risk, not decouple, focusing on reciprocity and reducing dependencies; however, competition and systemic rivalry complicate deeper ties. Meanwhile, India's trade with the EU was 124 billion euros in goods in 2023, and ongoing free trade agreement (FTA) negotiations, expected to conclude by 2025, could yield short-term economic gains of 4.4 billion euros for both.[29] India's fast-growing economy and shared interest in technology make it a potentially promising partner. EU and China: Opportunities and Challenges Economically, there are more opportunities than challenges. China remains the EU's second-largest trading partner for goods, with bilateral trade reaching 739 billion euros in 2023, down 14 per cent from 2022 due to global economic shifts.[30] The trade balance shows a significant deficit of 292 billion euros in 2023, driven by imports of telecommunications equipment and machinery, whereas EU exports include motor cars and medicaments. The EU's strategy, outlined in its 2019 strategic outlook and reaffirmed in 2023, positions China as a partner, competitor, and systemic rival, focusing on de-risking rather than decoupling. Recent actions, such as anti-dumping duties on Chinese glass fibre yarns in March 2025, highlight tensions over unfair trade practices. Despite these challenges, China's market size offers opportunities, especially if the EU can negotiate for better access. However, geopolitical rivalry complicates deeper ties, including EU probes, in Chinese subsidies. Politically, the EU and China differ significantly in this regard. Regarding human rights policies, the EU consistently raises concerns about human rights issues in China.[31] These concerns often lead to friction, with the European Parliament blocking trade agreements and imposing sanctions on them. Moreover, China's stance on the war in Ukraine has created tension, with the EU viewing Russia as a major threat, and China's support of Russia is a significant concern.[32] China is often perceived in Western European capitals as not making concessions on issues vital to European interests.[33] The understanding of the war's root causes, the assessment of implications, risks or potential solutions - in all these areas, the Chinese leadership on the one hand and the European governments and the EU Commission in Brussels on the other hand have expressed very different, at times even contrary, positions.[34] Finally, China's political model demonstrates that democracy is not a prerequisite for prosperity, challenging Western emphasis on democracy and human rights.[35] EU and India: Growing Partnership and FTA Prospects and Political Challenges Economically, it seems that there are more opportunities than challenges. India, ranked as the EU's ninth-largest trading partner, accounted for 124 billion euros in goods trade in 2023, representing 2.2 per cent of the EU's total trade, with growth of around 90 per cent over the past decade.[36] Services trade reached nearly 60 billion euros in 2023, almost doubling since 2020, with a third being digital services.[37] The EU is India's largest trading partner, and ongoing negotiations for a free trade agreement (FTA), investment protection, and geographical indications, initiated in 2007 and resuming in 2022, aim for conclusion by 2025.[38] A 2008 trade impact assessment suggests positive real income effects, with short-term gains of 3–4.4 billion euros for both parties. The EU seeks to lower Indian tariffs on cars, wine, and whiskey. Simultaneously, India has pushed for market access to pharmaceuticals and easier work visas for IT professionals. However, concerns remain regarding the impact of EU border carbon taxes and farm subsidies on Indian farmers. Politically, challenges to EU-India relations stem from several sources. Trade has been a persistent friction point, with negotiations for a free trade agreement facing roadblocks (Malaponti, 2024). Despite the EU being a significant trading partner for India,[39] differing approaches to trade liberalization have hindered progress. India's historical emphasis on autonomy and self-reliance can sometimes clash with the EU's multilateral approach.[40] Further, India's complex relationship with Russia, particularly its continued reliance on Russian defence technology, presents a challenge for closer EU-India security cooperation.[41] Finally, while the EU and India share concerns about China's growing influence, their strategies for managing this challenge may differ. These issues, if left unaddressed, could limit the potential for a deeper, more strategic partnership between the EU and India.[42] Conclusions "What does Trump want? This question is on the minds of policymakers and experts worldwide. Perhaps we are witnessing the opening salvo of a decisive phase of the US-China economic conflict - the most serious conflict since 1989. It is likely the beginning of the end of the ideology of Globalism and the processes of globalisation. It is arguably aggressive "decoupling" at its worst and the fragmentation of the world economy. For the EU, this is a new situation which dictates new challenges. Someday, probably sooner than later, European political elites will have to make a choice. To loosen or perhaps even end the transatlantic community and go against the US. Perhaps in tandem with some of the BRICS countries, such as India and China, or swallow the bitter pill, redefine its current economic model, and once again gamble with Washington, this time against the BRICS. It seems that the EU and its member states are at a crossroads, and their next choice of action will have to be very careful. In a likely new "Cold War" between the US and this time, China, the EU might not be allowed to play the third party, neutral status. One should also remember that Trump, like Putin or Xi, likes to talk to EU member states' representatives directly, bypassing Brussels and unelected "Eureaucrats' like Ursula Von der Leyen. In other words, he tends to leverage his position against the unity of the EU, which should not be surprising given the internal EU conflicts. More often than not, Hungary, Slovakia, Italy, or Nordic members of the EU clash on numerous Issues with Berlin, Paris and most importantly, Brussels. (I write more about it here: Will the EU even survive? Vital external and internal challenges ahead of the EU in the newly emerging world order. https://worldnewworld.com/page/content.php?no=4577).   References [1] See more at:  For detailed information, consult one of the most comprehensive databases on conflicts run by Uppsala Conflict Data Programme at: https://ucdp.uu.se/encyclopedia[2] Pettersson, Therese. 2019. UCDP/PRIO Armed Conflict Dataset Codebook, Version 19.1. Uppsala Conflict Data Program, Department of Peace and Conflict Research, Uppsala University, and Centre for the Study of Civil Wars, International Peace Research Institute, Oslo. https://ucdp.uu.se/downloads/ucdpprio/ucdp-prio-acd-191.pdf[3] Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits. https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/[4] Regulating Imports with a Reciprocal Tariff to Rectify… op. cit.[5] Hanin Bochen, and Ziwen Zhao. "China vows to retaliate after 'bullying' US imposes 34% reciprocal tariffs". South China Morning Post. April 3 2025. https://www.scmp.com/news/us/diplomacy/article/3304971/trump-announced-34-reciprocal-tariffs-chinese-goods-part-liberation-day-package[6] Megerian, Chris and Boak, Josh. "Trump threatens new 50% tariff on China on top of 'reciprocal' duties". Global News. April 7, 2025. https://globalnews.ca/news/11119347/trump-added-50-percent-tariff-china/[7] Tan Yvette, Liang Annabelle and Ng Kelly. "China is not backing down from Trump's tariff war. What next?". BBC, April 8 2025. https://www.bbc.com/news/articles/ckg51yw700lo[8] Wong, Olga. “Trump further raises tariffs to 120% on small parcels from mainland, Hong Kong”. South China Morning Post, 11 April 2025. https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3306069/trump-further-raises-tariffs-120-small-parcels-mainland-hong-kong?utm_source=feedly_feed[9] Chu, Ben. “ What does Trump's tariff pause mean for global trade?”, BBC, 10 April, 2025. https://www.bbc.com/news/articles/cz95589ey9yo[10] Wu, Terri. "Why US Has Upper Hand Over Beijing in Tariff Standoff". The Epoch Times April 7, 2025. https://www.theepochtimes.com/article/why-us-has-upper-hand-over-beijing-in-tariff-standoff-5838158?utm_source=epochHG&utm_campaign=jj  [11] Blenkinsop, Philip, and Van Overstraeten, Benoit. "EU plans countermeasures to new US tariffs, says EU chief." April 3, 2025. https://www.reuters.com/markets/eu-prepare-countermeasures-us-reciprocal-tariffs-says-eu-chief-2025-04-03/[12] Payne, Julia. The EU Commission proposes 25% counter-tariffs on some US imports, document shows". Reuters, April 8, 2025. https://www.reuters.com/markets/europe/eu-commission-proposes-25-counter-tariffs-some-us-imports-document-shows-2025-04-07/  [13] Bennett, Ivor. "US seems content to cosy up to Russia instead of imposing tariffs." Sky News, April 4, 2025. https://news.sky.com/story/us-seems-content-to-cosy-up-to-russia-instead-of-coerce-it-with-tariffs-13341300[14] Angwaomaodoko, Ejuchegahi Anthony. "Trade Wars and Tariff Policies: Long-Term Effects on Global Trade and Economic Relationship." Business and Economic Research, 14, no. 4 (October 27, 2024): 62. https://doi.org/10.5296/ber.v14i4.22185[15] Ilhomjonov, Ibrohim, and Akbarali Yakubov. "THE IMPACT OF THE TRADE WAR BETWEEN CHINA AND THE USA ON THE WORLD ECONOMY," June 16, 2024. https://interoncof.com/index.php/USA/article/view/2112[16] Angwaomaodoko, Ejuchegahi Anthony. "Trade Wars and Tariff Policies: Long-Term Effects on Global Trade and Economic Relationship." Business and Economic Research 14, no. 4 (October 27, 2024): 62. https://doi.org/10.5296/ber.v14i4.22185[17] Fetzer, Thiemo, and Schwarz Carlo. "Tariffs and Politics: Evidence from Trump's Trade Wars." Economic Journal 131: no. 636 (May 2021): 1717–41. https://doi.org/10.1093/ej/ueaa122[18] Angwaomaodoko, Ejuchegahi Anthony. "Trade Wars and Tariff Policies: Long-Term Effects on Global Trade and Economic Relationship …op. cit.