[FR] Economic security: is Europe ready for a paradigm shift?

The European Commission is under pressure to propose an economic security strategy on 20 June that will kick off a debate at the European Council meeting at the end of June. This is a paradigm shift for the 27 Member States, which built their single market on a model of open economy. The international context demands it. National security has become central to the economic policy of both Xi Jinping and Joe Biden, for whom the world is at ‘an inflection point and the country’s vital interests are under threat’. Admittedly, Washington’s rhetoric has evolved. There is no longer any talk of decoupling the US economy from the Chinese economy, which is as unrealistic as it is desired by American companies. Like the Europeans, the aim is to ‘de-risk’: to reduce vulnerabilities linked to excessive dependencies. But it is indeed a technological decoupling that began in October 2022, cutting China off from American semiconductor manufacturing expertise. The aim is to curb China’s capacity for innovation in the military sector, and this decoupling will extend to artificial intelligence, supercomputers and biotech, which are themselves power amplifiers for the country at the cutting edge of technology. An escalation of protectionist measures and economic coercion between the two powers would put third countries in a bind, forcing them to choose one side or the other. While at the Hiroshima summit on 30 May, G7 members decided to coordinate their efforts to achieve ‘greater economic resilience and economic security’, the Europeans intend to develop their own doctrine of derisking so as not to simply fall into line.

The European Union has its own interests and specific constraints. It is more dependent on external demand than the United States. The ratio of exports to GDP was 8% for the United States in 2019, compared with 15% for the EU. It is also more integrated into the Chinese economy than the United States. Furthermore, security is a competence of the Member States. The Europeans’ objectives therefore need to be clarified. Washington and Brussels agree on the systemic risk posed by a China that intends to promote a new international order with Chinese characteristics. But Washington wants to preserve its technological and military leadership, while the Europeans have yet to decide whether they want to focus on strengthening the resilience of their supply chains or take a more offensive stance towards China. Beijing has already announced the introduction of controls and possible restrictions on exports of solar panel wafers and critical mineral refining technologies, which it has a monopoly on manufacturing. This would limit the EU’s ability to accelerate its green transition by producing its own technologies, while relying solely on imports also means exposing itself to the risk of price inflation. While controls on outward investment are under consideration and the list of restrictions on exports of dual-use technologies could be extended to limit technology transfers, Europeans are also weighing up the risk of a more isolated China that could become more aggressive. Furthermore, the United States has given up on further market opening, including in third countries, in favour of reindustrialising the country with massive public investment. Meanwhile, Europe is developing an industrial policy while focusing on trade, which is all the more necessary as the supply of certain raw materials has become strategic for green and digital technologies. While Washington is breaking free from the multilateral rules of the World Trade Organisation, Brussels is defending the strengthening of a system of fair competition rules. Europeans therefore still need to adopt a security strategy for an open economy.

We are not starting from scratch. Many initiatives are already moving in this direction. But beyond the overall coherence that a narrative of economic security could bring, the challenge for the Commission is to bring the 27 Member States to a common understanding of the risks and their interests by placing the debate at the right strategic level. This is because the more or less defensive or offensive use of autonomous trade defence instruments (control of foreign investment and foreign subsidies, reciprocity in public procurement, anti-coercion, etc.) will require trade-offs and political support from the 27 Member States. Beyond the first major European industrial projects (hydrogen, electric batteries, etc.) and the flexibilisation of state aid for the green transition, it remains to be determined what their joint investment ambition is in order to cover all the needs of reindustrialisation. In the era of economic security, the Single Market is no longer just an area built on strict competition rules, but an area for pooling capacities. Considering that a Member State’s investment benefits the entire Single Market and that, for certain strategic supplies, it is better to depend on another Member State than on certain third countries, would be a significant change in economic doctrine.