known for its dynamism, but today it looks stagnant by any standard. Frazzled by the energy shock that followed Russia’s invasion of Ukraine in 2022, the European Union’shas grown by only 4% this decade, compared with 8% in America; since the end of 2022, neither it nor Britain has grown at all. If that were not bad enough, Europe faces a surge of cheap imports from China which, while benefiting consumers, could harm manufacturers and increase social and industrial strife.
The good news is that the energy shock is past the moment of maximum pain: gas prices have fallen far from their peak. Unfortunately the others are just beginning. Faced with a deflationary slowdown, China’s government should be stimulating the country’s paltry household consumption, which could replace property investment as a source of demand.
After November manufacturers might look westward, too. Last time he was in office Mr Trump imposed tariffs on steel and aluminium imports, eventually including those from Europe, leading theto retaliate against motorbikes and whiskey until an uneasy truce was struck under President Joe Biden in 2021. Today Mr Trump threatens a 10% blanket tariff on all imports; his advisers talk of going further.
What should Europe do? The path ahead is littered with traps. One error would be to keep economic policy too tight at a moment of vulnerability—a mistake the European Central Bank has made before. In recent years the bank has rightly fought inflation with interest-rate increases. But in contrast to free-spending America, Europe’s governments are bringing their budgets into better balance, which should cool the economy, while cheap Chinese goods will bring down inflation directly.