[19] Mihaylov, Valentin Todorov, and Sławomir Sitek. 2021. "Trade Wars and the Changing International Order: A Crisis of Globalisation?" Miscellanea Geographica 25: 99–109. https://doi.org/10.2478/mgrsd-2020-0051[20] Wheatley, Mary Christine. "Global Trade Wars: Economic and Social Impacts." PREMIER JOURNAL OF BUSINESS AND MANAGEMENT, November 5, 2024. https://premierscience.com/wp-content/uploads/2024/11/pjbm-24-368.pdf[21] Money & Macro, https://www.youtube.com/watch?v=1ts5wJ6OfzA&t=572s[22] Miran, Stephen. "A User's Guide to Restructuring the Global Trading System." November 2024. Hudson Bay Capital. https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf[23] Miran, Stephen. "A User's Guide to Restructuring the Global Trading System"... op.cit.[24] Zongyuan Zoe Liu, "Why the Proposed Mar-a-Lago Accord May Not be the Magic Wand That Trump Is Hoping For", 9  April 2025. https://www.cfr.org/blog/why-proposed-mar-lago-accord-may-not-be-magic-wand-trump-hoping  [25] Treasury Secretary Scott Bessent Breaks Down Trump's Tariff Plan and Its Impact on the Middle Class. https://www.youtube.com/watch?v=zLnX1SQfgJI[26] Park, Thomas. https://www.linkedin.com/feed/update/urn:li:activity:7316122202846765056/[27] See more at: https://ec.europa.eu/eurostat/fr/web/products-eurostat-news/w/ddn-20250311-1[28] See more at: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/china_en[29] Kar, Jeet. "The EU and India are close to finalising a free trade agreement. Here's what to know." World Economic Forum. March 7 2025. https://www.weforum.org/stories/2025/03/eu-india-free-trade-agreement/[30] See more at: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/china_en[31] "The paradoxical relationship between the EU and China'. Eastminster: a global politics & policy blog, University of East Anglia. http://www.ueapolitics.org/2022/03/29/the-paradoxical-relationship-between-the-eu-and-china/[32] Vasselier, Abigaël. "Relations between the EU and China: what to watch for in 2024". January 25 2025. https://merics.org/en/merics-briefs/relations-between-eu-and-china-what-watch-2024 [33] Benner, Thorsten. "Europe Is Disastrously Split on China." Foreign Policy, April 12 2023. https://foreignpolicy.com/2023/04/12/europe-china-policy-brussels-macron-xi-jinping-von-der-leyen-sanchez/[34] Chen, D., N. Godehardt, M., Mayer, X., Zhang. 2022. "Europe and China at a Crossroads." 2022. https://thediplomat.com/2022/03/europe-and-china-at-a-crossroads.[35] Sharshenova, A. and Crawford. 2017. "Undermining Western Democracy Promotion in Central Asia: China's Countervailing Influences, Powers and Impact." Central Asian Survey 36 (4): 453. https://doi.org/10.1080/02634937.2017.1372364.[36] See more at: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india_en[37] See more at: https://digital-strategy.ec.europa.eu/en/news/key-outcomes-second-eu-india-trade-and-technology-council[38] Kar, Jeet. "The EU and India are close to finalising a free trade agreement. Here's what to know"… op. cit.[39] Malaponti, Chiara. 2024. “Rebooting EU-India Relations: How to Unlock Post-Election Potential.” https://ecfr.eu/article/rebooting-eu-india-relations-how-to-unlock-post-election-potential/.[40] Sinha, Aseema, and Jon P. Dorschner. 2009. “India: Rising Power or a Mere Revolution of Rising Expectations?” Polity 42 (1): 74. https://doi.org/10.1057/pol.2009.19.[41] Chandrasekar, Anunita. 2025. “It’s Time to Upgrade the EU-India Relationship.” https://www.cer.eu/insights/its-time-upgrade-eu-india-relationship.[42] Gare, Frédéric and Reuter Manisha. “Here be dragons: India-China relations and their consequences for Europe”. 25 May 2023. https://ecfr.eu/article/here-be-dragons-india-china-relations-and-their-consequences-for-europe/

Energy & Economics
US - 11.14.2024:

The Economic Impacts of Trump Administration's Tariffs

by World & New World Journal Policy Team

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском I. Introduction  We are only two and a half months into the new Trump administration. However, President Donald Trump's long-threatened tariffs have plunged the country into a trade war abroad. On-again, off-again, new tariffs continue to escalate uncertainty around the world. Trump already launched a trade war during his first term in office, but he has more sweeping tariff plans right now. The second Trump administration has embarked on a new and more aggressive tariff policy, citing various economic and national security concerns. His administration has proposed, imposed, suspended, revoked, and then reimposed various new tariffs. It could be difficult for average citizens to keep up with all the proposals. As of March 19, 2025, there are ten proposed or active tariff initiatives. They range from broad-based tariffs that cover all goods from a certain country (China, Mexico, Canada) to tariffs that cover certain types of goods (aluminum & steel), promises of future tariffs (copper, lumber, automotive, semiconductor, and pharmaceutical), and promised retaliatory tariffs (European wine and other alcoholic beverages). Moreover, although we have seen more tariff announcements in the first two months of the second Trump administration than in the entire first Trump administration, "fair and reciprocal" tariff rollout will overpower the tariffs imposed until today. The ten tariff initiatives that are proposed or in play are as follows in Table 1.   This paper aims to evaluate economic impacts of tariffs imposed by the Trump administration. It first explains the effects of tariffs imposed by the first Trump administration and then forecasts the impacts of the second Trump administration's tariffs.  II. Literature on Tariff Effects A tariff is a type of tax that a government adds to imported goods. Companies importing goods pay the tariff to the government. If any part of a product arrives with a tariff, whether it is an imported avocado or a car built locally with imported steel, its cost is part of the price everyday consumers pay before sales tax.  Economists reject tariffs as an effective tool to improve the welfare of U.S. citizens or strengthen key industries. In a survey conducted during the first Trump administration, 93 % of economic experts did not agree that targeted tariffs on aluminium and steel would improve Americans' welfare. Recent research has strengthened economists' opposition to this policy instrument. Numerous studies demonstrate that American consumers entirely bear the burden of tariffs imposed during the first Trump administration, with disproportionately large impacts on lower-income U.S. households. A framework for analysing the impact of higher import tariffs on the economy is provided by Mundell and Fleming. Mundell (1961) claimed that the country that raised tariffs on imported products may benefit because more people choose domestically produced products over imported ones. Protection from foreign competition could also benefit domestic industries. Large countries can also benefit from improved terms of trade. However, increased tariffs on imported products are assumed to lead to an increase in the current account balance by increasing savings relative to investment. Higher savings dampen aggregate demand. The situation of households deteriorates because of rising consumer prices. Domestic industries are also negatively affected by lower household demand and the need to pay more for imported input products.  Over the years, Mundell and Fleming's model has been developed further by other scholars such as Eichengreen (1981), Krugman (1982), Obstfeld and Rogoff (1995) and Eichengreen (2018). Overall, the theoretical literature demonstrates that higher import tariffs could affect the economy through various channels. The impacts of tariffs on the economy differ between a nation imposing the tariffs and nations exporting to the nation raising the tariffs. However, nations that are not subject to the increased import duties are also affected. Main effects of higher tariffs are as follows: Higher inflation: Higher import tariffs lead to higher prices for imported products. Depending on which tariffs are increased, this could lead to higher prices for both consumers and companies. Domestic firms may also raise their prices because of reduced competition from foreign companies (Cavallo et al. (2021)).  Higher consumer prices lead to a decline in real disposable household income, which hampers private consumption. Higher business costs have impacts on companies' profits, which in turn dampen employment and companies' willingness to invest. Companies are also more likely to pass on some of their higher costs to consumers in the form of higher prices. The rise in imported prices might be smaller in large countries, as they are more able to influence the world price of products. Increased consumption of other products: Higher imported prices can lead companies and consumers to increasingly buy cheaper domestic products. But it can also lead to increased imports of products from countries not subject to higher import tariffs.  Domestic industries are protected: Higher import tariffs improve the competitive position of domestic companies. These benefits can lead to increased investment, production, and employment in protected industries. However, the longer-term effect of protecting some domestic industries from foreign competition can be negative, as it might reduce incentives to improve production efficiency, thereby dampening productivity and GDP.  Decreased trade: Increased tariffs usually lead to reduced trade. This can lead to reduced knowledge transfer between nations in the form of less direct investment, reduced technology transfer, and reduced access to skilled labour. These factors in turn can lead to companies moving further away from the technological frontier, thereby hampering productivity (Dornbusch (1992) and Frankel and Romer (1999)).  