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Consequences of Bi-polarization of the Global Economy

Consequences of Bi-polarization of the Global Economy

The global economy is in a state of flux and is characterized not least by the conflict between the USA and China. The risk of a bi-polarization of the global economy is very real.

Analysis of the consequences of a bloc formation in the global economy

The vbw study prepared by Prognos AG considers the hypothetical scenario of a US-dominated and a China-dominated trading bloc forming. The EU could then be faced with the choice of taking sides. A third option would be to choose a "non-aligned" status in which the European Union does not join either side economically.

To this end, the study examines how closely the EU is linked within Europe, with the US bloc and with the China bloc in various sectors.

Close ties within Europe, but also with the USA and China

A key finding is the great importance of Europe for Germany and the countries of the EU. The close trade links between them mean that the European countries are the most important partners in all the economic sectors examined.

Germany and the EU are also very closely integrated into the international economy. In the areas of direct investment and cross-border research, the links with the US bloc are stronger, while the China bloc is the more important partner for energy resources and imports in general. In the other areas, the links with the two blocs are similar. In the event of a hypothetical bloc formation, there is therefore no clear preference for the EU to join one of the blocs for purely economic reasons.

Loss of prosperity with any form of de-globalization

If the EU acted as an independent, neutral bloc, this would result in the least economic losses. However, the fact is that there would be economic losses in any case and therefore a de-globalization with bloc formation in the world economy must be avoided at all costs.

To this end, the EU should be aware of its global economic importance. A breakdown in relations between the EU and China or between the EU and the USA would not only severely affect the EU, but also the other side. This gives the EU a negotiating position with which it can bind European countries, non-EU countries or non-aligned states closely to it economically and politically, if need be, and avoid the trade policy conflicts between the USA and China to a certain extent.