“In a world where power politics overrides economics, Europe must confront its structural weaknesses—or be crushed by the shocks of post-globalization,” stresses Prof. Radu Vranceanu

As global trade wars intensify and security crises multiply, the post-globalization era is reshaping the foundations of the world economy. On 11 September, the ESSEC Institute for Geopolitics & Business will host the conference “Welcome to Post-Globalization: CEOs Confront New Geopolitical and Security Risks”. In this context, Prof. Radu Vranceanu, Professor of Economics at ESSEC Business School, Head of the Department of Economics, and Research Fellow at THEMA (CNRS), warns that Europe faces profound vulnerabilities: fragile public finances, energy dependence, and overexposure to China. He argues that only bold reforms—deregulation, deeper single market integration, and stronger reliance on the private sector—can help the EU withstand mounting shocks, while urging companies to reassess supply chains, prepare for defense-driven fiscal pressures, and adapt to a world where power politics overrides economic logic.

The post-globalization era is unfolding amid renewed trade wars, sanctions, and security concerns. From a macroeconomic perspective, what does this paradigm shift mean for the European and global economy?

Radu Vranceanu - One of the main challenges to Western security is the rise of China—not only as an economic and manufacturing superpower, but also as a military power increasingly capable of reshaping the world order by force. As a reaction to this shift, since 2017 the United States has been pursuing reindustrialisation backed by renewed and aggressive protectionism, straining its traditional trade partnership with the EU. This trend heightens economic risks and is likely to hit European countries with fragile fundamentals: weak public finances, sluggish productivity growth, rigid labor markets, and aging populations. Within the euro area, such shocks quickly propagate through the single currency, testing the ECB’s ability to keep inflation under control.

This situation also forces EU member states to confront their structural weaknesses. While many experts call for additional public spending, I believe the opposite approach is needed: full deregulation, greater labor market flexibility, deeper integration of the single market (including financial services), a reduced role for the state and stronger reliance on the private sector.

The U.S.–China trade confrontation and the EU–China summit in July highlighted both rivalry and interdependence. How should European companies assess the long-term implications of this shifting transatlantic and Asian balance?

R.V. - The United States has clearly recognized that excessive economic integration with a belligerent China poses significant national security risks. Since 2017, both Donald Trump and Joe Biden have pursued a policy of economic decoupling through tariffs, export restrictions, and an aggressive reindustrialization strategy—measures that harm not only China but also traditional Western allies. By contrast, the European Union has adopted a more ambivalent stance, as many European firms maintain major interests in China and resist a rapid decoupling. Vis-à-vis the United States, the EU lacks the leverage to oppose Washington’s sharp tariff increases, particularly as European security—including the war in Ukraine—continues to depend on the US defense umbrella. In the longer run, however, it may be a reasonable strategy for European companies to diversify markets and supply chains away from China, while simultaneously bypassing US tariffs through targeted investments in the United States and keeping trade negotiation channels open.

Europe is under pressure to reinvest in defense, partly in response to the Russian threat and U.S. demands within NATO. How will this surge in defense spending affect Europe’s fiscal and economic trajectory over the next decade?

R.V. - For at least 35 years, the EU shifted resources from defense budgets toward social spending under the paradigm of the “peace dividend.” Today, the weakness of European armed forces has become a major liability, as Europe struggles to support its Ukrainian allies against Russian aggression. Increased defense spending will undoubtedly add fiscal pressure on governments that are already struggling to maintain reasonable public deficits. On the other hand, such spending could stimulate short-term growth by high global demand, and generate positive spillovers for the civilian economy through R&D in the medium run. Moreover, investments in infrastructure with military use —as required by the latest NATO agreement, which calls for defense spending of 1.5% of GDP—could also bolster growth. The defense spending shock has an asymmetric nature, some countries – such as Germany or Sweden, with sound macroeconomic fundamentals and a powerful manufacturing sector – are in a better position to benefit from it.

The difficulty of reaching a peace agreement between Russia and Ukraine suggests that Europe faces a prolonged security crisis. What macroeconomic vulnerabilities does this create, especially regarding energy security and industrial competitiveness?

R.V. - In a shrewd move, Russia managed to make many European countries dependent on cheap energy, with Germany being the most exposed. Adjusting to higher energy prices—particularly for gas—entails significant costs and reduces competitiveness in the most energy-intensive sectors, such as engineering, chemicals, pharmaceuticals, and fertilizers. At the same time, pricing fossil fuels at market levels also creates opportunities for advancing climate goals, as companies are incentivized to adopt new technologies, and countries will expand the use of renewable energies.

With China’s determination on Taiwan and the possibility of disruptions in the Indo-Pacific, what scenarios do you foresee for global trade flows and supply chains, and how should European firms prepare?

R.V. - I share this concern and recommend that European firms be highly cautious in trading with and investing in China over the next five years. While global trade volumes may not decline, reallocations are likely, with exchanges increasingly concentrated within blocs of countries that share common interests. The same trend will shape supply chains. China’s use of rare earths as an economic weapon in the trade war against the US has exposed Western firms’ dependence on key inputs controlled by China, with the European defense sector particularly vulnerable. Taiwan’s dominant role in advanced microchip production is another critical risk: any conflict in the region would severely disrupt Western production, causing shortages and job losses. To prepare, firms should quickly conduct comprehensive supply chain risk assessments using standard stress-test methodologies. Building strategic reserves of critical inputs is one option, though China closely monitors stockpiling and often takes countermeasures. Finally, intellectual property remains at risk, requiring significantly greater investment in preventive measures.

At the ESSEC Institute for Geopolitics & Business, we describe the “brutalization of the world” as a new economic and political reality. From your standpoint, how is this brutalization reflected in macroeconomic trends such as inflation, investment, or debt dynamics?

R.V. - What you rightly describe as “brutalisation” can be understood as the return of force in international relations, with strategic interests overriding economic rationale. In periods of relative stability, trade among countries is primarily organized according to economic efficiency—seeking the best allocation of resources for the greatest benefit of consumers. Today, however, economic logic is subordinated to national interests, marking a dramatic return of the balance of power as the main driver of international relations. From China’s challenge to US hegemony in the Pacific, to Russia’s aggression in Europe, and to Iran’s and North Korea’s intimidation of their neighbors, these actors increasingly coordinate with one another to challenge the existing world order. Even the United States, our closest ally, has chosen to pursue a redefined national interest, often with little concern for the economic consequences of this shift on traditional partners in Asia and Europe.

Adapting to this new reality will impose significant economic costs on all. These will translate into welfare losses — the price to pay for higher taxes and tariffs, inflation, and possibly recession. The worldwide accumulation of large public debts provides fertile ground for a new financial crisis, while US attempts initiated by the Trump Administration to reconsider the pivotal role of the dollar in the world financial system also carry major risks for the global financial stability.

Yet one should not be overly pessimistic: liberal democracies have repeatedly demonstrated resilience to threats of all kinds. In the free world, innovation continues to drive growth, and the ideal of liberty remains a source of inspiration for many. While the medium-term outlook is troubling, the long-term resilience of democratic societies—and their capacity for renewal—remains a source of optimism.

ABOUT THE ESSEC INSTITUTE FOR GEOPOLITICS & BUSINESS

The ESSEC Institute for Geopolitics & Business was created in 2024 to help companies and leaders navigate a world of geopolitical disruption, economic fragmentation, and strategic uncertainty.

We examine how global power shifts transform business models, how firms are becoming geopolitical actors, and how corporate strategies must adapt to the end of business as usual.

Rooted in ESSEC’s academic excellence in Cergy-Paris, Rabat and Singapore, the Institute draws on three flagship centers:

• the IRENE Center for Negotiation & Mediation,
• the Center for Geopolitics, Defense & Leadership,
• the Center for European Law & Economics, and
• the Chair Business & Industry in Africa.

Together, they bridge cutting-edge research, executive education, and strategic foresight.

Our ambition: to empower geopolitics-proof leaders and build resilient, vigilant organizations in the post-globalisation.

Contact: Thomas FRIANG, Executive Director of the ESSEC Institute for Geopolitics & Business - friang@essec.edu