Stronger exchange rate: When demand changes from foreign to domestic production, the exchange rate tends to rise to balance it out. One reason is that higher inflation often leads to higher interest rates relative to other nations. The nominal exchange rate might appreciate if imports decline significantly and demand for foreign currency drops. An appreciation of the exchange rate hampers exports but keeps imports cheaper.  Global value chains: Higher tariffs can lead to disruptions in global value chains by making imported inputs from abroad pricier. If firms are part of global value chains, higher costs for firms facing higher import costs may also lead to higher costs for domestic firms further down the production chain.  Uncertainty and confidence: Higher import tariffs may increase uncertainty about future trade policy and lead to increased pessimism among households and companies. Such uncertainty may hamper household consumption and business investment (Boer and Rieth (2024)).  III. Tariffs under the first Trump administration The first Trump administration's tariffs involved protectionist trade initiatives against other nations, notably China.  In January 2018, the Trump administration-imposed tariffs on solar panels and washing machines of 30–50%. In March 2018, the administration-imposed tariffs on aluminium (10%) and steel (25%), which are imported from most countries. In June 2018, the Administration expanded these tariffs to include the EU, Mexico, and Canada. The Trump administration separately set and escalated tariffs on products imported from China, leading to a trade war between the U.S. and China.  In their responses, U.S. trading partners imposed retaliatory tariffs on U.S. products. Canada imposed matching retaliatory tariffs on July 1, 2018. China implemented retaliatory tariffs equivalent to the $34 billion tariff imposed on it by the U.S. In June 2019, India imposed retaliatory tariffs on $240 million worth of U.S. products.  However, tariff negotiations in North America were under way and successful, with the U.S. lifting steel and aluminium tariffs on Mexico and Canada on May 20, 2019. Mexico and Canada joined Argentina and Australia, which were the only countries exempted from the tariffs. But on May 30, Trump announced on his own that he would put a 5% tariff on all imports from Mexico starting on June 10, 2019. The tariffs would go up to 10% on July 1, and then by another 5% every month for three months, until illegal immigrants stopped coming through Mexico and into the U.S. Then the tariffs were averted on June 7 after negotiations between the U.S. and Mexico. U.S. tariffs on Chinese products had been applied as follows: On March 22, 2018, Trump signed a memorandum under Section 301 of the Trade Act of 1974 to apply tariffs of $50 billion on Chinese products. In response, China announced plans to implement its tariffs on 128 U.S. products. 120 of those products, such as fruit and wine, will be taxed at a 15% duty, while the remaining eight products, including pork, will receive a 25% tariff. China implemented their tariffs on April 2, 2018.  On April 3, 2018, the U.S. Trade Representative's office (the USTR) published an initial list of 1,300+ Chinese products to impose levies upon products like flat-screen televisions, medical devices, aircraft parts and batteries. On April 4, 2018, China's Customs Tariff Commission of the State Council decided to announce a plan to put 25% more tariffs on 106 U.S. goods, such as soybeans and cars.  In the response, On April 5, 2018, President Trump directed the USTR to consider $100 billion in additional tariffs. On May 9, 2018, China cancelled soybean orders exported from the United States to China. On June 15, 2018, President Trump released a list of Chinese products worth $34 billion that would face a 25% tariff, starting on July 6. Another list with $16 billion of Chinese products was released, with an implementation date of August 23.  On July 10, 2018, in reaction to China's retaliatory tariffs that took effect July 6, the USTR issued a proposed list of Chinese products amounting to an annual trade value of about $200 billion that would be subjected to an additional 10% in duties. During the G20 summit in Japan in June 2019, the U.S. and China agreed to resume stalled trade talks, with Trump announcing he would suspend an additional $300 billion in tariffs that had been under consideration. IV. Economic Effects of the Tariffs from the First Trump Administration Changes in tariffs affect economic activity directly by influencing the price of imported products and indirectly through changes in exchange rates and real incomes. The extent of the price change and its impact on trade flows, employment, and production in the United States and abroad depend on resource constraints and how various economic actors (producers of domestic substitutes, foreign producers of the goods subject to the tariffs, producers in downstream industries, and consumers) respond as the effects of the increased tariffs reverberate throughout the economy. According to the U.S. Congressional Research Service (CRS), the following six outcomes came out at the level of individual firms and consumers as well as at the level of the national economy. 1. Increased costs for U.S. consumers Higher tariff rates lead to price increases for consumers of products subject to the tariffs and for consumers of downstream products as input costs rise. Higher prices in turn lead to decreased consumption, depending on consumers' price sensitivity for a particular product. For example, consider the monthly price of U.S. laundry equipment, which includes washing machines subject to tariff increases as high as 50% since February 2018. The monthly price of this equipment increased by as much as 14% in 2018 compared to the average price level in 2017, before the tariffs took effect (see Figure 1).   Figure 1: U.S. laundry equipment prices According to Jin (2023), many companies passed the costs of the Trump tariffs on to consumers in the form of higher prices. Following impositions of the tariffs on Chinese products, the prices of U.S. intermediate goods rose by 10% to 30%, an amount equivalent to the size of the tariffs. An April 2019 working paper by Flaaen, Hortaçsu, and Tintel not found that the tariffs on washing machines caused the prices of washers to rise by approximately 12% in the United States. A Goldman Sachs analysis by Fitzgerald in May 2019 found that the consumer price index (CPI) for tariffed products had increased dramatically, compared to a declining CPI for all other core goods. According to the Guardian, the Budget Lab at Yale University found that American consumer prices could rise by 1.4% to 5.1% if Trump implemented his comprehensive tariff plan, which would amount to an additional $1,900 to $7,600 per household. 2. Decreased domestic demand for imported goods subject to the tariffs and less competition for U.S. producers of substitute goods: U.S. producers competing with the imported products subject to the tariffs (e.g., domestic aluminium and steel producers) may benefit to the degree they are able to charge higher prices for their domestic products and may expand production because of increased profitability. Since March 2018, U.S. imports of steel and aluminium have faced additional tariff charges of 25% and 10%, making foreign supplies of these products more expensive relative to domestic products. Because of these tariffs, U.S. imports of these goods went down in 2018 and 2019 compared to what they were usually like in 2017 before the tariffs, while U.S. production went up (see Figure 2 and Figure 3). By the first quarter of 2020, real U.S. imports of steel and aluminium (adjusted for price fluctuations) had decreased by more than 30% and 16%, respectively, from their average 2017 levels. The quarterly production of steel and aluminium in the U.S. during this period, however, increased by as much as 13.5% and 9.0%, respectively, above average 2017 levels.   Figure 2: Domestic production and imports: Steel  Figure 3: Domestic production and imports: Aluminium 3. Increased costs for U.S. producers in downstream industries, resulting in a decline in employment U.S. producers that use imported products subject to the additional tariffs as inputs ("downstream" industries, such as auto manufacturers in the case of the aluminium and steel tariffs) might be harmed as their costs of production increase. Higher input costs are more likely to lead to some combination of lower profits for producers, which in turn might dampen demand for these downstream products, leading to some contraction in these sectors.  A study (2019) by Federal Reserve Board economists Flaaen and Pierce, which examined effects on the manufacturing sector from all U.S. tariff actions in 2018, found that higher input costs from the tariffs were associated with higher prices, employment declines, and reductions in output for affected firms. Another study (2020) by Handley, Kamal, and Monarch found that the higher input costs associated with the tariffs might have led to a decrease in U.S. exports for firms reliant on imported intermediate inputs. Handley, Kamal, and Monarch suggested that export growth was approximately 2% lower for products made with products subject to higher U.S. tariffs, relative to unaffected products. Another study (2019) by Federal Reserve Board economists Flaaen and Pierce found that the steel tariffs led to 0.6% fewer jobs in the manufacturing sector than would have happened in the absence of the tariffs; this cut amounted to approximately 75,000 jobs. A study (2024) by Ma and David concluded that the United States lost 245,000 jobs because of the Trump tariffs.  