Adapting to the Shifting Dynamics of International Markets
By Editorial Office
Dynamics of Major Economic Powers
The Contention Between the United States and China
Politically, the United States and China are presently engaged in a fierce competition for global influence. Meanwhile, Europe appears to be sidelined in major international discussions, creating significant challenges for its export markets and production systems.
This situation compels countries such as Germany, which serves as Europe’s economic powerhouse, to reassess and strategically reorient their investments.
The Impact of Chinese Overproduction
The two major economic players, the United States and China, have established their trade wars, and structural issues are bound to emerge sooner or later; from an economic standpoint, the BRICS theme is gaining more media attention.
However, even within the BRICS, there are tensions as China, with its overproduction, is flooding the global market with low-cost products, prompting many countries to increase tariffs, creating discontent among BRICS members and highlighting an increasingly intense global trade competition.
Ultimately, we are witnessing the formation of separate trade blocs.
Economic Transformations in China and India
The Development of Domestic Markets
China and India have begun to develop robust domestic markets and produce high-value-added goods, thereby reducing imports from Europe.
To respond to this situation, Germany has heavily invested in these countries. However, this has had negative repercussions throughout the entire supply chain, causing economic difficulties. Furthermore, Germany, having invested heavily in China and Russia, has found itself needing to buy raw materials and gas at reduced prices.
Economically, the war phenomenon has hit Germany hard, creating an economic blockade in Europe.
The Political Repercussions of Economic Transformations
Economic transformations are already impacting political dynamics.
For example, there is an ongoing debate about the introduction date for 100% electric cars, scheduled for 2035. Some are pushing to postpone this date to gain the necessary votes to form a political majority.
This reflects the difficulty Europe and the United States face in planning and adopting effective strategies for electrification and other technological innovations.
Challenges and Trade Barriers
Strategic Planning and Adaptation
One of the main challenges is the lack of coherent strategic planning. Europe, in particular, depends on the decisions of individual countries’ heads of state, making it difficult to define a common strategy.
Only in recent years, especially after the pandemic, has Europe begun to recognize economic pressures and the need to quickly adapt to these changes. However, the road ahead is still long and complex.
Consequences of New Trade Barriers
New trade barriers will significantly impact global economic dynamics. European companies will need to adapt to this new reality to remain competitive. This requires a reconfiguration of business strategies, which will be crucial for addressing future challenges. These trade blocs will have varying degrees of barriers, completely changing the trade landscape of the past twenty years, from 1990 onwards. This necessitates a reconfiguration, highlighting that there are permanent crises to which companies must adapt to survive.
Sectors in Difficulty
Automotive and Oil & Gas
The automotive and oil & gas sectors are among those facing the greatest challenges. These sectors should be considered independently as they require completely different strategic visions. However, both Europe and the United States have started late in the electric sector. This situation results from a lack of strategic planning. In Europe, the difficulty is amplified by the fact that decisions depend on the heads of state of individual countries, making it hard to define a common strategy.
China’s Technological Leadership
China began its push towards electric vehicles over 15–20 years ago, becoming the primary owner of raw materials for battery and photovoltaic panel production. It has invested enormously in these industries, effectively crushing producers worldwide. This phenomenon was already evident in the early 2000s when many European producers disappeared due to China’s price dumping policies and overproduction.
The United States’ Response
The United States, lacking a domestic industry capable of competing, relied on Chinese and Asian production systems. This financial model proved unsustainable when Americans realized they could no longer control China as they thought. Consequently, especially during the pandemic, they invested billions of dollars in building local industries for chips, photovoltaic panels, and other technologies, trying to respond to Chinese competition.
Impacts on Italian Companies
The Decline of Exports to Germany
In this phase of global transformation, Italian companies are facing various crises. A notable aspect is the collapse of exports to Germany. For instance, in the first quarter, Friuli Venezia Giulia region recorded a 19% drop in exports. This situation is widespread in many other Italian regions.
Dependence on Germany and the United States
Globally, Italy is strongly linked to Germany and the United States. The United States became an important market for Italy in the second half of the period between 2015 and 2020. However, Germany has always been the central economic engine for us, especially due to its dominant role in exports, particularly in the automotive sector. About 30% of Germany’s GDP comes from the automotive industry, which has dragged many of Italian companies along.
The Transition to Electric Vehicles
Challenges for the European Automotive Industry
The European automotive sector is facing unprecedented challenges due to the transition to electric vehicles. Europe started late in the electrification race, with China holding the global leadership in electric vehicle and battery production. European companies must invest heavily in new technologies to remain competitive.
The Role of Technology in Global Competition
Global competition is increasingly played out on the technological front. The United States and China are investing enormously in innovation, leaving Europe in a trailing position. The production of advanced technologies, such as electric cars and photovoltaic panels, is dominated by China, which has been able to plan its strategic investments long-term.
