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From personal matters to the corporate world, economic robustness is essential for freedom of action. The same principle applies to countries, where strong growth and productivity are crucial for effective self-determination.
The European Commission’s proposed economic security strategy recognizes the importance of promoting competitiveness and deepening the single market as the top priority. This principle could serve as a common ground for reconciling the conflicting preferences of political and corporate Europe.
However, the commission acknowledges that buy-in from the corporate sector and consensus among member states are currently lacking. The economic security risks identified by Brussels are indirectly associated with China. This misalignment with the commercial strategies of many European companies and their political supporters creates a contradiction that hampers policy cohesiveness and decisiveness.
The concern for these companies is not so much dependence on China, but rather the fear of missing out on China’s growth and losing to Chinese and American rivals in global markets. By “derisking” economic entanglements with China, they potentially add risks to their own competitiveness. Resolving this contradiction requires learning from the achievements of China and the United States that have made Europeans uneasy.
While corporate Europe focuses on export markets, others have succeeded by prioritizing domestic demand. The power of President Joe Biden’s Inflation Reduction Act lies in the expectation of a large, profitable market for green technologies in the US, in which everyone wants a share. This approach, instead of discriminating against imports, has fueled a boom in American factory construction and local supply scaling, as documented by the US Treasury.
China, on the other hand, has long followed an export-led growth strategy, gradually moving up the value chain in global markets. However, even before formalizing the concept of “dual circulation,” China started using its domestic market as a growth engine for sectors such as electric vehicles, where Chinese carmakers lead in technology and sales.
A similar mistake was made by Europe in the 2000s when it lost its lead in photovoltaic manufacturing to China. European countries cut subsidies and imposed tariffs on Chinese imports, resulting in a flatlining of the solar power growth in Europe while China surged ahead. The real problem was inadequate demand, not oversupply. If Europe had boosted its installation rate, it would have created a market large enough for both European and Chinese producers to succeed.
Today, Europe faces the risk of repeating this mistake in other green tech industries. Calls to weaken green regulations, such as the future ban on combustion engines, only serve to shrink the domestic market for green-tech goods and services, reducing supply capacity. The EU’s success in green tech industries is a result of its market-shaping regulation, which should not be forgotten. By doubling down on boosting domestic green tech demand, Europe can achieve economic security and reduce dependency on external political choices.
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