4. Decreased demand for U.S. exports subject to retaliatory tariffs  Retaliatory tariffs place U.S. exporters at a price disadvantage in export markets relative to competitors from other countries, potentially decreasing demand for U.S. exports to those markets. Since Q3 2018, after Section 232 retaliatory tariffs took effect in China, the EU, Russia, and Türkiye, U.S. exports to these trading partners subject to the tariffs declined by as much as 44% below their 2017 average values (Figure 4). U.S. exports to China subject to retaliation during the same period declined even further from their 2017 levels, falling as much as 68% on a quarterly basis. By contrast, during this same period, overall U.S. exports were as much as 10% higher each quarter relative to 2017, suggesting the retaliatory tariffs played a role in the product-specific export declines.  Figure 4: Declines in U.S. exports subject to retaliation A study by Fajgelbaum, Goldberg, Kennedy, and Khandelwal published in the Quarterly Journal of Economics in October 2019 estimated that consumers and firms in the U.S. who buy imports lost $51 billion (0.27% of GDP) because of the 2018 tariffs. This study also found that retaliatory tariffs resulted in a 9.9% decline in U.S. exports. This study also found that workers in counties with a lot of Republicans were hurt the most by the trade war because agricultural products were hit the hardest by retaliatory tariffs.  5. U.S. National Economy In addition to industry- or consumer-level effects, tariffs also have the potential to affect the broader U.S. national economy. Quantitative estimates of the effects vary based on modelling assumptions and techniques, but most studies suggest a negative overall impact on U.S. GDP because of the tariffs.  The Congressional Budget Office (2020) estimated that the increased tariffs in effect as of December 2019 would reduce U.S. GDP by 0.5% in 2020, below a baseline without the tariffs, while raising consumer prices by 0.5%, thereby reducing average real household income by $1,277. From a global perspective, the International Monetary Fund estimated that the tariffs would reduce global GDP in 2020 by 0.8%. Dario Caldara et al. (2020) also found that in 2018, investment dropped by 1.5% because of the uncertainty caused by U.S. trade policy. Moreover, a study (2019) by Amiti, Redding, and David published in the Journal of Economic Perspectives found that by December 2018, Trump's tariffs resulted in a reduction in aggregate U.S. real income of $1.4 billion per month in deadweight losses and cost U.S. consumers an additional $3.2 billion per month in added tax. Furthermore, Russ (2019) found that tariffs, which Trump imposed through mid-2019, combined with the policy uncertainty they created, would reduce the 2020 real GDP growth rate by one percentage point.  6. Trade balance  The Trump administration repeatedly raised concerns over the size of the U.S. trade deficit, thereby making trade deficit reduction a stated objective in negotiations for new U.S. trade agreements. Broad-based tariff increases affecting a large share of imports may reduce imports initially, but they are unlikely to reduce the overall trade deficit over the longer period due to at least two indirect impacts that counteract the initial reduction in imports. One indirect effect is a potential change in the value of the U.S. dollar relative to foreign currencies. Another potential effect of U.S. import tariffs is retaliatory tariffs. Economists argue that while tariffs placed on imports from a limited number of trading partners may reduce the bilateral U.S. trade deficit with those specific nations, this is likely to be offset by an increase in the trade deficit or reduction in the trade surplus with other nations, leaving the total U.S. trade deficit largely unchanged.  Figure 5 shows the relative change in the U.S. goods trade deficit with the world as well as the bilateral U.S. deficits with three major partners, China, Mexico, and Vietnam, from 2017 to 2019. Since the U.S. tariffs took effect, the overall U.S. trade deficit has increased, rising 8% from 2017 to 2019. However, the U.S. trade deficit in goods with China declined by 8% from 2017 to 2019, while the U.S. trade deficit in goods with Vietnam and Mexico significantly increased by more than 40% during the same period.  Figure 5: Changes in the U.S. goods trade deficits with China, Mexico, and Vietnam According to Zarroli (2019), between the time Trump took office in 2017 and March 2019, the U.S. trade deficit increased by $119 billion, reaching $621 billion, the highest it had been since 2008. American Farm Bureau Federation data showed that agriculture exports from the U.S. to China decreased from $19.5 billion in 2017 to $9.1 billion in 2018, a 53% reduction.  V. What are the Potential Consequences of Trump's Tariff Plan? Last year, the Peterson Institute for International Economics examined the impact of President Trump's proposed tariffs based on his campaign promises, which would impose 10 % additional tariffs on US imports from all sources and 60 % additional tariffs on imports from China. The major outcomes were lower national income, lower employment, and higher inflation. McKibbin, Hogan, and Noland (2024) at the Peterson Institute for International Economics found that both of Trump's tariff plans—imposing 10% additional tariffs on U.S. imports from all sources and 60% additional tariffs on imports from China—would reduce both U.S. real GDP and employment by 2028. But the former proposal damages the U.S. economy more than the latter. If other nations retaliate with higher tariffs on their imports from the U.S., the damage intensifies.  Assuming other governments respond in kind, Trump's 10 % increase results in U.S. real GDP that is 0.9 % lower than otherwise by 2026, and U.S. inflation rises 1.3 % above the baseline in 2025.  The 10 % added tariffs hurt the economies of Canada, Mexico, China, Germany, and Japan—all major US trading partners that see a lower GDP relative to their baselines through 2040. Mexico and Canada take much larger GDP hits than the U.S. The 60 % added tariffs on imports from China reduce its GDP relative to its baseline, much more than that of other U.S. trading partners. Mexico, however, sees a higher GDP than otherwise as some production shifts to Mexico from China. This paper focuses on Trump's universal 10 % tariffs rather than 60 % tariffs on imports from China because extreme 60 % tariffs on Chinese imports are not expected. McKibbin, Hogan, and Noland (2024) assume the 10 % tariff increase is implemented in 2025 and remains in place through the forecast period. They also consider a second scenario in which U.S. trading partners retaliate with equivalent tariff increases on products they import from the U.S.  Figures 6–11 show the results for the uniform additional 10 % increase in the tariff on imports of goods and services from all trading partners.   Figure 6: Projected change in real GDP of selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) When tariffs go up by 10%, the U.S. real GDP goes down by 0.36 % by 2026, and it goes down even more in Mexico and Canada by 2027 (see Figure 6). Chinese GDP drops by 0.25 % below the baseline in 2025. After the initial demand-induced slowdown, U.S. GDP recovers as production shifts from foreign suppliers to U.S. suppliers, leading to a slightly lower long-term GDP of 0.1 % below baseline by 2030 in the U.S.   Figure 7: Projected change in employment (hours worked) in selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) The results for aggregate employment are like the GDP outcomes (see figure 7). Employment drops in the United States by 0.6 % by 2026 but recovers due to a supply relocation towards U.S. suppliers. U.S. employment returns to baseline eventually because real wages decline permanently to bring employment back to baseline by assumption.  Figure 8: Projected change in inflation in selected economies from an additional 10% increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland, 2024) The imposition of higher tariffs increases prices of both consumer and intermediate goods, contributing to a rise in inflation of 0.6 % above baseline in 2025 (see figure 8).  The higher tariff is inflationary everywhere except in China due to the tightening of Chinese monetary policy to resist change in the exchange rate relative to the U.S. dollar.   Figure 9: Projected change in the trade balance in selected economies from an additional 10 % increase in US tariffs on imports of goods and services from all trading partners, 2025-40 (Source: McKibbin, Hogan, and Noland (2024)) Figure 9 shows the change in the trade balance as a share of GDP. In theory, the trade balance can worsen or improve due to changes in exports and imports. From 2025 to 2028, the U.S. trade deficit narrows slightly but then widens as capital flows into the U.S. economy, appreciating the U.S. real effective exchange rate. By 2030, the U.S. trade deficit will worsen by 0.1 % of GDP due to capital moving from Mexico and Canada into the U.S. Government savings rise due to additional tariff revenues.  VI. Conclusion  This paper showed that tariffs imposed by the first Trump administration had negative impacts on the U.S. economy, particularly inflation, incomes, and employment. It also demonstrated that tariffs which will be imposed by the second Trump administration are expected to have negative effects on the U.S. economy. Then a question arises: "Why does Trump attempt to impose tariffs on products from abroad?" Today, more people mention tariffs as tools to protect U.S. companies and farmers. They are discussed as a tool for bringing back manufacturing businesses into the U.S. as well as a bargaining tactic in negotiations over the flow of fentanyl and immigration. Trump has used and promised to increase tariffs for three purposes: to raise revenue, to bring trade into balance, and to bring rival countries to heel. It is unclear whether Trump will achieve his goals. However, President Donald Trump believes that tariffs are a panacea. Trump believes that his tariffs would bring hundreds of billions—trillions— into the US Treasury. Moreover, Trump is confident that he can force countries to give up something he believes is in America's best interest. For example, his tariffs on Canada and Mexico have led Mexico and Canada to agree to expand their border patrols. Reference  Amiti Mary, Redding Stephen, David E, “The Impact of the 2018 Tariffs on Prices and Welfare,” Journal of Economic Perspectives. 