The absence or at least the very limited presence of snow in Switzerland’s famous winter resort highlights the climate crisis, the headline “Cooperation in a Divided World” recalls the unexpectedly protracted war in Europe and the IMF’s warning of the dire consequences that the fragmentation of the world economy, reminiscent of financial wars, certainly did not bode well for Davos this year.

Despite the many hot topics at this year’s World Economic Forum, from inflation and how central banks are dealing with it to the future of the cryptocurrency industry, the discussions have been dominated by concerns about a new trade war, this time between Western powers. And that’s because everything shows that tensions between the two sides of the Atlantic are escalating over green technology subsidies and Washington’s controversial plan to increase production of those made in the US, and only those.

At the same time, a high-tech dispute between Washington and Beijing is raging.

The two most important trading partners, diplomatic, political and economic allies on the West’s front against Russia, are in danger of becoming economic rivals as Brussels threatened to pit the World Trade Organization against Washington. And of course, at the same time, a trade and technology war is raging between Washington and China, which has already applied to the WTO against Washington. Not because of Donald Trump’s tariffs on Chinese goods, which remain in place two years after Joe Biden took office, but because of the bans and barriers that the Biden administration has placed on Chinese industries preventing them from producing high-tech processors. And while the representatives of Beijing and Washington are trying to get closer, everything shows that the gap between Brussels and Washington is widening.

On Wednesday afternoon, with enough snow finally falling in Davos, the German chancellor met with Democratic Senator Joe Manchin, who was instrumental in Washington’s controversial plan to subsidize any clean technology produced in the US. And, as the senator himself later told reporters, Olaf Scholz countered that Washington’s plans would directly harm the German auto industry and market, as well as harm Europe and, ultimately, provoke a trade war between the two sides of the Atlantic. And of course, the American politician boldly replied to the German chancellor that nothing prevents Germany from producing more cars inside the United States. But this is precisely what scares Europe, the risk of further transferring part of its production to the superpower. In short, US green technology subsidies could rapidly accelerate the deindustrialization of the Old Continent, the result of the energy crisis and skyrocketing energy prices that have brought its industry to its knees and forced it to seek government protection. In another discussion at the Forum, Prime Minister of Luxembourg Javier Bethel raised the same issue with Mr Manchin, highlighting the risks for European industry in the face of skyrocketing energy prices. The US senator responded that Luxembourg would face falling energy prices if it signed long-term contracts with US producers. In doing so, he confirmed Brussels’ view that the US gas industry is rushing to capitalize on Europe’s energy crisis.

Cost of violation high, IMF warns

Two days before the start of this year’s World Economic Forum, and amid fears of tensions between the EU and the US, the West and Russia, Washington and Beijing, the IMF warned that a severe fragmentation of the global economy after decades of increasing economic integration could cut global GDP by 7%. But he pointed out that the damage would be much greater in some countries, where the impact on their economies could amount to an 8-12% reduction in their GDP if the economies in the high-tech sector were decoupled. And he categorically warned that the disruption of global trade ties would primarily affect poor countries and the lowest income segments in advanced economies. In fact, he explained that even limited fragmentation of the global economy could take away 0.2% of global GDP.

The Fund indicated that since the two-year global financial crisis of 2008-2009, output and capital flows have stagnated. However, reduced capital flows imply a reduction in foreign direct investment. He also recalled that in the years following the global financial crisis, economic and commercial conflicts have steadily escalated, and “the coronavirus pandemic and the Russian invasion of Ukraine have subjected international relations to new tests and heightened distrust in everything related to the benefits of globalization.” However, he warned that if global cooperation between countries and economies declined, there would be a risk of shortages of vital goods. For the umpteenth time, the IMF highlights that decades of trade tightening has reduced global poverty while benefiting low-income and domestic consumers by offering goods at low prices. . In its respective report, the Fund refers, after all, to the most recent relevant studies, which demonstrate that the deeper the fragmentation of the world economy, the greater the price will be. And as a trade and technology war between the US and China looms and aggressive competition between them for dominance in microprocessors and high technology, the Fund has warned that the technological decoupling of economies will increase the damage from restrictions on international trade. In fact, by noting the post-pandemic trend shown by large economies to either renationalize production or move it to neighboring regions, the Fund points out that this entails the highest costs for low-income and emerging economies.

“Freezing” of Sino-American relations and Yellen-Liu meeting in Zurich

While the work at Davos continued in the absence of US leadership and with the deafening presence of all the powerful US officials, US Treasury Secretary Janet Yellen, who was also not at the World Economic Forum, tried to break the ice with Beijing. Ms Yellen met with Chinese Vice Premier Liu He in Zurich at a time when relations between the world’s two largest economies remain frozen. The reason lies in a number of geopolitical contradictions, such as the relationship between China and Taiwan, as well as intensifying competition between them due to the dominance of high technology and, as a result, in the global economy. A competition that began to intensify or at least become visible around the world six years ago when former US President Donald Trump came to power.

Joe Biden has been at the helm of a superpower for two years now, and the tariffs imposed by his ill-fated predecessor remain in place. Indeed, in December, the Biden administration added about forty more Chinese companies to the “black” list of companies that are prohibited from exporting American technology. Two months earlier, in October, Washington passed a set of tough rules barring American companies and Americans in general from working with Chinese microprocessor manufacturing businesses. It is a technology that most industries depend on and requires the help of American companies as well as third country companies to produce it. The rules were designed to make it extremely difficult for China to buy or manufacture high-tech microprocessors in its own industry. Beijing initially reacted by imposing tariffs on US exports, but then turned to the World Trade Organization against Washington in December. According to a related statement from the Chinese side, the Chinese official stressed that “China hopes that Washington will take into account the impact of this policy on both sides.”

And while the meeting between the two parties was going on in Zurich, and Mr. Liu was inviting Ms. Yellen to visit Beijing, Colm Kelleher, chairman of UBS, was speaking in Davos that the deteriorating US-China relationship is still one of the biggest risks in the global level. In another discussion at Davos, Carmine di Scipio, CEO of EY, expressed his own concerns about the possible decoupling of the world’s two largest economies. He even made a special point, pointing out that many companies are trying to convince the US government that “we need investment from China, and we need to invest in China.” However, he said that he was extremely concerned that relations between the two sides were not improving, and with regard to the superpower, in particular, he emphasized that “in the United States, attitudes towards China are not improving due to the fact that both sides of the political system, the two parties of Congress see this tension as an important part of their political program, and this is the only issue on which they can agree.”

Commenting on tensions between the two sides of the Atlantic over green technology subsidies, Finance Commissioner Paolo Gentiloni stressed from the Davos podium that “we absolutely must avoid a trade war or a subsidy war, but at the same time we must also stimulate our competitiveness.”

Defending Washington’s policy of subsidizing green technologies, but only those produced in the territory of a superpower, US climate spokesman John Kerry noted that “Europe is already spending huge sums to support green industries, but we all need to do more. ”

From the podium in Davos, US Trade Representative Katherine Tai emphasized that the world is moving towards a “new version of globalization” and that the US is pursuing trade policies that “promote sustainability not only for the planet, but for the entire world.” people”.