EUROPEAN UNION DIDN’T NEED MORE DISRUPTIONS
The European Union did not need more disruptions. COVID’s slow recovery, high inflationary prices, rise in commodity food prices, the Ukraine war, and now France woke up to the crushing defeat of French President Emmanuel Macron in Sunday’s parliamentary elections.
The victory of the right-wing National Front party, led by Marine Le Pen, signals a dramatic turn to nationalistic populism and a rejection of the EU establishment. These events are the latest sign that globalism is retreating and Deglobalization is speeding up.
French Muslim Populations Votes Shake Up French Politics
According to the New York Times, 10% of France’s population is Muslim. A growth from 8.8% Pew Research – 2017 study According to France 24 News, “France is home to Western Europe’s largest Muslim population, and many Muslims feel the presidential campaign has unfairly stigmatized their faith.
According to France 24 News, French Muslims neither voted for President Emmanuel Macron nor Far-right candidate Marine Le Pen, instead of pushing and voting for a third alternative. Among Muslim voters in the first round on April 10, around 70% backed third-placed Jean-Luc Mélenchon instead, according to pollsters.
The New French Order
According to the latest French election results, The NUPES movement, led by Jean-Luc Melenchon, and supported by French Muslims, ended up with 131 seats in the National Assembly and became the second biggest group. Even though the Ensemble coalition led by President Emmanuel Macron lost its majority, it remains France’s most numerous political grouping.
According to Perspective Communiste, NUPES took six of seven seats in the French overseas territory of Reunion.
What does it Mean for Businesses In Operating In France?
Multinational companies operating in France must monitor developments and adapt their strategies closely. The new political order in France means businesses working there will have to navigate a more complex regulatory and tax environment. They will also need to contend with increased protectionism, as the new government will likely pursue more favorable policies for French businesses.
French Corporate Tax Rates Decreasing
According to Expatica, Corporate tax rates in France.
The French corporate tax rate has been lowering gradually over time. In 2021, the introductory rate was 26.5%, with firms with profits of more than €500,000
From 2022, firms will pay a 25% corporate tax regardless of their earnings.
President Macron had promised to lower taxes further. However, this Agenda might now be in jeopardy and need to be re-negotiated with the new government.
Possible tax hikes or new tariffs added to the Agenda?
What is Deglobalization?
Deglobalization is the process of reversal of globalization. Deglobalization can be caused by various factors such as economic, social, COVID, political, and environmental.
Deglobalization Speeds Up
The rise of nationalism and populism in Europe is just one sign that Deglobalization is speeding up. In addition, the COVID-19 pandemic, food shortages, and increase in Commodity Prices due to the Ukraine war have intensified Deglobalization.
The main drivers of Deglobalization are protectionism, nationalism, and populism.
According to Bloomberg, How the Coronavirus is Accelerating Deglobalization
- China, which benefited greatly from globalization and will therefore be the greatest sufferer of Deglobalization, was the biggest winner of globalization. According to a poll by the American Chamber of Commerce in Singapore, 28% of respondents said they are establishing or utilizing alternative supply chains to reduce their reliance. Tens of millions of positions are at risk in China. Social and political stability will ultimately be jeopardized.
According to the Financial Times, Davos and the new era of Deglobalization (main points paraphrased)
- 2022 World Economic Forum Annual Meeting, In this instance, the conversation will focus on Deglobalization and its discontents.
- According to economist Dani Rod, for every $1 in efficiency improvement due to trade. There may be as much as $50 of redistribution toward the rich. The economic and political consequences of this are why we are now experiencing a period of Deglobalization.
- In Latin America, Africa, and Asia, for example, emerging economies are developing pan-regional production networks for critical items. Finally, this might open up more durable trade routes and development models that aren’t entirely dependent on selling cheap goods to a few rich nations across lengthy transport.
- Decentralized technologies and big data allow more “local for local” production, which may also benefit the environment.
According to the McKinsey Global Institute, Globalization in transition: The future of trade and value chains
- A shift in the location of global demand is one of the forces disrupting global value chains.
- The worldwide demand map, previously dominated by developed countries, is being redrawn.—The new global marketplaces and value chains are changing as firms attempt to compete in the major consumer markets that now exist worldwide.
- By 2025, according to McKinsey, emerging markets will account for almost two-thirds of the world’s manufactured goods consumption.
- By 2030, developing nations are expected to consume more than half of global demand. These countries are increasing their involvement in international trade in goods, services, finance, people, and data.
Multinationals In an Era of Deglobalization
Deglobalization is a challenge for multinational companies. The global economy has become more integrated with the rise of global value chains (GVCs). However, GVCs are now under threat from the forces of Deglobalization.
According to The path ahead for multinationals in the era of Deglobalization (Main points paraphrased)
- Citibank has sold its retail and related operations in Germany, Turkey, Brazil, Egypt, and a dozen other countries since 2008. Citi will sell its Indian retail banking sector to Axis Bank, India’s third-largest private bank, for about $1.6 billion in March. The move represents the next stage in Citi’s streamlining efforts under CEO Jane Fraser, who wants to focus on more lucrative institutional and wealth management operations.
- Citigroup is not the only bank that has responded to Deglobalization’s problems by downsizing and selling operations. HSBC has been implementing a major global asset reduction program since 2011 to respond to the worldwide trend of Deglobalization. HSBC’s shift to Asia includes selling properties in Turkey and Brazil and increased investments in Asian nations such as China’s Pearl River Delta.
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