33 (Fall 2019): 187–210. Boer, L. and M. Rieth, “The Macroeconomic Consequences of Import Tariffs and Trade Policy Uncertainty,” IMF Working Paper 2024/013, International Monetary Fund. Cavallo, A., G. Gopinath, B. Neiman, and J. Tang (2021), “Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy,” American Economic Review: Insights 3(1): 19-34.  Congressional Budget Office, The Budget and Economic Outlook: 2020 to 2030, January 28, 2020. https://www.cbo.gov/system/files/2020-01/56020-CBO-Outlook.pdf.  Dario Caldara et al., “The Economic Effects of Trade Policy Uncertainty,” Journal of Monetary Economics, vol. 109 (January 2020), pp. 38-59. Dornbusch, R. (1992), “The Case for Trade Liberalization in Developing Countries,” Journal of Economic perspectives 6 (1): 69-85.  De Loecker, J., P.K. Goldberg, A.K. Khandelwal and N. Pavcnik (2016), “prices, markups, and trade reform,” Econometrica 84(2): 445-510.  Eichengreen, B. (1981), “A Dynamic Model of Tariffs and Employment under Flexible Exchange Rates,” Journal of International Economics 11:341-359.  Eichengreen, B. (2018), “Trade Policy and the Macroeconomy,” Keynote address Mun dell-Fleming Lecture, International Monetary Fund, 13 March 2018.  Fajgelbaum, P.D., P.K. Goldberg, P.J. Kennedy and A.K. Khandelwal (2019), “The Return to Protectionism,” The Quarterly Journal of Economics 135(1): 1-55.  Fitzgerald, Maggie, “This Chart from the Goldman Sachs Shows Tariffs are Rasing Prices for Consumers and It could Get Worse.” CNBC. May 13, 2019. Flaaen, A. and J.R. Pierce (2019), “Disentangling the effects of the 2018-2019 tariffs on globally connected U.S. Manufacturing sector,” Working Paper, Finance Economic Discussion Series 2019-086, Board of Governors Federal Reserve System, Washington DC.  Flaaen, A., A. Hortacsu and F. Tintelnot (2020), “The production relocation and price effects of US trade policy: the Case of Washing Machines,” American Economic Review 110(7): 2103-2127.  Frankel, J.A. and D.H. Romer (1999), “Does Trade Cause Growth,” American Economic Review 89 (3): 379-399. Handley, K., F. Kamal, and R. Monarch (2020), “Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism,” NBER Working paper 26611. https://www.nber.org/papers/w26611. Handley, K. and N. Limao (2022), “Trade Policy Uncertainty,” NBER Working Paper 29672.  Handley, Kyle, Fariha Kamal, and Ryan Monarch, “Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism,” National Bureau of Economic Research, NBER Working Paper No. 26611, January 2020. Jin, Keyu (2023). The New China Playbook: Beyond Socialism and Capitalism. New York: Viking. Kreuter, H. and M. Riccaboni (2023), “The Impact of Import Tariffs on GDP and Consumer Welfare: A Production Network Approach,” Journal of Economic Modelling 126.  Krugman, P. (1982), “The Macroeconomics of Protection with a Floating Exchange rate,” Carnegie-Rochester Conference Series on Public Policy 16: 141-182.  Ma, Xinru; Kang, David C. (2024). Beyond Power Transitions: The Lessons of East Asian History and the Future of U.S.-China Relations. Columbia Studies in International Order and Politics. New York: Columbia University Press.  McKibbin, W., M. Hogan, and M. Noland (2024), “The International Economic Implications of a Second Trump Presidency,” Peterson Institute for International Economics, Working Paper 24-20.  Mundell, R. (1961), “Flexible Exchange Rates and Employment Policy,” Canadian Journal of Economics and Political Science 27: 509-517.  Obstfeld, M., and K. Rogoff (1995), “Exchange Rate Dynamics Redux,” Journal of Political Economy, 103: 624-660.  Russ, Katheryn (December 16, 2019). “What Unilateralism Means for the Future of the U.S. Economy,” Harvard Business Review. January 2, 2020.  Zarroli, Jim. “Despite Trump’s Promises, The Trade Deficit is Only Getting Wider,” NPR. March 6, 2019.

Energy & Economics
The oil industry of Russia. Oil rigs on the background of the Russian flag. Mining in Russia. Russian oil export. Russia in the global fuel market. Fuel industry.

The Economic Impacts of the Ukraine War: focus on Russian Energy

by World & New World Journal Policy Team

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском I. Introduction Russia invaded Ukraine in February 2022. As the invasion enters its third year, its most immediate and visible consequences have been loss of life and large numbers of refugees from Ukraine. However, given the interconnected structure of the international political, economic, and policy systems, the ramifications of the conflict can be felt well beyond Ukraine and Russia.Much of the recent literature and commentaries have focused on the military and strategic lessons learned from the ongoing Ukraine conflict (Biddle 2022; 2023; Dijkstra et al. 2023). However, the conflict has potentially much wider global consequences for various policy areas. Robert Jervis noted that the international system is not only interconnected but also often displays nonlinear relationships and that “outcomes cannot be understood without adding together the units or their relations.” (Jervis 1997, 6).  This article focuses on the economic effects of the Ukraine war, emphasizing the energy issue, because Russia has been a major player in the global energy market.  II. Literature on the effects of wars Wars have the potential to alter the parties and “transform the future” of belligerents (Ikle 1991), they also bring about fundamental changes to the international system (Gilpin 1981).  Scholars in Economics have provided considerable analysis of the macroeconomic effects of a conflict across spatial levels: locally, nationally, regionally and internationally. Studies have examined the effects of specific wars such as the Syrian civil war (Kešeljević and Spruk, 2023) or the Iraq war (Bilmes and Stiglitz 2006). They have also examined the effects of war in general. For instance, Reuven Glick and Alan Taylor (2010) examine bilateral trade relations from 1870 to 1997 and find “large and persistent impacts of wars on trade, and hence on national and global economic welfare.” Similarly, Vally Koubi (2005) investigates the effects of inter- and intrastate wars on a sample of countries and finds that the combined pre-war contemporaneous and postwar effects on economic growth are negative.  A “war ruin” school emphasizes that the destruction caused by wars is accompanied by higher inflation, unproductive resource spending on the military, and war debt (Chan 1985; Diehl and Goertz 1985; Russett 1970). By contrast, a “war renewal” school argued that there could be longer-term positive economic effects from war because war can lead to increased efficiency in the economy by reducing the power of rent-seeking special interests, triggering technological innovation, and advancing human capital (Olson 1982; Organski and Kugler 1980). Early analysis estimated that the Russian invasion of Ukraine had an economic cost of 1% of global GDP in 2022 (Liadze et al. 2023)Some political scientists focused on the domestic consequences of war. For example, Electoral political scientists have often examined the effects of war on public opinion. A key concern has been whether war produces a “rally around the flag effects” to bolster the support of incumbent leaders – or whether war weariness can contribute to declining support for governments, including those governments committed to conflicts abroad. John Mueller (1970) was the first scholar to develop the concept of the “rally-round-the-flag”, with later scholars identifying some of the factors that may shape or mitigate the effect (Dinesen and Jaeger 2013). Kseniya Kizilova and Pippa Norris (2023) considered any rally effects during the first few months of the Ukraine war. They claim that the reason that motivated Putin’s military invasion was an attempt to boost popular support among the Russian electorate. They show evidence of a surge in support for Putin following the invasion, which persisted longer than usual in democratic systems. However, Kizilova and Norris question whether this will likely be sustained as the economic costs of the war increase.   III. Brief Summary of the Ukraine War The roots of the Ukraine war go back to the early 1990s when Ukraine declared independence from the Soviet Union. While the Ukrainian economy was still firmly tied to the Russian economy, the country shifted its political focus towards the EU and NATO. This shift culminated in the Orange Revolution 2004 and the “Euromaidan” demonstrations in 2013. Portraying the “Euromaidan” protests as a Western-backed coup, Russia invaded Crimea and declared the annexation of Crimea into Russia in March 2014. Conflict soon erupted in the Eastern regions of Donetsk and Luhansk, where Russia supported pro-Russian separatist forces (Walker 2023a). Despite attempts to negotiate a ceasefire through the Minsk Agreement I and II, the conflict in the Eastern part of Ukraine had continued (Walker 2023a), resulting in over 14,000 deaths between 2014 and 2021. Against this backdrop, on 21 February, 2022, Russia recognized the independence of Donetsk and Luhansk. Three days later, confounding most Western observer’s expectations, Russia launched a full-scale invasion of Ukraine, calling it a “special military operation”. During the initial weeks, Russia made substantial advances (CIA Fact-book 2024) but failed to take Kyiv in the face of strong Ukrainian resistance supported by Western allies. In October 2022, Russia declared the annexation of Donetsk, Luhansk, Kherson and Zaporizhzhia (even though they were not entirely under Russian control) (Walker 2023b). As of February 2025, the meeting between the US and Russia to end the war is underway. IV. The Effects of the Ukraine war The impacts of war are far-reaching and devastating. War causes immense destruction of property and loss of life. It also creates psychological trauma for those who have experienced it firsthand. War can also have long-term economic impacts, such as increased unemployment and poverty. War can also lead to the displacement of people, as we have seen the millions of refugees who have been forced to flee their homes due to conflicts. War can also have political effects, such as creating new states or weakening existing nations. It can also lead to the rise of authoritarian regimes in many post-war nations. War can also increase militarization as nations seek to protect themselves from future conflicts.  