THE DOUBLE MISTAKE OF EUROPE – Relying on the neoliberal creed, believing it would guarantee supremacy and lasting prosperity, and giving up the role of being a bridge between the United States and the emerging world.

In their recent trip to Beijing, both German Chancellor Scholz and US Treasury Secretary Janet Yellen reproached Xi Jinping for China’s alleged overinvestment in sectors such as electric vehicles, solar panels, and batteries, well beyond the capacity of its domestic market, in order to flood global markets with more competitive goods. They both stated that they will not accept their industries being cornered simply because Chinese products enjoy lower production costs.

According to the Chinese, these claims are unfounded. They argue that China’s rise in these sectors has been driven, among other factors, by innovation and supply chains that have made the Chinese production system more competitive. The trade war between Western countries and China seems to be escalating every day, laying the groundwork for a military confrontation in line with the well-known saying by Von Clausewitz that war is the continuation of politics by other means.

The structural roots of this situation can be traced back to the 1980s and 1990s and are at the core of “globalization.” Western countries have greatly benefited from it: capital has been able to transcend national borders, evading taxation; production systems have become global, and it is the cost of labor that has faced downward competitive pressure. Financial economy has grown disproportionately, thanks to investments that, at least until 2008, yielded higher returns than the real economy. With globalization, industries from Western countries relocated to lower-cost labor countries. China led this process, ensuring the acquisition of technology and increasing its human capital. This, accompanied by growing investments in research, development, and education, allowed China to make a qualitative leap, gaining a dominant position in all high-value-added macrosectors. If Chinese goods flooded Sunday markets in the late 1990s, now China dominates the markets of information technology, electric vehicles, and many other high-tech sectors.

The story of the United States and Europe is parallel: for years, they relocated a significant part of their production structure, losing engineering, technical, and manufacturing capabilities that take decades to build. Choices made under the neoliberal creed of “go wherever the market takes you” have proven to be failures. Today, China, which has invested more in real production and less in finance, enjoys a significant competitive advantage. It has surpassed the United States as the global leader in patent demand and scientific publications, indicators of a healthy and thriving economy. A fundamental aspect of the American economy today is the concentration of financial capital in a few hands. Thanks to their central position in global finance, the three largest US investment funds alone manage four times the GDP of Germany. They control 4 out of 10 shares of major US companies and can influence every type of activity: production, distribution of goods and services, transportation, healthcare, research, and more.

The difference between the financialized economy, led by financiers, lawyers, and lobbyists, and the real economy, which requires engineers, skills, and natural resources, has become clear and is the cause of the current imbalances.

The misjudgment of Russian resilience to economic sanctions and the direction of trade flows also have their roots here.

As Emmanuel Todd states, the war in Ukraine is a secondary issue in a much larger story: the ongoing battle between a declining global hegemonic power, the United States, and Western countries on one side, and a rising power, China, along with India and other emerging countries, on the other. The Ukrainian war was intended to diminish Russia, consolidating the “Atlantic” bloc around the United States, which is necessary to support American power against China, while also severing crucial commercial ties for Europe. Strategically, however, the war has brought Russia closer to China, which is the true competitor for hegemony. However, there is doubt about whether China truly wants to assume the role currently held by the US. China is achieving global economic dominance, which is more solid and extensive than military dominance. Meanwhile, Europe has made two mistakes: relying on the neoliberal creed, thinking it would secure world supremacy and lasting prosperity, and relinquishing a role as a bridge between the American ally and the emerging world beyond its borders. The upcoming confrontations will revolve around this aspect, taking into account the new global economic landscape in which the West, and particularly Europe, will inevitably have to downsize its role.