- 11 minutes ago
DW speaks to Valdis Dombrovskis, the EU commissioner for economy and productivity, at the Berlin Global Dialogue.
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00:00China can restrict critical minerals, America can raise tariffs, and another energy shock
00:05could cripple European factories. Europe wants to be less vulnerable, but building alternatives
00:10costs billions. Protectionism can drive up prices. At a time of huge tensions over the
00:16cost of living, can Europe protect its economy without making ordinary people pay the price?
00:21We're at the Berlin Global Dialogue with Valdis Dongrovskis, the EU's economy commissioner,
00:26to ask who really holds power over Europe's economic future. Welcome to The Dip, your podcast
00:33for money, power, and consequences. I'm Daniel. Valdis Dongrovskis has negotiated trade for Europe
00:43and now helps shape its economics policy as the EU's economics commissioner. He's also a former
00:49prime minister of Latvia. Valdis, welcome to The Dip. You grew up in Soviet Latvia. How did that
00:55shape your outlook and how does it shape your views today on the economic challenges that
01:01Europe is facing? Well, you know, when I grew up, I could see the dysfunctional comment and
01:13socialism economy. So in a sense, so firsthand things which are not working and therefore maybe
01:21one important element is not to repeat the mistakes of the past. And sometimes we have some discussions
01:29and tendency about protectionism, about common economy, about regulating all the aspect of the economy. And we know
01:38full well from experiments in a number of countries which have tried it with socialism that this does not work.
01:45So that's
01:45probably the main lesson we have in European Union, our social market economy model. And that's what we
01:55should be building on. So it helped you to see the benefits of free trade and open markets and this
02:02kind of thing. Indeed. I want to give you a statistic, a prediction, 7%. That's how much you believe global
02:11economic fragmentation could cost the world, citing an IMF estimate. That's the size of the French and
02:17German economies put together, which could over time in the long term just evaporate from the globe.
02:24So you believe that Europe faces an enormous risk at the moment, a potential risk. How do you describe
02:31what that risk is and what spheres we're seeing inside Europe?
02:35Yeah, well, here we are talking about the risk of global economic fragmentation. So the scenario
02:42which you mentioned basically refers to the situation where the trade would largely concentrate
02:49in certain economic blocks. And that's why from European Union side we remain committed to the rules-based
02:59international order, including in the area of international trade. That's why we are committed to
03:07how functioning and effective World Trade Organization on WTO reform, because we believe that at the end of
03:16the day that's for the benefit of everyone. And on contrary, if you'll see protectionism, if you'll see
03:24closing the borders, proliferation of trade barriers, that's going to be damaging for the global economy,
03:30with actually developing countries disproportionately affected.
03:35Okay, so what are the sources of all of these risk factors that we're seeing today?
03:39Well, actually, we are seeing some of this economic fragmentation, unfortunately, happening. We are seeing
03:45proliferation of trade barriers. Well, we obviously see President Trump with his tariffs and other trade restrictions.
03:57We see China as a difficult partner to work with. We see that there is tendencies towards protection.
04:08And you're essentially performing a high wire act here. How do you stop Europe's own de-risking policies
04:16from becoming decoupling, cutting off trade with certain countries that don't want to do a deal with
04:22you or that have put up certain barriers against the EU, which would then, of course, contribute to
04:28economic fragmentation? Well, that's why we want to have this stability and predictability of trade relations.
04:36That's why we have been working very intensely on new trade agreements in this environment. That's why we have
04:44also an agreement with Sternberg agreement with the United States, which at least provides also some degree
04:50of predictability. And that's why we continue to support and to protect also the rules-based international
05:02system, including the role of the World Trade Organization.
05:06But it sounds like in areas that's working and in some areas it isn't. And it's in the areas that
05:12it
05:12isn't that it tends to be with these big major partners and trading blocs. So Europe long championed this
05:21idea of trade making everyone richer, bringing countries closer together. We would buy Chinese electronics
05:28and Russian oil and that would we would sell them products and that would cement our allyship.