Regarding the effects of the Ukraine war, Bin Zhang and Sheripzhan Nadyrov (2024) claimed that in addition to inexpressible human suffering and the destruction of infrastructure, the economic and financial damage inflicted on European countries would be profound, especially in the context of rising inflation. The positive changes due to the conflict may occur in four areas: acceleration of the Green Deal, increased European attention to defense, improved prospects for individual countries to join the European Union (EU), and the unfolding of broader Eurasian economic integration.  The Ukraine war might have broader economic consequences. The supply chains may be affected because of the destruction of infrastructures and resources. War mobilization may affect the workforce and economic production. Actors in the economy may also act strategically to deploy resources elsewhere, to support the war effort or because the war has affected incentive structures or decide to cease production altogether because of expected losses. These effects can be local to geographical areas engulfed in conflict but also cause ripple effects to a broader regional area and the global economy. Trade, production, consumption, inflation, growth and employment patterns may all be influenced.  Figure 1: Global implications of the Russian invasion of Ukraine for the European and World Economies. Source: Peterson K. Ozili. (2022)  Ozili (2022) claimed that the scale of the Ukraine war had a negative impact on the economies of almost all countries around the world. As Figure 1 shows, the main effects of the Ukraine war on the global economy are: Rising Oil and Gas Prices – European countries import about a quarter of their oil and 40% of their natural gas from the Russian Federation. The Russian Federation is the second largest oil producer in the world and the largest supplier of natural gas to Europe. After the invasion, European oil companies will have problems getting these resources from the Russian Federation. Even before the Russian invasion, oil prices rose because of growing tensions between countries, the COVID-19 pandemic, and other factors, but remained in the $80–95 per barrel range. After the invasion, this price reached $100 and could reach $140. Natural gas prices have risen 20% since the war began. Rising gas prices can drive high inflation and increase public utility bills.  Decline in production and economic growth, rising global inflation, and the cost of living are more related to the consequences of the above-mentioned factors, especially rising oil and gas prices, which lead to high inflation and, therefore, a decline in supply and demand.  Impact on the global banking system: This factor’s negative effect will be felt more strongly by Russian banks and is associated with international financial sanctions. Foreign banks that will suffer significant damage from sanctions are those that have conducted large operations in the Russian Federation.  The Russian Federation’s export ban and its own counter-ban on imports of foreign products disrupted the global supply chain, resulting in shortages and higher prices for imported commodities. As Ozili (2022) claimed, higher inflation is a perceived negative consequence of the Russian invasion of Ukraine. As Figure 2 shows, inflation in the EU jumped in the first month of the invasion, and the increasing trend continues. EU inflation in 2022 peaked in October and amounted to 11.5%, a historical record. However, inflation has slowly declined as energy prices have gone down.  This higher inflation in Europe resulted from an increase in energy prices. As Figures 3, 4, and 5 show, energy prices in Europe skyrocketed in 2022. As Figure 3 shows, energy prices have been the most important component of inflation in the EU. Figure 2: Average inflation rate in the EU (%). Source: EurostatCreated with Datawrapper   Figure 3: Main components of inflation rate in the Euro areas.  Figure 4: Natural gas prices in Europe, January 2021- end 2024  Figure 5: Crude oil price, January 2020-January 2025 Source: Eurostat Created with Datawrapper As Figure 6 shows, the inflation rate in major EU countries such as Germany and France followed the pattern of EU countries in which inflation skyrocketed in 2022 and then slowly declined over time. Figure 6: Inflation rate in major EU countries. Source: Eurostat Created with Datawrapper  As Ozili claimed, a lower growth rate was also a perceived negative consequence of the Russian invasion of Ukraine. As Figure 7 shows, GDP in the EU was down to 3.5 % in 2022 compared to 6.3% in 2021, and it was further down to 0.8 % in 2023 because economic stagnation and high inflation caused by the Ukraine war impacted European economies. The European Commission forecasts that the European economy will grow by 0.9 % in 2024 and 1.5% in 2025.  Figure 7: Average annual GDP growth rate in EU, 1996-2025. Following the pattern of entire EU countries, growth rates in four big European countries declined in 2022 & 2023 after Russia invaded Ukraine in February 2022 and are expected to grow moderately in 2024. The growth rates in four big European countries are in Table 1 and Figures 8-11.    Figure 8: Growth rate in Germany  Figure 9: Growth rate in France  Figure 10: Growth rate in the UK   Figure 11: Growth rate in Italy    Regarding the effect of the Ukraine war on the global banking system, the effect was minimal because most international financial sanctions targeted Russian banks. The sanctions, including the ban of selected Russian banks from SWIFT, only affected foreign banks with significant operations in Russia. Many foreign banks experienced losses after several Western countries imposed financial sanctions on Russian banks, the Russian Central Bank, and wealthy Russian individuals. The most affected banks were Austria’s Raiffeisenbank, Italy’s Unicredit, and France’s Société Générale. Other foreign banks recorded huge losses when they discontinued their operations in Russia. The losses were significant for small foreign banks and insignificant for large foreign banks.  After almost 20 months into the full-scale war, Ukraine’s banking sector continued demonstrating remarkable resilience and functioning as the backbone of the real economy. No bank runs have occurred, and access to cash was maintained. In addition to crucial reforms since 2014, comprehensive measures by the National Bank of Ukraine and a strong level of digitalization are key reasons for the observed stability. However, a significant liquidity buffer is not only a sign of resilience. It also reveals a lack of lending. The bank loan portfolio declined by around 30% compared to pre-war levels in real terms.  Regarding the impact of the Russian invasion of Ukraine on European stock markets, Figures 12 and 13 show the movement of the FTSE 100 and Euro Area Stock Market Index (EU50). As seen from Figures 12 & 13, after the Russian invasion of Ukraine in February 2022, both indices showed a noticeable decline in 2022, particularly early 2022. However, both indexes showed a noticeable rise after late 2022. Although there were ups and downs in both indices in 2023 and 2024, they show upward movement from 2023 to 2025.  Figure 12: The FTSE 100 index in Europe  Figure 13: Euro Area Stock Market Index (EU50)   Regarding the global supply chain, military operations during the Russian invasion of Ukraine disrupted multiple sectors. In particular, Russia’s ban on exports and retaliatory ban on imports, including its refusal to allow foreign cargoes to pass through its waterways and airspace during the early phase of the invasion, disrupted the global supply chain.  Regarding global supply chain disruption, this article focuses on Russian oil and gas because they are the most important Russian products that affect not only Europe but also the world.  Figures 14 and 15 show a world map of the countries that exported oil and gas to Europe: the color of the country corresponds to the percentage share of the country’s exports (indicated below the Figure). In 2021, around a third of Europe’s energy came from gas (34%) and oil (31%), according to Al Jazeera’s data analysis from BP’s Statistical Review of World Energy. Europe was the largest importer of natural gas in the world. Russia provided roughly 40% and 25% of the EU’s imported gas and oil before the Russian invasion of Ukraine. As Figure 16 shows, major gas importers from Russia in 2021 were European countries. Figure 14: EU oil import sources in 2021. Figure 15: EU natural gas import sources in 2021. Source: Eurostat  Figure 16: Major EU importers from Russian Gas in 2021.  However, since the Russian invasion of Ukraine in 2022, more than 9,119 new economic sanctions have been imposed on Russia, making it the most sanctioned country in the world. At least 46 countries or territories, including all 27 EU nations, have imposed sanctions on Russia or pledged to adopt a combination of US and EU sanctions. The sanctions have strongly affected, resulting in a 58% decline in exports to Russia and an 86% drop in imports from Russia between the first quarter of 2022 and the third quarter of 2024 (see Figure 17). Figure 17: EU trade with Russia  Russia has blamed these sanctions for impeding routine maintenance on its Nord Stream I gas pipeline which is the single biggest gas pipeline between Russia and Western Europe. In response, Russia cut its gas exports to the EU by around 80% since the Russian invasion, resulting in higher gas price in Europe, as Figure 18 shows. As a result, many European countries had to rethink their energy mix rapidly. The ripple effects of higher natural gas prices were felt in Europe and around the world. One of the most immediate consequences of Russia’s cut in gas delivery and sanctions on Russia, as well as sanctions on Russian was a sharp increase in European demand for LNG imports: in the first eight months of 2022, net LNG imports in Europe rose by two-thirds (by 45 billion cubic meters compared with the same period a year earlier).  