Geoeconomic Fragmentation: What’s at Stake for the EU
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Summary:
Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on—and adopted by—the EU and considers how exposed the EU is through trade, financial and technological channels. Motivated by current policies adopted by other countries, the paper then simulates how various measures—raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies—would affect the EU economy. Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU’s best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.
Series:
Working Paper No. 2023/245
Subject:
Balance of payments Comparative advantage Economic sectors Exports Foreign direct investment Fuel prices International trade Manufacturing Prices
Frequency:
regular
English
Publication Date:
November 30, 2023
ISBN/ISSN:
9798400259098/1018-5941
Stock No:
WPIEA2023245
Format:
Paper
Pages:
40
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