05:33The shocks of recent years have shattered that belief. Do you think that Europe is facing an identity crisis?
05:40Well, I would not say we are facing an identity crisis, but what we are facing is certainly
05:48more conflictual, more fragmented geopolitical situation. And as European Union, we need to look how we are
05:56functioning in this new geopolitical situation. So diversification is part of the answer, but also it's
06:05protecting our interests where it's necessary and where we see that certain dependencies are being exploited by
06:14other countries. Like for example, when Russia started its full-scale invasion in Ukraine in 2022,
06:22it was trying to use our dependency on their natural gas supplies as some kind of a tool of blackmail
06:28and
06:29manipulation. So we had to wind down this dependency and basically, and here I would use this term,
06:36decouple from Russian fossil fuel supplies. And that's a strategic decision which we have been
06:41taking and by and large had been, by and large it has been implemented by now.
06:49So then we see certain choke points in critical minerals, rare airs, where China is dominating
06:5780, 90 more than 90 percent of global supplies. And we had a seen willingness of China actually to use
07:04it as some kind of a choke points for our economy. So something which we need to address and
07:11that's why we're working together with G7 and other partners to diversify the supplies of critical
07:19minerals and rare airs so that we do not have this dependency. But we are using this term,
07:29de-risking also specifically in the context of China and that's our approach with China that we are
07:34de-risking. We are seeking more balanced trade relationship because we're also running a huge
07:41trade deficit. Last year we had a trade deficit with China 360 billion euros. It's almost 1 billion
07:48euro per day. So we need to rebalance this. How did it get to that point?
07:58Well, partly it's a function of China's non-market policies and practices of industrial subsidies. For
08:05example, if we see the very rapidly increasing the market share of Chinese battery electrical vehicles
08:11and hybrid plug-in hybrid vehicles in European market, that has been helped by industrial subsidies in China.
08:18So that's why we had anti-subsidy investigation on battery electrical vehicles and imposed tariffs and that
08:25helped us to roughly half the imports of Chinese battery electrical vehicles. And right now we have reached
08:33agreement with China on also basically roughly halving the imports of hybrid and plug-in hybrid vehicles by
08:44imposing a quota on those imports. But what we are also emphasizing is that that's a positive step,
08:53but that's only the first step. And actually we need to continue to work to ensure this broader
08:58rebalancing. So, but here we are also emphasizing that in case of China, we are de-risking, seeking
09:04more balance, but not decoupling. But you said in 2023 that Europe's de-risking strategy is country agnostic,
09:11yet China feels targeted, exceptionally targeted in this case. It says mutual dependence is not a
09:17risk and intertwined interests are not a threat. And now that sounds like words that could have come
09:22from an EU policy document to be honest. But all of the rhetoric and all of the policies seem targeted
09:28to force China to play by EU rules or else get out the EU market. Is China a risk and
09:35a threat to the EU?
09:36Well, China is one of the sources and I'm emphasizing not the only one of global economic imbalances.
09:48And this is something which needs to be addressed if we want to preserve also this orderly global trade
09:54system. China has benefited tremendously from this from its WTO accession. So it also is in China's interest to
10:03find a way to achieve this global economic rebalancing. And there our recipe is kind of simple. So what
10:13we are saying is that the US should be spending less, China should be spending more, EU should be investing
10:20more. Okay, that's very simplified, but gives the direction of the work. And so we're engaging also with
10:28China on this global economic rebalancing, because at the end of the day, it would be in interest of everyone
10:35to
10:35houses rebalancing, because it's also clear if we will continue to run this massive trade deficit with China like it
10:43was
10:43last year, if we will see real threat to our industries, we will have to respond.