Russia’s pipeline gas share in EU imports dropped from over 40% in 2021 to about 8% in 2023. Russia accounted for less than 15% of total EU gas imports for pipeline gas and LNG combined. The drop was possible mainly thanks to a sharp increase in LNG imports and an overall reduction in gas consumption in the EU. Figure 18: Natural gas price in Europe, January 2021- December 2024  Figure 19 shows how gas supply to the EU changed between 2021 and 2023. Import from Russia declined from over 150 billion cubic meters (bcm) in 2021 to less than 43 bcm. This was mainly compensated by a growing share of other partners. Import from US grew from 18.9 bcm in 2021 to 56.2 bcm in 2023. Import from Norway grew from 79.5 bcm in 2021 to 87.7 in 2023. Import from other partners increased from 41.6 bcm in 2021 to 62 bcm in 2023. Source: https://www.consilium.europa.eu/en/infographics/eu-gas-supply/#0) Figure 19: Major EU import sources of Gas.  However, as Figure 20, shows the EU’s import from Russian gas increased in volume in 2024.  Figure 20: EU trade of natural gas with Russia     EU imports of Russian petroleum oil also dropped. Russia was the largest provider of petroleum oil to the EU in 2021. After Russia's invasion of Ukraine, a major diversion in the trade of petroleum oil took place. In the third quarter of 2024, the volume of petroleum oil in the EU imported from Russia was 7% of what it had been in the first quarter of 2021 (see Figure 21) while its value had dropped to 10% in the same period.  The EU’s share of petroleum oil imports from Russia dropped from 18% in the third quarter of 2022 to 2% in the third quarter of 2024 (see Figure 22). The shares of the United States (+5 pp), Kazakhstan (+4 pp), Norway (+3 pp), and Saudi Arabia (+2 pp) increased in this period. The U.S. and Norway became the EU’s no.1 and no.2 petroleum oil providers, respectively. Figure 21: EU trade of petroleum oil with Russia    Figure 22: EU’s leading petroleum oil providers  The EU’s de-Russification policy has successfully reduced the EU’s dependence on Russian energy. However, the EU’s de-Russification policy allowed Russian fossil fuels to flow into other regions. The Centre for Research on Energy and Clean Air (CREA), a think-tank in Finland, compiles estimates of the monetary value of Russian fossil fuels procured by each country and region (Figure 23). Figures 23 & 24 show the countries that imported Russian coal, oil and gas since Russia’s invasion of Ukraine. China has been no. 1 country that imported Russian fossil fuels most, followed by India, Turkey, and the EU. Asian countries such as Malaysia, South Korea, Singapore, and Japan are among the major importers of Russian fossil fuels.  Figure 23: Value of Russian fossil fuels purchase (January 1, 2023 to January 24, 2024)  Figure 24: Largest importers of Russian fossil fuels (January 1, 2023 to February 16, 2025)  Moreover, according to Statista, value of fossil fuel exports from Russia from February 24, 2022 to January 27, 2025, by country and type is as follows as Figure 25 shows. China have been no. 1 country that imported Russian fossil fuels most, followed by India, Turkey, Germany, Hungary, Italy, and South Korea. Figure 25: value of fossil fuel exports from Russia from February 24, 2022 to January 27, 2025, by country and type.  However, Figures 23, 24, and 25 show some differences among major importers of Russian fossil fuels. China, India, and Turkey imported more Russian oil than gas or coal, while EU imported more Russian gas than oil or coal. Interestingly, South Korea imported more Russian coal than oil or gas. If we focus on Russian oil, we know that China and India’s imports of Russian oils significantly increased, as shown in Figures 26, 27, and 28. Since the EU imposed its embargo on Russian crude oil shipments, China purchased the most from Russia, at EUR 82.3 billion, followed by India and Türkiye, at EUR 47.0 billion and EUR 34.1 billion, respectively. The EU came in fourth, with oil and gas imports continuing mainly through pipelines to Eastern Europe. Notably, the oil-producing countries of Saudi Arabia and the United Arab Emirates (UAE) purchased oil (crude oil and petroleum products) from Russia.  Figure 26: Russian Oil Exports, by country and region, 2021-2024. (Navy blue: EU, Blue: US & UK, Light green: Turkey, Green: China, Yellow: India, Orange: Middle Eastern nations) Since the advent of the Ukraine crisis, China and India have been increasing the amount of crude oil they imported from Russia. According to statistics compiled by China’s General Administration of Customs, as Figure 27 shows, monthly imports increased from 6.38 million tons in March 2022 to 10.54 million tons in August 2023. Annual imports in 2023 exceeded 100 million tons for the first time.  Figure 27: China’s monthly crude oil imports from Russia (2021 to 2023)   As Figure 28 shows, India, which historically imported little crude oil from Russia, rapidly increased its imports partly due to the close geographical distance since the Russian invasion of Ukraine. According to statistics compiled by India’s Ministry of Commerce and Industry, its imports of Russian crude oil increased from March 2022 onward, with the total amount imported during 2022 exceeding 33 million tons. Crude oil imports from Russia grew into 2023, with monthly imports in May 2023 reaching a record-high level of 8.92 million tons. Annual crude oil imports from Russia in 2023 were expected to be at least 80 million tons. Figure 28: India’s monthly crude oil imports from Russia (January 2021 to November 2023)  In conclusion, after EU ban on Russia until January, 2025, the biggest buyers of Russia’s fossil fuels are as follows as Figure 29 shows: China has been no. 1 country that imported Russian coal, and crude oil the most, while the EU has been the largest importer of Russian Gas, both pipeline and LNG. Figure 29: Which country bought Russia’s fossil fuels after EU ban until January 2025 Still, although the EU has significantly reduced gas imports from Russia since Russia’s invasion of Ukraine, the EU still is no. 1 importer of Russian gas. However, China replaced EU as the biggest buyer of Russian crude oil. China is also the biggest buyer of Russian coal. Data from January 1, 2022 to January 1, 2025 show how Russian fossil fuels have flowed by geography as Figure 30 shows. The flows of Russian energy to EU have significantly declined, while the supply of Russian energy to China, India, and Turkey has significantly increased.  Figure 30: The flows of Russian energy to regions    Despite the EU’s restrictions on Russian-sourced energy, Russia has maintained a substantial revenue level by selling it to other countries. As Figure 31 shows, Russian energy revenues have somewhat declined between January 2022 and January 2025. Russian energy export revenue was a little less than 750 million Euro in January 2025 compared to 1000 million Euro in January 2022 just before the Russian invasion of Ukraine. However, considering that Russia’s total oil and gas revenues were 72.6 billion dollars in 2020, 122.9 billion in 2021, 169.5 billion in 2022, and 102.8 billion in 2023 and that 2022 was the best year for energy revenues in recent years, Russian energy revenues after the Russian invasion of Ukraine in February 2022 was not insufficient. This in turn has blunted the effectiveness of the sanctions imposed by the West.   Figure 31: Russian energy export revenue between 2022 and 2025.  V. Conclusion  This article examined the economic effects of the Ukraine war based on the argument of Ozili (2022). This article investigated four economic aspects (Inflation, economic growth, global banking, and global supply chain) on which the Ukraine war has had impacts. This article focused on Europe and the global supply chain because Russia and Ukraine were parts of Europe and because Russian energy has had a significant impact on Europea and all around the world.  This article showed that the Ukraine war significantly affected European inflation, economic growth, stock markets, and energy markets while the war had minimal impact on global banking. However, this article showed that the economic effects of the Ukraine war on inflation, economic growth, stock markets, and energy markets in Europe were short-term. The oil and gas prices in Europe skyrocketed in 2022 and then declined slowly and continuously. In addition, growth in Europe declined in 2022 & 2023 after Russia invaded Ukraine in 2022 and energy prices jumped up. However, European countries grew moderately in 2024 and are expected to increase in 2025. The same thing happened to European stock markets. The FTSE 100 and Euro Area Stock Market Index (EU50) showed a noticeable decline in 2022, in particularly early 2022. However, both indices showed a noticeable rise after late 2022.  On the other hand, after Russia invaded Ukraine, European countries significantly reduced imports of Russian fossil fuels. The EU’s de-Russification policy allowed Russian fossil fuels to flow into other regions. After EU’s imposition of sanctions on Russian energy, Russian fossil fuels mainly went to Asian and Middle East markets, mainly to China, India, and Turkey. 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Energy & Economics
Microelectronics for European Union. European alliance flag in micro board style. Concept of purchase of microelectronics by countries of European Union. Microelectronics production in EU. 3d image.

