A new consensus is growing across the European Union – and other parts of the world too: that globalization has gone too far. The argument goes as follows: as an exchange for higher efficiency and lower prices, Europe has sacrificed its ability to take care of itself and protect its own citizens. Therefore, if Europe does not want to live through another shortage of essential supplies, the lesson of the Covid-19 crisis is that the EU has to produce these products itself. This conclusion may sound intuitive but it is fundamentally wrong.
In this episode, Fredrik Erixon talks to Oscar Guinea who explains that Europe is not overly dependent on the rest of the world because most trade in the EU is done within its own borders. He argues that imports from the rest of the world make every EU member state more resilient by diversifying its sources of supply.
If you are interested to learn more, the new ECIPE paper Globalization Comes to the Rescue: How Dependency Makes Us More Resilient provides new analysis of EU’s dependency on foreign countries including China, the US, and the UK, and concludes that while import diversification is a reasonable strategy for some goods, re-shoring manufacturing back to the EU isn’t the right policy.