10:51But I mean, for the average person on the street who is facing cost of living pressures right now,
10:57the potential of getting a modern high tech and relatively cheap Chinese car might have been
11:02appealing to them. And you're essentially saying you should have to pay more because Europe's car
11:08makers failed to compete, they failed to take the risk, they failed to invest in those areas where
11:12China is now doing better. And China used the economic and government levers in order to move itself
11:20forward. I mean, obviously, the EU says that it was unfair the way that it did that. But it did
11:24it,
11:25and now it's ahead and Europe is behind. Why should ordinary consumers have to pay the price for this?
11:30Well, first of all, it's clear that protectionism is not the answer. And the EU is also a global
11:40trading superpower. So it's also not in our economic interest to engage in some kind of a broad based
11:47protectionist, protectionist measures, possibly triggering similar measures from other partners.
11:53That's why I was mentioning our very intensive work on actually diversifying our network of free
11:59trade agreements, which actually means lowering barriers for trade. So opposite to the protectionism,
12:05but also it's important that this competition happens based on a level playing field. And if we see
12:12that the level playing field is distorted by industrial subsidies, as it was the case with battery
12:18electrical vehicles, then we need to address it. Otherwise, we are putting our own industry in
12:26competitive disadvantage. And if we will be losing this industry, if we'll be losing jobs at the end of
12:32the day, it will not be of the help also for prosperity of Europeans. While Brussels tries to reduce Europe's
12:41dependence on China, Spain is actively courting Chinese investment, strengthening its relationship
12:48with Beijing, how can Europe possibly pursue a common strategy on China when its own governments seem to
12:53be pulling in different directions? Well, first of all, the EU is having a common international trade
13:03policy and common customs tariffs. So from that point of view, this is a trade policy which we are
13:10agreeing for the European Union as a whole and implementing for the European Union as a whole.
13:18So the EU is… Prime Minister Sanchez has criticized that policy of increasing tariff barriers.
13:23Well, certainly there may be different views. And for example, when we were running
13:30the anti-subsidy investigation on Chinese battery electrical vehicles, there were also
13:37certain countries which were criticizing this approach. So there may be certain views. But at the
13:44end of the day, when decisions are taken, those are common decisions for the entire European Union.
13:50Then it's a question on attracting investment. There, obviously, some countries are more active,
13:57some countries are less active, and we know that indeed Spain and until recently Hungary had been quite
14:03active in actually encouraging Chinese investment. Some other countries have found certain shortcomings or
14:11issues coming with this investment. So there, obviously, countries may pursue different approaches.
14:18countries. There are certain elements like concerning the economic strategy where, again, we are pursuing a
14:25common European approach. But in terms of also engaging how active countries are engaging with China
14:34bilaterally, at the end of the day, it's a decision for those countries.
14:37And what about the US? Is it a risk to the EU?
14:41Well, we suddenly see complicated trade relationships in the last years with the US. We had all the
14:52discussions concerning those quote-unquote liberation day tariffs and so on and so forth. And that's why we
14:59had been engaging with the US administration, reaching this Turnberry agreement, which is not ideal, but at least it
15:06provides some clarity and predictability for businesses on both sides of Atlantic. And it's worth remembering that
15:14EU-US trade and investment relationship is the largest in the world. So there's lots of stake
15:21economically. And so from the EU side, we are committed to stick to this agreement. And that's what we are
15:27hearing also from US administrations, that they are also committed to stick to the agreement they have reached with us.
15:34But what stops Washington just coming back for further concessions? Because it looks to some people like
15:40the EU didn't play hardball enough against Trump.
15:43Well, one can have different views on this. But as I said, right now, there is certain
15:51predictability, which is holding already for some time. And the signals we are getting from US administration are very clear
15:57that
15:57they are willing to stick with the agreement we have reached.
16:00And so would Europe actually be willing to put up further, let's say, barriers, controls, checks,
16:08safeguards against Washington if it threatened another trade confrontation?