Opinion – Europe’s Lagging Position on Microprocessors

by Robert Palmer

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Valued at over $3 trillion, Nvidia, the world’s largest market capitalisation, exemplifies the transformative power of the microprocessor sector, but Europe’s lagging position raises significant concerns about sovereignty and competitiveness. Some companies are stepping up, offering concrete responses to these challenges and heralding a new era for European innovation in microprocessors. European socio-economic stability depends on it. A new era is fast approaching, with the US authorities having decided to strike a major blow by making it very difficult to export certain semiconductors, even to allied countries, thereby depriving half of Europe’s countries of easy access to US technologies. The global microprocessor market is undergoing a profound transformation, driven by unprecedented technological advances and intensifying geopolitical competition. Once considered a niche industry, microprocessors have become the backbone of modern economies, enabling everything from smartphones to artificial intelligence systems, from IoT to cloud computing. The rise of Nvidia, a global leader in AI, underscores this changing ecosystem. The company is set to replace Intel in the Dow Jones Industrial Average (DJIA), who stated that the update aims to ensure “a more representative exposure to the semiconductors industry and the materials sector, respectively”. This dominance of a few global players underscores the challenges faced by other regions. While companies like Nvidia, AMD, and TSMC have set the standard for innovation, others—including once-mighty Intel—have struggled to keep up. Intel’s recent difficulties highlight the dynamic nature of the industry, where size and legacy alone no longer guarantee success. Instead, the ability to innovate, adapt, and secure supply chains is paramount. And initiatives are flourishing all around the world. As Europe works to bolster its presence in the microprocessor market, Latin America is emerging as a potential partner in the global semiconductor ecosystem. While the region does not yet have major microprocessor manufacturers, countries like Mexico and Brazil are becoming increasingly important in the broader supply chain. The United States, through initiatives such as the CHIPS Act, has sought to deepen its partnerships in Latin America, recognising the region’s strategic value for diversifying production and securing critical resources.  This should put Europe on alert. Indeed, the United States is planning on pushing forward with the development of microprocessor production capabilities across three Latin American countries: Mexico, Panama and Costa Rica. This strategy was unveiled by Secretary of State Anthony Blinken in July 2024 as the ‘Western Hemisphere Semiconductor Initiative.’ Indeed, Mexico is attracting billions in investments in its semiconductor and tech industries. Amazon, announced plans to invest $6 billion in the country by 2026, creating over 50,000 jobs. The Chinese government had identified semiconductors as a priority as early as 1956 and has already channeled an estimated $150 billion to its semiconductor industry. Latin America’s potential lies in its ability to complement the global microprocessor market with assembly, testing, and raw material processing capabilities. Though the region has yet to produce a major semiconductor design firm, its role in the supply chain could expand as global players look to reduce dependency on Asia. This creates opportunities for regional collaboration and investment in the sector while strengthening US access to semiconductors. Indeed, Secretary of State Anthony Blinken stated: “By improving the backbone of our supply chains, better infrastructure will help ensure that the goods our people rely on – semiconductors, electric vehicle batteries, medical supplies – are more affordable, more secure, and made right here in the Americas.” Incoming President Donald Trump’s planned tariffs on foreign imports could however have a real effect on tech giants’ outsourcing of manufacturing to Latin America, though. Even the Biden administration, a few days before its term, has decided to raise the stakes on microprocessors by further tightening sanctions against China. This illustrates the great sensitivity of the subject on the other side of the Atlantic and the need for Europe to rearm itself on the industrial front. Europe’s position in the microprocessor market remains precarious, and without sufficient scope for nearshoring and the development of a robust EU-focused development ecosystem, it could find itself falling way behind global competitors. Historically reliant on foreign suppliers for semiconductors, the region has recognised these strategic risks of this dependency. For Europe, this means creating an ecosystem in which innovative startups and new, EU-based technological initiatives are allowed to flourish. That’s the objective of the European Union’s “Chips Act”, which aims to increase local production capacity and support the development of homegrown technology. However, achieving these goals requires more than policy—it demands the emergence of innovative companies capable of competing on a global scale. Europe already has some important technological “links”, but not yet the whole chain. Among those links of emerging players is SiPearl, a French company specialising in the design of high-performance microprocessors. While still small compared to global giants, SiPearl represents a concrete step toward reducing Europe’s technological dependency. Its processors, designed for use in data centres and supercomputing, align with Europe’s strategic goals for technological sovereignty and innovation. SiPearl’s reliance on Taiwanese manufacturing reflects the broader global interdependence of the microprocessor market, but its designs are uniquely European, tailored to meet the region’s regulatory and security standards. The choice of Taiwan seems obvious at present, given that the processes used in Europe do not meet the requirements. Alternative foundries may be needed, such as Samsung, which has production capacities in South Korea and the USA, or even Intel. Indeed, this Eurocentric approach is at the heart of the firm’s strategy for development. CEO Philippe Notton underscores how the Chips Act does not go far enough in supporting start-up firms like his own: “the European Chips Act is a good start. If we manage to mobilise more public funds in the semiconductor sector to get things moving again, as is being done in most countries, that will be a positive thing.” Notton, like many in the sector, believes that startups are, however, being left behind by this policy. Nonetheless, there are some positive initiatives to support the objectives of the European Chips Act, such as the $3.2 billion investment by Silicon Box to build a semiconductor plant in northern Italy. This announcement was made last March by the Italian Minister of Enterprises, who was happy to show that Italy can “attract the interest of global technology players”. Europe is focusing on fostering innovation and reducing dependency through public-private partnerships. SiPearl is a prime example, but it is not alone. Other European companies, such as Infineon Technologies (Germany) and STMicroelectronics (a Franco-Italian firm), are making significant contributions to the semiconductor industry. MELEXIS, another firm based in Belgium, plays a critical role in developing specialized chips for the automotive industry, supporting Europe’s push for technological sovereignty in key sectors. This approach has also supported the growth of companies such as ASML in the Netherlands, a global leader in lithography machines essential for microprocessor manufacturing, and GlobalFoundries in Germany, which operates one of Europe’s most advanced semiconductor fabrication facilities. CEO Dr. Thomas Caulfield, has a more positive outlook, and emphasised Europe’s strategic position in the semiconductor industry, particularly highlighting the continent’s leadership in lithography through companies like ASML. He stated:  “Europe shouldn’t worry over issues of technology leadership for two reasons. One: You can’t do anything in semiconductors without lithography and Europe has ASML the leader in lithography. Nobody can do anything in semiconductors without giving capex to ASML, so Europe has great control of the semiconductor industry.” This highlights the multilateral ecosystem many are trying to develop in Europe, because together, these firms demonstrate the continent’s potential to become a hub for advanced microprocessor design and production. The microprocessor market is at a crossroads, offering Europe distinct opportunities to redefine its role in the global technology ecosystem. Success, however, will depend on sustained investment, strategic partnerships, and bold innovation. By leveraging its strengths, Europe can be both a leading player in design and manufacture as it used to be just a few decades ago. The opportunities are massive, but so are the risks of falling behind. The rewards of such efforts are, however, substantial: enhanced economic growth, greater technological sovereignty, and a pivotal role in shaping the future of the global microprocessor industry. The text of this work is licensed under  a Creative Commons CC BY-NC 4.0 license.