Innovation and the Labor Market
Technological Competition
Looking at patents filed in recent years, the United States, Korea, and China are leading. The United States is the primary filer, followed by Korea and China. However, it is important to translate these technological advances into the real economy. For example, in the United States, advanced sectors like artificial intelligence and technology employ about 600,000 — 1,000,000 people, much less than the millions of jobs in factories of the past. This change reshapes value chains and production.
Challenges for Italian SMEs
Italian SMEs face several challenges, including shrinking margins, inflation, and the cost of money. The biggest difficulty, however, is finding qualified technical personnel. While SMEs are agile and adaptable, the lack of industrial planning and fragmented subsidies make it difficult to compete. Recently, the Ministry of Made in Italy introduced a research center to identify gaps and improve supply chain competitiveness.
Economic and Trade Policies
The Role of the United States as a Trade Partner
The United States is a key market for Italy, especially in investment goods where Italy is strong. However, the United States is pursuing a policy of industrial reshoring, bringing production back to the national territory. This creates new challenges and opportunities for Italian companies, which must adapt to these dynamics to remain competitive.
Strengths of the Italian Industry
Besides the classic Made in Italy in the food and beverage and clothing sectors, the Italian industry is strong in mechanics, automation, intermediate goods, and pharmaceuticals. The United States is a central market for Italy. However, in recent years, the United States has erected significant trade barriers, opening a trade war with Europe. This trend started during the Trump era, which amplified a situation already underway, built on the reshoring platform initiated by Obama in 2008 with the Chrysler-Fiat case.
European Industrial Policies
The Demands of the European Manufacturing Industry
The European manufacturing industry calls for clear industrial and economic policies that consider the already set development goals. One of the key themes is the development of a European supply chain for batteries and green technologies. However, Europe still heavily depends on Chinese imports for low-cost products like electric cars and photovoltaic panels.
European Trade Policies
Recently, the European Union imposed high tariffs on electric cars imported from China. However, cheaper Chinese electric cars could help achieve the goal of spreading electric vehicles. Germany and France, which export significant volumes to China, are concerned about possible Chinese retaliations.
Future Direction for Europe
Balancing Protection and Access to Technologies
European economic policy must find a balance between protecting its industries and maintaining access to low-cost technologies. For example, Minister Urso has been in China to discuss setting up an electric car production plant in Italy. Spain and Hungary are already ahead in this regard. However, history has shown that tariffs are not an effective solution. Instead, supply chains need to be restructured to address these challenges. In Mexico and Brazil, China has already adopted strategies to circumvent tariffs by restructuring production chains.
Long-Term Implications
Trade barriers tend to increase costs for consumers without solving structural problems. The response should be technological, not protectionist. The United States has invested heavily in technologies like chips and photovoltaic panels, trying to bridge the gap with China. Europe must adopt a similar strategy, incentivizing internal technological development to remain globally competitive.
Incentives for Technological Development
Instead of relying on tariffs, the state should incentivize the technological race. Whenever we have seen major economic shocks, such as the 1974 oil crisis, there has been a push towards new transportation systems. Today, the response to electric vehicles could be hydrogen. The response must be technological, not protectionist. Tariffs are easily circumvented by trade policies, while free trade agreements offer more lasting solutions.
Challenges and Opportunities for Italian SMEs
The Need for Adaptation
Italian SMEs are under pressure due to inflation, the cost of money, and the difficulty of finding qualified personnel. Many are adaptive and can move quickly, but without clear and centralized industrial planning, it is difficult to compete. For example, the Ministry of Made in Italy introduced a research center to identify competitive gaps, but we are still far from a complete solution.
Managing Geopolitical Risks
Companies are becoming more aware of geopolitical risks and many have initiated strategies to diversify supply chains. We see the world divided into three macro areas: the United States and Latin America, Europe and Africa, and Asia. Free trade agreements will become increasingly important, and companies must adapt to these new trade highways. Export compliance will be crucial, requiring professionals who can manage these complexities.
The Future of Ukraine and Opportunities for Italian Companies
The perception is that there will be a moment when significant investments are needed, but this is seen as a distant future. Financial sustainability is not infinite, and there is much uncertainty. Some large companies are already positioning themselves strategically, but most Italian companies do not yet prioritize this development. However, those who prepare today will be ready to seize opportunities when the time comes.
The Importance of Geopolitics in Business Strategies
Geopolitics has become a central factor in business strategy. The need to diversify supply chains and adapt to new trade regulations has become essential for the survival and success of businesses. Companies must navigate an increasingly fragmented and complex world.
The world is witnessing a broad economic and commercial transformation. European companies, and Italian ones in particular, must face significant challenges to adapt to a rapidly evolving global landscape. Investments in technology, supply chain diversification, and adaptation to new geopolitical dynamics will be essential to navigate this new context.
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