16:12Well, but already in the Turnberry agreement which we have with the United States now,
16:16those safeguards are there in place. And indeed, foresees the possibility also from the EU side to
16:22move away from this agreement and to put exactly probably some additional safeguards or barriers in
16:30case the US is not respecting this agreement.
16:34Does the EU really have the stomach to trigger those clauses and to put up barriers against what,
16:40like what you said, it's such a massive trading relationship, it would seriously damage the EU?
16:45Well, that's why we are not rushing to this scenario. That's why we engaged with the US administration
16:53and reached this agreement, because we think that it's important for both our economies
16:59and for stability of this transatlantic economic relation.
17:04Part of the problem for Europe at the moment is that it's simply too expensive to replace
17:09certain imports with fully 100% homegrown European versions. You can talk about things like,
17:16for example, the latest AI chips, for example. Europe can't fully replace those inside of Europe.
17:22I mean, you could also even talk about energy imports as well, that it's not possible for the EU to
17:28have control over this global energy market. And in Germany, we've seen the big issue has been the
17:35energy price. And that has meant that it's been too costly for German companies to make cheaper
17:41alternatives to the products that are being imported. How do you balance that need for securing strategic
17:47supply without driving up inflation at the same time?
17:51Well, first of all, we are not seeking self-sufficiency. That's very clear.
17:58No autarky.
17:59Exactly. So we see value in international cooperation, and that brings me back to this,
18:08one could say trade offensive or offensive trade agreements, which we have done over the last year.
18:14So it goes exactly the opposite direction of what you are saying. So we have our economic security
18:23strategy. We see certain vulnerabilities, which we need to address. And so we are focusing on those
18:33strategic technologies and industries to have also, you know, certain level of on-shoring,
18:42certain level for resilience through this. But as regards energy, so since 2022, when Russia started
18:58its invasion in Ukraine, and now with war in Iran, we had seen two energy price shocks. And in both
19:08instances, the source of this shock was volatility of fossil fuel prices. So that's why our response is to
19:19actually continue diminishing our dependency on imported fossil fuels, continue to roll out renewables,
19:28continue to improve energy efficiency, prepare the electricity grids for more decentralized energy
19:36production, prepare interconnections across member states for better functioning of the market,
19:43double the share of electricity in our final energy consumption from roughly 20 to 40 percent.
19:52So all exactly to address this price spikes and price volatilities which we are experiencing. And
20:00already now, this year, we see that European economy is more resilient to the energy price shock we are
20:06facing now than it was back to in 2022, thanks to the measures already taken since 2022. So there, indeed,
20:17there is a case for us to reinforcing our energy security and, at the end of the day, also to
20:24address the
20:25question of energy affordability. I mean, it feels for many Europeans, though, that it's all going far too
20:31slowly, because they feel like they've heard about, for example, about climate change and us needing to
20:37build out renewable energies for a long time. And yet, I mean, we're talking about even decades here,
20:44and then comes along these these energy shocks. And a lot of people are left wondering,
20:47why weren't we prepared for this? Do you have any words for encouragement for Europeans that
20:55things are actually progressing and that we won't let this happen again? Or is it going to be...
21:01Well, things are actually progressing. If you look, for example, on the electricity
21:04market, if you look at the domestic low carbon production, meaning renewables and nuclear,
21:13it's has 70 percent of the market share already. So lots of things have been done and we are making
21:24progress in this direction. We know that different member states had been taking different decisions,
21:32including Germany, for example, took a decision to move away from nuclear. But then we see with what it
21:39was replaced. And unfortunately, it was not replaced so much with renewables, but rather with fossil fuels
21:45and including Russian natural gas. So that's probably another lesson not to build these kind of
21:51dependencies, but focus on domestically produced low carbon energy.
21:57Okay. And I don't know if you're if you browse a lot of social media, if you've seen the memes,
22:02there is one in particular which says America innovates, China replicates, Europe regulates.
