Shifting global dynamics: Europe seeks new partners, India must act

This year’s edition of the World Economic Forum (WEF), in Davos, has been shaped by the pressure being placed on European nations by the United States (US) administration, especially over the possible annexation of Greenland. The US has again used tariffs as an instrument to seek to coerce and compel Europe into agreement with American priorities. The question is whether the Europeans are capable of a response, and, if so, what forms that response will take. The general assumption is that in both military and economic terms, Europe — the European Union (EU), associate nations like Norway and Switzerland, and the United Kingdom — are dependent on the US. While in military terms this is partially true, in economic terms the dependence is more limited. Specific industries — luxury goods in France, automotives in Germany, engineering in Sweden, and pharmaceuticals in Ireland — may see profits halve without the American market. For some of them, such as German carmakers, this may cause an existential threat because this comes at the same time as the transition to electric vehicles and increased Chinese competition. But the overall European manufacturing economy can survive without the US. Also, Europe has the ability to weaponise American services imports into the region as well as destabilise financial markets, using its holdings of US Treasuries. 

Speaking at the WEF on Tuesday, European Commission President Ursula von der Leyen laid out a European response that focused on building “a new form of independence” from the US. Europe, she said, “needs to adjust to the new security architecture and realities that we are now facing”. This would involve closer cooperation with local partners on military affairs as well as extensive domestic reform to restore competitiveness. There is also awareness that European companies are not sufficiently exploiting their internal markets, and regulatory reform is being proposed to address that and thus increase their resilience in the face of geopolitical shocks. 

Ms von der Leyen went on to list specific actions that the EU had taken on the external front to derisk its economy and diversify its supply chains. She pointed to the successful conclusion of a free-trade agreement (FTA) with the Mercosur bloc of Latin America — another area that is being exposed to significant US pressure. She also spoke of the FTA with India. Europe, she said, “wants to do business with the growth centres of today and the economic powerhouses of this century”. Of course, a possible agreement between Europe and the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP, would be of equivalent or even greater magnitude in terms of setting trade standards and creating new supply chains. 

For the rest of the world, signs of disintegration in the Western alliance are not new, but have taken a far more disturbing turn in recent months. The fact is that this empowers bad actors of various sorts — from those fomenting war in Sudan or Southeast Asia to Pakistan’s generals happily signing new defence pacts. Such instability is not in India’s national interests. The Indian government needs to add some urgency to attempts to restore global governance and keep trade flowing. Concluding the EU-India FTA when Ms von der Leyen visits the country would be the greatest possible signal that it understands the importance and dangers of this moment in world history and seeks to turn it to India’s advantage.