Why US exit from Europe is a nightmare?

Under the protective arms of the American Zeus, Europe so far had a peaceful sleep I mean in the night. US disinterest in continuing this godfather relationship has sent shivers through the spines of Europeans. The last thing they wish is the exit of their night-watchman. What is the reality test?

Trump does not brook nonsense. He wants to make America great again. Having learnt bitter lessons during his Trump 1.0 he is hell-bent in downsizing the deep state with in USA and demolishing the liberal, global, selfish cabal that hitherto operated freely to the detriment of US national interest. More than geopolitics or geo-strategy it is geoeconomics compulsion that forces Trump to reverse US presence in Europe and her posture as defender of Europe.

The nightmare stalks both the strong and the weak equally across the wide European landscape.  Already the continent is in bad shape economically. Even the so-called engine of European prosperity, Germany is shearing at her seems. For most Europeans America was not only sugar daddy but the second home to take refuge in case of turmoil of political or economic nature.

Europe has to produce a lot to sell. A major destination of her high-valued exports, undoubtedly is America.  Collectively European Union exported a colossal USD 545 Billion to the US in 2024, with top billings in medical and pharmaceutical products, motor vehicles and machinery. Interestingly US is the EU's largest partner for exports. 

Can china fill the gap if USA applies the brake in EU exports to the latter?

Look at the maths. In 2024 total exports volume of Europe to China was USD 230 Billion. Putting it another way, America buys more than 2.4 times what Chinese buy from Europe.  Interestingly the items exported to China include mainly auto components, machinery & chemicals that serve as inputs or intermediate items for the Chinese manufacturing in a big way. True enough, there are other manufactured items such as motor cars but these are not essentially big deals for the Union.

If you compare the volume as well as the purpose of the products exported to America and China by EU, it is clear that end-users of European products in USA are citizens whereas the major portion of EU products go for industrial use in China. While Americans pay for the EU imports via sweat and labour making a big hole in their purse, as well as purchasing powers, EU exports to China goes to enhance production quality of Chinese finished products which in turn acts as the biggest rivals for American goods in the world market.

Sizing upon this geoeconomics threat, Trump is not wasting any more time in indulgence with EU. Progressive curtailing of EU exports is therefore a feasible option to leverage US-EU trade balance and at the same time buy more goods from China cheaply.

In any case EU is going to be the net loser in this export-import framework. America increases her bargaining power vis-a-vis China and EU to continue contending with exports of intermediate goods to China. Value edition would be for the Chinese side, of course, but part of which can be transferred to America via price discounting.

That is the wonder in geoeconomics!

  

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

USA Withdrawing from Europe: business strategy behind the move

Americans are conveying to the Europeans that they intend to downsize their military presence in the European theatre in not so many words as such. Now USA demands that Europe should take most of the defence burden and fend for themselves. My analysis:

Donald Trump is sometimes blunt and sometimes not straightforward when it comes to the question of transatlantic relation. During Trump 1.0 presidency, Trump was vocal in Brussels on May 25, 2017 where he coerced the fellow members of NATO alliance to increase the defence expenditure by at-least 2% of the GDP of each member. He had also bemoaned the fact that “massive amount of money was owed“by them to USA, which is footing the defence bill.

In Trump 2.0 he is going somewhat gung-ho as he is demanding that the EU defence budget be around 5% of the GDP. He hinted that if European members fail there could be possible re-thinking of stationing of US troops in European soil.

In the midst of the Ukraine war, with perfect timing, he has called for Europe to re-arm a sure sign that US role in European Security Architecture is on the way out.  Even though frantic cries are heard from weaker European nations, European Union as a whole realized the unfolding situation and is now trying to cough out a defence budget of US$ 850 Billion to be spent by 20

Now let me turn to Trump business strategy behind the move:

1. Trump’s intention is honourable. He seeks to lessen the military burden   of protecting others and use the saved funds to improve infra-structure within America where roads, railways and canals need long delayed overhaul.

2. The key understanding is that the allocated EU budget cannot be entirely spent within Europe. Because Military industrial complex (MIC) there is not much developed to the level of efficiency and efficacy in USA. More than 60,000 companies are in MIC in America. The corresponding figure for EU is 2,765 firms. Defence budget for USA is USD 841 Billion while EU spends only USD 316 Billion.

3. In terms of Turnover, America returns a massive USD 830 Billion dwarfing EU at USD 316 Billion. A salient feature is the related percentage. America exports account for 40% of the global output whereas EU clobbers up one –third of the global output.

4. That said, EU is in a precarious position balancing her needs for defence products and the proposed budgeted expenditure. In point of fact, EU has to import major part of her defence needs from abroad. Russia is out of question. Therefore the main source is America. Since European soldiers are well trained in handling US armaments the logical conclusion is for EU to source the deficit wants from America and America alone.

Hurrah! Trump! The deal maker. His business strategy of hitting two fruits with one stone is just perfect: his defence exports grows his infra-structure get spruced!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

Why countries turn to Gold?

From the perspective of business strategy, gold holdings is an essential tool of safeguarding wealth & security for countries in global south especially ASEAN. They have to look much deeper because in today’s chaotic conditions tectonic shifts in geoeconomics could overwhelm them. So turn to gold!

Whether beset with gloom or bloom countries are now rushing to increase their gold holdings. This is specially so, in Asean group. There, top three holders of gold render meaning and purpose for my argument. Singapore the top notch holder of gold at 236.6 tonnes views gold as more of status symbol than economic security. Thailand the next Biggy with 234.5 tonnes of gold does so with oversight on her political and economic stability. Indonesia third in line has 159 tonne gold for just in case.

These viewpoints apart holding gold in vaults of central bank of countries throughout Asean or for that matter even the entire globe arises due to four specific reasons:

The primary reason rests on the aspect of sense of security gold can provide.  Managing economic uncertainty or perhaps upheaval is a sine quo non for every country and gold is deemed always as safe-haven. This makes gold being stored inshore and/or offshore in foreign banks in order to firstly facilitate trade related remittance and the other is to diversify storage locations to minimise risk in holding gold in one place. A cautionary tale in this regard is what happened during the Iraq invasion of Kuwait when the entire central bank gold holdings were looted.

Coming in close second, hedging against a variety of geoeconomics concerns preoccupy financial authorities who are driven by the fear of devaluation of foreign currency on one side and the depreciation of value in domestic currency to opt for more gold holdings. Additionally, gold acts as a bulwark against both domestic and global inflation. A finer point is that there is no counter party risk in gold which might arise in case of debt securities held by a central bank originated by issuers from abroad.

The next but much more ostentatious reason is the status symbol gold broadcast as regards to the holder’s wealth and prosperity on one side and the measure of economic resilience on the other.

Fourth and final count for having gold in reserves is the ever-increasing price of gold in the world market place. For example gold was sold at US$ 1,700 per troy ounce in 2019 which is now quoted around US$ 2,800.

Yet, gold is still a commodity. It is being bought and sold regularly. While Thailand and Indonesia are hardly seen as sellers, Singapore alternates. She buys sometimes and sells when the price is good to make a trading profit. Many wonder why Singapore does this. The short answer is navigating business strategy amid geoeconomics. Make hay while the sun shines!

    

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist