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The EU must become less “passive” in defending its economic interests against the threat of countries like China that have “unfair advantages”, former Italian Prime Minister Mario Draghi has said.
The economic bloc should be prepared to impose more tariffs and subsidies, Draghi said, in comments indicating he is likely to favor a more interventionist industrial policy in his report due next month on how to fix Europe’s faltering competitiveness restored.
In a speech just days after the EU announced sharply higher tariffs on imports of Chinese electric vehicles, Draghi said: “We do not want to become protectionist in Europe, but we cannot be passive when the actions of others threaten our prosperity.
“Even recent US decisions to impose tariffs on China are impacting our economy by diverting exports,” he said, adding that Europe faced greater challenges than the US because it was “more vulnerable to both inaction on trade as well as for retaliatory measures”.
Draghi has been tasked by the European Commission to prepare a report on how the EU can tackle its eroding global competitiveness, as fears grow that the region’s economy has lost ground to the US and China since being hit harder due to the coronavirus pandemic and the Russian invasion of Ukraine.
The former president of the European Central Bank spoke in Spain, where he received the Carlos V European Award from Spanish King Felipe VI for his contribution to the region.
The EU told carmakers on Wednesday that it would temporarily increase tariffs on imported Chinese electric cars from 10 percent to as much as 48 percent, depending on the extent to which they benefit from state subsidies.
The move followed the US decision to quadruple tariffs on Chinese EV imports to 100 percent this year. But some EU member states, including Germany, opposed it, with officials and executives concerned that carmakers could bear the brunt of any retaliation from Beijing.
German Economy Minister Robert Habeck, who plans to visit China next week, said after the EU decision: “Tariffs are always a last resort as a political instrument and are often the worst option,” adding that a tariff war with Beijing carries the risk of “throwing the baby away with the bathwater”.
European manufacturers employed more than double the number of people than their US counterparts, Draghi said, adding that more than a third of European manufacturing output was shipped outside the EU, compared to just a fifth in the US.
The former ECB president cited estimates that China spent about three times as much as Germany or France on industrial policy, relative to the size of their economies. He said the EU should make greater use of tariffs and subsidies “to compensate for unfair advantages created by industrial policies and real exchange rate devaluations abroad.”
Warning that Europe was facing “a wave of cheaper and sometimes more technologically advanced Chinese imports”, Draghi said there was “ample evidence that some of China’s progress is due to significant cost subsidies, trade protection and demand suppression, and that this will lead to lower employment for our economy.”
However, raising tariffs and subsidies must be done as part of a “pragmatic, prudent and consistent” approach, he said, calling for efforts to revive multilateral trade rules and encourage more foreign direct investment in Europe.
Draghi recommends a “foreign economic policy” to reduce Europe’s dependence on countries it can no longer rely on in strategic areas such as defense, space, critical minerals and pharmaceuticals. components” in military procurement.
The former Italian leader appears to have accepted that the EU is unlikely to set up a permanent debt issuance capacity to finance investments in areas such as defence, green energy and digitalisation – something he has long pushed for.
“The financing needs for the green and digital transitions are enormous and, given the limited fiscal space in Europe, both at national and, at least so far, EU level, these will have to be largely provided by the private sector,” he said.