The US economy is emerging stronger than the European economy in two critical areas, the financial and the digital economy equally. Overall, however, it has a huge competitiveness problem, as shown by the current account deficit.
US industry is experiencing a trade disaster, with the country’s trade deficit steadily rising, while the traditional service-level surplus, largely due to US overseas investment and financial dominance, can no longer offset the trade deficit. In November 2021, the US deficit in goods and services reached $80.2 billion, up $13billion from October 2021 to 28.6% in a 12-month period.
The largest surplus in bilateral trade in goods and services with the US is recorded by China followed by the EU, where of course the surplus mainly concerns strong EU member-state economies such as Germany. Evidence shows that the United States is losing the battle of production and competition internationally, with China a big and stable winner.
External balance sheet data show that if the US does not restructure and boost its economy productively, the role of the superpower will be called into question.
The international dimension of problematic course of US economy
Joe Biden, like Donald Trump, sees China as a strategic rival to the United States. The difference is that Joe Biden is trying to boost multilateral cooperation between the West and the Indian and Pacific regions to control the expansion of Chinese influence.
At present, however, the US performance in the economy and in dealing with the pandemic is not at the level required by strategic competition with the new superpower. In addition, the US strategy regarding China is becoming more difficult due to the escalation of the US confrontation with Russia over the issue of Ukraine.
Russian President Vladimir Putin is moving methodically and vigorously and trying to revive, as much as possible, Moscow’s sphere of influence before the collapse of the Soviet Union. The EU crisis – Belarus gave him the opportunity to strengthen his influence in the Lukashenko regime. The unrest in Kazakhstan enabled him to project Russia as an invasive, stabilizing force.
As for Ukraine, Vladimir Putin considers irreversible the annexation of Crimea by Russia in 2014. He continues to support Russian-speaking separatists in eastern Ukraine and is mobilizing troops on the border with Ukraine to send the message that will accept its membership in NATO and the EU
Joe Biden is determined to respond to Vladimir Putin’s challenge, but he is obliged to invest political time and capital in this case. Russia is certainly not the superpower it once was, but it is capable of causing general destabilization in Europe.
Washington’s actions often put it at odds with the Europeans. Berlin and Paris are calling for a softer and more constructive policy towards Moscow. In contrast, Poland and the capitals of the Baltic states are calling for a more dynamic stance, while Ukraine considers the US and EU that have a tendency to be submissive to Russia.
Therefore, the crisis in relations with Russia is an obstacle to the organization of strategic competition with China, while it is possible – if it continues – to send Russia into the economic embrace of China.
For its part, China believes that the balance of power will change in its favor in 2022. It is monitoring the problems of Joe Biden and the Democrats and is waiting for the midterm elections in November (please read the analysis entitled “Democrats Risk losing the November Midterm Elections“) to draw the necessary political conclusions. In China, it is believed that Xi Jinping’s re-election at the end of his term in office for a third five-year term will enhance the effectiveness of the ruling system.
EU and European capitals would like a more dynamic and effective Joe Biden. The problem is that they also do not set a good example in terms of dynamism and efficiency in international relations.
There are still serious disagreements among Europeans over relations with the US, Russia and China, while the political situation remains fluid. New doubts about the stability of government in Italy, presidential elections in France with Emmanuel Macron having a strong advantage but also relatively low acceptance rates of his policy, difficult calculations in Germany within a governing coalition whose members do not always have the same views on relations with the US, NATO, Russia, and even the operation of the Nord Stream 2 gas pipeline.
Europeans, however, are united, with a few exceptions such as Hungarian Prime Minister Viktor Orban, in their desire for Joe Biden to succeed and strengthen their relations with the United States. Unfortunately, Joe Biden’s political success does not seem guaranteed. At this stage, the odds are at his expense.