22:11And I'm sure you'll push back on that idea. But why after years and years of the EU saying it
22:16must cut
22:17red tape, must make innovation easier. Do people still talk about the EU as the world capital of regulation?
22:23I think that's a fair criticism. And that's something we are acknowledging also in our competitiveness
22:29compass that this excessive regulation is one of the factors negatively affecting our competitiveness.
22:37And that's why we have the simplification agenda to deal with this.
22:41It sounds like even simplification is a complex process, basically, but I like to say that simplification
22:46is not simple. Exactly. Small businesses, though, tell me that the EU just can't help itself and that
22:53Brussels promises to make doing business easier, for example, with initiatives like EU Inc.
22:59but then introduces packaging rules that are so burdensome that parliament has intervened to try
23:04and exempt small firms. Why does Europe keep creating new obstacles while promising to remove them?
23:11Well, some of those specific initiatives like you mentioned, specifically packaging and packaging waste
23:21that are very burdensome provisions, which we are currently looking how to address, also how to
23:33grandfather the existing stock of packaging and not to create immediate problems for businesses, allowing them
23:40for some time to adjust. But that's also important point that we need to change the culture, how we are
23:50legislating, because our
23:52omnibus proposals, simplification proposals, it's all retroactive, in a sense, simplifying things which have been decided
24:02already. But the question is, going forward, how do we do not create, again, excessively complex rules and regulations?
24:11And that's why we have come also with a communication on legislative work going forward, applying principles like
24:21simplicity by design, think small first concerning specifically SMEs, doing the competitiveness check, SME test for
24:32for our draft legislations, to make sure that indeed we are having rules and regulations which are fit for purpose,
24:42which are helping European economy, also helping us to achieve our social and environmental goals, rather than
24:52hampering and burying businesses below excessive regulations and burdens.
24:58And I want to finally touch on the financial aspect of Europe. And the IMF says that national barriers
25:07are keeping much of the money apart. When you say, for example, you would like European savings to help
25:14finance a European industry, why are businesses still running into the barriers inside a supposedly single market?
25:23Well, that's obviously is an issue. And that's why we came with this one Europe one market roadmap to exactly
25:33address the barriers of the single market. And the EU Inc proposal was one of those initiatives to create a
25:41regime, a regulatory regime for companies that they can actually operate across all 27 member states
25:50immediately. And the point is that typically, you know, each of those barriers, which are in single market, it doesn't
25:59appear accidentally. There is certain constituencies, certain vested interests, which have created this barrier. That's why it requires also, you
26:08know, a political push actually to reduce those barriers and to take on those vested interests, which want to keep
26:16those barriers.
26:18But I would say the political will also among EU member states is there. And we are working now a
26:26full steam to implement this one Europe one market roadmap to achieve exactly that.
26:32I mean, last question for you've been very generous with your time. So thank you very much for that. But
26:37looking five years, 10 years down the line,
26:39will people feel better off in Europe? Will they feel economically more comfortable? Or do you think that the challenges
26:47are going to remain, especially when we look at the likes of AI rising up, uncertainty over jobs and so
26:52on?
26:53Well, that's, that's our task. And if you look at the two overarching priorities for European Union right now, it's
27:01competitiveness of European economy, and also security and defense in current geopolitical environment.
27:08So that's exactly goes into addressing those issues of keeping Europe as a competitive economy as an attractive place to
27:20do business. And at the end of the day, through this also ensuring prosperity of Europeans, and Europe must become
27:29more of a hard power.
27:30So that's why we need also to invest much more in our defense capabilities, defense industries, because unfortunately, it's a
27:39current geopolitical situation and living back to the aggressor state Russia requires.
27:46So, so I think the parting words are that making things simple is a complex task. But Baldis Dombrowskis, thank
27:52you very much for joining me here on the dip and try to simplify that explanation for our audience somewhat.
27:58Thank you.
27:58Thank you. That's it for this week on the dip. Thank you very much for the listening. Don't forget to
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