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EU’s economic security blanket is patchy and thin

Alan Beattie alan.beattie@ft.com

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It has been two years since the European Commission published an economic security strategy long on abstract verbs (“promote, protect, partner”) and short on specific actions. It was clearly time for an update. Two weeks ago said communication duly arrived with a clarion call for “an integrated, whole-of-government and business approach, improved governance, as well as even closer co-operation with like-minded partners and, where appropriate, joint action”. This declaration of intent will no doubt have Xi Jinping barking down the phone to his minions that they had better up their game.

Since the strategy was originally published in 2023, the difficulty of dealing with China’s aggressive trade tactics has been compounded by random lashings out from Donald Trump. To its credit, the EU has remained a relatively open economy, not succumbing to the sort of protectionist madness that has overtaken the US.

Yet where there is a case for collective intervention, or certainly where the EU itself says there is, it is hard to show that the bloc’s response to issues like economic coercion has risen to the original challenge — let alone the enhanced one.

Bashing the EU over its inability to act strategically is like shooting not just fish in a barrel but dead fish floating on the water’s surface. But it’s still reasonable to compare its achievements in building collective resilience against shocks with its ambition, and the gap remains large.

The communication correctly points out that the EU already has various tools to act strategically, such as the anticoercion instrument, which gives it wide leeway to retaliate against trading partners that threaten it. It has not used it. The bloc continues to draw up lists of critical minerals, but as we have seen with its vulnerability to Chinese stoppages of rare earths, it has done far too little to operationalise them.

Even without specific tools and interventions, the best way of building resilience would be a robust, innovative and integrated domestic economy. But the EU hasn’t done enough to build the single market, allowing the service sector and capital markets in particular to remain fragmented.

Everyone’s favourite example, electric vehicles, illustrates the point. The EU car industry, including the German manufacturers at its heart, was horribly slow to get going on EVs compared with China, focusing instead on lobbying for conventional cars (and cheating on emissions tests). The failure to innovate meant that policymakers have thrashed about over the past few years trying to trade off making cheap EVs available, in order to reduce carbon emissions, while giving the EU car industry time to catch up, using anti-subsidy import duties.

Others have suggested more aggressive tools but these are likely to do more harm than good. The vice-president of the European Commission Stéphane Séjourné wants robust intervention in the form of a “Buy Europe” requirement. It would stipulate that 70 per cent of the content of critical goods — including cars — has to be made in the EU. It has already been delayed to next year and I’m prepared to bet a year’s lease on a BYD Dolphin that nothing close to this actually happens. The figure of 70 per cent is prohibitively high and would make EU products so expensive relative to Chinese products that they would require more tariff protection.

In the meantime, multinationals are shifting the debate. The Volkswagen Group has started to manufacture cars in China, and is now asking for relief from anti-subsidy duties to export back to Europe.

This creates a dilemma for Germany and the EU. With towns dependent on carmakers suffering horrendously, does the German government try to keep jobs at home or support a national champion developing new technology and creating employment abroad? So far, one of its typically short-sighted solutions is to do both. German lobbying has persuaded the European Commis- sion to propose allowing conventional combustion cars to be built beyond the original phaseout deadline of 2035.

Taking a strategic view, it’s pretty clear that the bloc is not going to act collectively in support of Europe’s EV industry. VW is forging ahead on its own. Other European manufacturers must now compete with the engineering tradition of a hugely powerful brand combined with highly advanced Chinese technological and production capability.

Apart from the “protect” bit, the EU hasn’t done much of the “promoting” or “partnering” it promised in 2023. Instead, two years of prevaricating, procrastinating and pussyfooting have left the union divided and vulnerable to coercion from abroad.

EU’s eco­nomic secur­ity blanket is patchy and thin

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