Europe’s hold over machines, pharmaceuticals and other products in global supply-chains give leverage over the United States and China, according to a report published Friday (13 February), ahead of the Munich Security Conference.

The study, Relearning the Language of Power, argues that these dependencies are “untapped sources of geo-economic power”.

Rather than focusing only on de-risking, European leaders should actively use that leverage.

“Pooled geo-economic leverage should become the cornerstone of a new European strategy,” write Jonathan Barth and Andreas Eisl of the Paris-based Jacques Delors Institute, part of a 13-member Geo-strategic Europe Task Force.

Together with other small and middle powers, the authors argue, Europe could build a “credible power base that protects against coercion and hedges against global volatility and US unpredictability.”

More than just chips

Dutch chip machine maker ASML, Europe’s most valuable company and the world’s only producer of high-end lithography machines, is often cited as Europe’s main point of leverage over China and the US.

But the report argues the continent’s power extends far beyond one semiconductor champion. Europe possesses other “significant tools of power,” the authors write.

In total, the analysis identifies 41 products for which China relies on the EU for more than 80 percent of its imports. For the US, that number stands at 67.

China is almost entirely dependent on European suppliers for products such as insulin, pharmaceutical intermediates and seamless stainless steel tubing used in oil and gas drilling.

It also imports much of its advanced textile, paper and industrial processing machinery from Europe.

US dependencies are concentrated in advanced manufacturing equipment, construction machinery, agricultural processing systems and pharmaceutical ingredients, including insulin and protein-based hormones.

Untapped ‘chokepoints’

These “chokepoints,” the authors argue, are “not easily substitutable” and could be used to project power and actively shape the behaviour of “systemic rivals” like China and the US.

The report is published ahead of the Munich security summit where EU leaders are set to discuss how to respond to US invasion and tariff threats and Chinese manufacturing dominance. 

The EU, so far, has focused much of its energies on signing bilateral trade agreements, most notably with India and Mercosur. 

EU Commission president Ursula von der Leyen told MEPs in Strasbourg on Wednesday that Europe must “eliminate the bottlenecks in our most strategic value chains.”

“We can do this by expanding our network of reliable partners,” she said, pointing to recent trade agreements with India and Mercosur as evidence of Europe’s strategy to secure “the global rules through bilateral agreements” as the trade-based system built on WTO-rules, crumbles.

But the report argues Europe focuses too much on de-risking, and uses too little of its leverage to shape US and Chinese behaviour. 

‘Middle-powers’ playbook 

According to the report, the EU could amplify its power through coalitions with “middle powers like Japan, South Korea, Canada, and Australia but also South Africa and Brazil remains.”

Canada’s prime minister Mark Carney struck a similar note at Davos last month, saying that “in a world of great power rivalry” middle powers can “combine to create a third path” rooted in “legitimacy, integrity and rules.”

Coordinated export controls with Canada, for example, would increase Europe’s geoeconomic deterrence against the United States by 138 percent, the analysis suggests. A coalition with Japan would boost leverage against China by 118 percent.

The authors urge Europe to move beyond trade deals, and start building power blocks around shared priorities such as decarbonisation and energy security. 

“Europe’s recent success in defending the territorial integrity of Greenland should not obscure that European leaders have repeatedly confused sovereignty with geopolitical power,” it states.

“De-risking and resilience may preserve freedom of action, but they do not translate into power.”