From personal affairs to corporate life, freedom of action requires economic robustness. The same applies to countries: strong growth and productivity are a necessary, if not sufficient, condition for effective self-determination.
It is good, then, that this realisation features prominently in the new economic security strategy proposed by the European Commission. It names “promoting our own competitiveness [and] deepening the single market” as the first priority for economic security. It could be just the principle around which to reconcile the conflicting preferences of political and corporate Europe.
The commission acknowledges that an effective economic security strategy must enjoy buy-in from the corporate sector as well as consensus among member states. Neither exists at the moment. China looms unnamed behind each of the economic security risks Brussels identifies. That puts the commission’s proposed remedies at cross-purposes with the commercial strategies of many European companies and their political backers.
For them, the danger is not so much dependence as the fear of missing out (on China’s growth) and losing out (to both Chinese and US rivals in global markets). From this perspective, you “derisk” economic entanglements with China at the cost of adding risks to company competitiveness. This contradiction will not be resolved — and policy will remain confused and indecisive as a result — without learning the right lessons from the Chinese and US achievements that make Europeans nervous.
While corporate Europe obsesses about export markets, the recent successes of others flow from prioritising demand at home. The power of US president Joe Biden’s Inflation Reduction Act comes not from discriminating against imports, but from its success in making everyone expect an imminent, huge and profitable market for green technologies in the US, in which they would like to have a share.
As the US Treasury has documented, the boom in American factory-building since the passage of Biden’s main industrial policy acts is unprecedented and unrivalled. This massive construction wave surely did not hinge solely on World Trade Organization-incompatible subsidies. Such a big market would always require a large scale-up of local supply.
As for China, its growth strategy has of course long been export-led, using cost-efficient scale to compete on price in global markets and gradually moving up the value chain. But even before Beijing formalised a doctrine of “dual circulation”, the regime had begun to use the domestic market as a growth motor for important sectors such as electric vehicles, where Chinese carmakers are at the technological frontier and sales leaders at home.
Consider also how Europe lost its lead in photovoltaic manufacturing in the 2000s. The first phase of that process fits the conventional narrative. Consumer subsidies accelerated PV installations in Europe, but China outbid Europe’s manufacturers. Less attention is paid to the second phase. As EU governments cut subsidies and imposed tariffs on Chinese PV imports, Europe’s solar power growth flatlined. China picked up the slack, overtaking Europe in solar PV installations around 2013. By 2020, it had 253 gigawatts of solar energy capacity installed, more than 50 per cent above Europe’s level.
At the time, the diagnosis was oversupply. In hindsight, it was about insufficient demand. Had Europe boosted its PV installation rate rather than let it fall, it would have helped Chinese exporters, true. But it would also have created a market big enough for European producers to succeed again, just like Beijing did for Chinese ones.
Today, Europe risks repeating that mistake in other green tech. Pleas to weaken green regulations, from the future ban on combustion engines to tightening rules of origin on batteries, only serve to shrink the expected size of the domestic markets for green-tech goods and services. Their supply capacity would naturally slow in response.
The EU has actually been very good at creating such markets — that is why it remains an export leader in many green tech industries. So it should not forget that its actively market-shaping regulation is the root of this success. Nor that the scale of its domestic markets boosts its influence on market-shaping and standard-setting abroad, as the commission’s strategy notes.
Doubling down on boosting domestic green tech demand is Europe’s route to economic security. Companies confident enough that they can profit from investing in their home markets’ growth are less likely to resist the “derisking” that will reduce Europe’s dependency on political choices elsewhere. Politically, economic security starts at home.
martin.sandbu@ft.com
Source: Economy - ft.com
