Faced with ongoing geopolitical turbulence and an accelerating transformation of industry, the European Union views enhancing economic competitiveness as fundamental to its efforts to maintain and develop its overall capabilities, to pursue strategic autonomy and to maintain an equal strategic footing with China and the United States. In this context, competitiveness has emerged as a central issue on the agenda of EU institutions.
Recently, Mario Draghi, the former Italian prime minister and former president of the European Central Bank, presented his report on EU competitiveness. The immense report, commissioned by the European Commission, is regarded as a road map for building up the EU's economic competitiveness. It underscores the Europe's eagerness to reverse the decline in its power relative to China and the United States and to retake the initiative on geopolitical issues by expanding its economic and technological strength during a period of turbulent change.
From economic size to labor productivity, from digital to green industries and even the integration of emerging technologies into traditional industries, the EU is undoubtedly in a weak position compared with China and the United States. Since 2000, the growth rate of real disposable income in the U.S. has been twice that of the EU.In the early 21st century, the EU's GDP was larger than that of the United States, but by 2023 its global GDP share (17 percent) was surpassed by China and lagged far behind the United States (26 percent). Among the top 50 technology companies, only four are in Europe. From 2013 to 2023, the EU's share in global tech revenues dropped from 22 percent to 18 percent, while that of the United States increased from 30 percent to 38 percent. The COVID-19 pandemic, the Ukraine crisis and the economic rivalry between China and the United States have all increased Europe's concerns over its dependency on external sources for key products and energy. As a result, it is now more than eager to pursue geopolitical influence through a combination of economic, technological and military power.
At the same time, Europe's anxiety extends beyond anemic economic growth to concerns about its declining influence on the world stage and even the survival of its civilization. The competitiveness report says that if Europe fails to act, it will inevitably face sacrifices in social welfare, environmental standards and freedom. Therefore, improving competitiveness is an “existential challenge.”In fact, this sentiment has long been echoed by been many European leaders. In an interview with The Economist, French President Emmanuel Macron stressed that the challenges Europe faces in the fields of military, democratic and economic order pose an existential crisis. Alongside German Chancellor Olaf Scholz, he wrote an article arguing that Europe should strive to be a strong “world-class industrial and technological leader” by bolstering its economic competitiveness, ultimately strengthening its sovereignty. Many of their proposals are contained in the report.
The vision articulated by the report and the policy options considered by leaders are strategically aligned: effectively managing domestic affairs while strengthening external economic security governance.Internally, according to the report, the EU should add momentum to emerging industries by streamlining regulations, relaxing restrictions on corporate mergers and acquisitions, building a unified pan-European market for energy, telecommunications and other sectors, formulating targeted industrial policies, increasing support for scientific research and innovation and strengthening public and private investment. Externally, the EU should address concerns on many fronts, including traditional security challenges and security issues related to overreliance on imported energy, critical raw materials and tech products.Moreover, the EU needs to pay a certain cost for supply diversification and formulate policies aimed at strengthening its defense industry. It is worth noting that the EU's measures to strengthen external economic security are selective. The report said that the EU should maintain a “high degree of trade openness toward countries that provide key technologies in which the EU is currently deficient” to ensure the resilience of its supply chains. For example, it argues for maintaining low trade barriers in digital goods, services and infrastructure with the U.S. By contrast, a joint plan for decarbonization and competitiveness could entail, in certain circumstances, defensive trade measures. These measures must be evaluated based on their potential to enhance the EU's competitiveness.
The escalating China-U.S.-EU economic and technological rivalry and geopolitical tensions are the main external motivations for the EU to strengthen its economic competitiveness. However, its policy blueprint is heavily influenced by geopolitical considerations, and some economic security policies conflict with the goal of fostering domestic competitiveness and deviate from the EU's broader need for development.For example, while regarding the United States as one of its rivals in economic terms, the EU has tried to strengthen ties with the American digital industry. On the other hand, it has increasingly framed its narrative around China in the context of decarbonization, industrial competition and dependency on key products. This has led to the EU to adopt tougher trade measures against China in the name of boosting competitiveness, thereby further intertwining green and digital cooperation with security concerns. In fact, the EU recently took a tough stance regarding Chinese electric vehicles and is planning to launch new investigations in decarbonized industries, such as hydrogen energy. All this means that its focus on competitive growth may escalate tensions in China-EU economic and trade relations.
In fact, promoting economic and industrial transformation and upgrading is a shared challenge of all countries. At the Third Plenary Session of the 20th Central Committee of the Communist Party of China this year, China reaffirmed its commitment to comprehensively deepening reforms and overcoming constraints on economic and innovation systems for the purpose of fostering new, high-quality productive forces. If the EU wants to bolster competitiveness in an independent manner, the key lies in balancing economic interests among its member states to gain the political consensus necessary for advancing the single market, innovation and fundamental reforms of the industrial system.Continued conflation of economic issues with geopolitical concerns may hinder Europe's ability to reverse its gradual decline of influence within emerging industries and the broader international economic landscape, ultimately squandering its limited resources.
