EU Finally Has a Plan to Fend Off the US and China, But It’s Running Out of Time

(Bloomberg) — The European Union is fighting to salvage industries under threat from American and Chinese competitors that have eroded the defense and economic systems upholding the continent for 70 years.

But a flurry of recent European countermeasures – from imposing protectionist trade measures to aggressive economic security tactics – may be too little, too late if the EU doesn’t shift gears.

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A senior EU official warned that the bloc hasn’t yet grasped the problem’s full scale and that things seem to be getting worse. The EU has taken a piecemeal approach to protecting industries and has mostly concentrated on fixing past problems rather than crafting a forward-looking strategy, the official cautioned.

Europe needs a plan to avoid being “choked,” said Maria Demertzis, who leads the Economy, Strategy and Finance Center at the Brussels-based Conference Board think tank.

“We need to apply industrial policies, and we need to be unapologetic about it,” she said. “We need to stop worrying about defending a multilateral system that is unable to deal with unfair practices and prevent coercion.”

EU leaders meeting in Brussels next week will discuss the issue, seeking ways to reduce the bloc’s “strategic dependencies” while strengthening its “defense technological and industrial base.”

Workers at the blast furnace during the iron smelting process in Duisburg, Germany.Photographer: Krisztian Bocsi/Bloomberg

Their conversations in recent weeks have become more urgent.

While the concept of European autonomy isn’t new, it took on new gravity after Russia invaded Ukraine in 2022 and President Donald Trump began chipping away at US security pledges for Europe. The multilateral trading system — a foundational EU principle — has also fallen into disarray amid Trump’s multi-front trade wars and China’s increasingly assertive economic nationalism.

In response, the European Commission, which handles trade matters for the EU, is considering forcing Chinese firms to hand over technology to European companies if they want to operate locally, Bloomberg reported earlier, mimicking Beijing’s own policies. The EU is also discussing giving preferential treatment to domestic firms bidding for public contracts worth about €2.5 trillion ($2.9 trillion) a year.

And by year end, the commission will release an economic security doctrine illustrating how and when the bloc can use its trade defenses.

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The EU has also been talking to Group of Seven allies about pooling resources and coordinating efforts to weaken China’s stronghold over the supply of critical minerals and rare earths, another official said.

But the results of such efforts will take years to materialize, according to the official. And Europe doesn’t have much time.

The EU has long struggled to craft a coherent industrial strategy that protects its single market and makes it more competitive.

“We have been reminded, painfully, that inaction threatens not only our competitiveness but our sovereignty itself,” former European Central Bank President Mario Draghi said last month.

Citizens and companies “see us failing to match the speed of change elsewhere,” he added. “They are ready to act but fear governments have not grasped the gravity of the moment.”

The consequences of inaction have become especially alarming as the world’s largest economies turn inwards, focusing more on their own interests. The EU has found that tools forged to defend itself in a rules-based order don’t work when everybody else ignores those rules.

The bloc had little choice but to accept a lopsided trade agreement with Trump and to fill the gap left by the US pulling support for Ukraine, as it faces an existential threat from Russia.

Meanwhile, China has raced ahead in sectors such as electric vehicles and clean technologies, embedding itself in Europe’s supply chains in the process. Beijing has also boosted restrictions on critical exports and placed onerous demands on companies doing business in the country.

There is little the EU can do about China’s actions for now — European companies need access to China’s market and its inputs to manufacture goods.

While the EU can point to rapid and significant gains in erecting its economic defenses, it must still become bolder, more aggressive and less risk-averse in its approach to other industries, one of the officials said.

French President Emmanuel Macron described the need to establish European autonomy in a speech at Paris’s Sorbonne University last year — as well as the perils of not acting quickly enough.

“Europe is mortal, it can die and it depends entirely on our choices,” he warned. “But these choices need to be made now.”

EU Finally Has a Plan to Fend Off the US and China, But It’s Running Out of Time

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