Brussels, 20 January 2025
Edited By: Tim Rühlig, Joris Teer
In both Washington and European capitals, strengthening economic security and technological resilience has become a core objective. But the EU and the US disagree on the how. The EU’s proposal to develop economic security standards with like-minded partners offers the most promising starting point for achieving shared goals.
Trump’s wishlist
Democrats and Republicans agree on little these days. The need to counter China’s technological ascendance and industrial dominance is a notable exception. Trump 2.0 is likely to demand additional EU measures to achieve this. Trump’s aides expect the EU to deliver tangible results within months.
If the EU does not proactively engage with Washington, the US will move forward without considering EU interests. Trump 2.0 could make security guarantees for Europe against Russia conditional on a tougher EU China policy. After all, Trump 1.0 already warned that the US might limit intelligence sharing if EU Member States allowed Huawei to be included in their 5G networks. Trump 2.0 could pressure Europeans into a degree of decoupling from China. Washington may close its market to EU products containing China-manufactured components. For reasons of national security, Washington may well halt imports of European electric vehicles if they rely on sensors or batteries produced in China. US restrictions on EU tech exports could extend far beyond semiconductors: Washington may also try to prevent the sale of a wider range of EU-produced goods, ranging from wafers to optical devices, to China. If Washington finds that allies are not moving fast enough, Trump 2.0 could expand US extraterritorial controls to block EU tech companies’ exports to China directly.
Specifically, Trump 2.0 is likely to pressure the EU to:
- broaden controls on exports to China, tighten EU inbound investment screening, put in place an outbound investment screening mechanism, and strengthen knowledge security policies.
- adopt a robust trade defence policy that counters China’s dumping practices in the EU market. The goal is to ensure that Beijing can no longer use the European Single Market as a backfilling export destination for China’s excess capacity. The US is likely to expand measures, such as further closing its own market, to compel Beijing to abandon its market-distorting industrial policies. Continued European openness to Chinese products would undermine these efforts.
- sanction Chinese firms and individuals that facilitate circumvention of sanctions imposed on Russia, Iran and North Korea.
The EU’s interests
The EU is unlikely to live up to these expectations. Europe is more dependent on China. Internal divisions stall action: decision-making competences are shared among or reside with Member States that pursue divergent approaches. From Washington’s perspective, these delays represent a dangerous failure to act in time against what the US sees as the gravest threat to its national security: China.
The EU should not take action simply because the US is demanding it, but because Europe shares Washington’s concerns. Competitiveness, jobs and strategic industries are at stake if the EU does not act swiftly enough. Uncontrolled imports of China’s excess capacities pose a significant risk. Growing EU dependence on China-produced goods, such as batteries, and critical infrastructure, like 5G-networks and wind turbines, makes the EU vulnerable to Beijing’s geopolitical pressure. Beijing could exploit these dependencies both before and during a conflict. For example, EU efforts to sanction China in response to, or to help deter, a Taiwan blockade would be greatly undermined if Beijing threatens to sabotage China-controlled energy and communication networks in Europe.
EU efforts to sanction China in response to, or to help deter, a Taiwan blockade would be greatly undermined if Beijing threatens to sabotage China-controlled energy and communication networks in Europe.
The EU’s response is not driven by Trump’s demands but by China’s growing challenge to its interests, which is why the bloc has already taken several steps. In January 2024, the European Commission finalised the first implementation package of its Economic Security Strategy. This includes a legislative proposal to revise the inbound investment screening mechanism, a white paper launching an investigation that could result in an outbound investment screening instrument, and a white paper aiming at enhancing the effectiveness of dual-use export controls. Similarly, Brussels has introduced import tariffs on electric vehicles from China, although both the US and Canada have imposed much higher tariffs.
A transatlantic solution: economic security standards
There is a joint way forward. In its new Political Guidelines, the Commission has promised to develop ‘economic security standards’ for key supply chains, in collaboration with the G7 and other like-minded partners. This initiative is driven by three shared EU-US concerns:
- First, China’s dominance in strategic sectors like batteries and permanent magnets, along with its growing strength in key commercial sectors such as electric vehicles, is outpacing the EU’s current de-risking efforts. Europe’s ‘country-neutral’ tools and processes are simply too slow.
- Second, Europe is not only highly dependent on China through direct imports, but also relies indirectly on components produced in China. For example, China controls two-thirds of the global cellular module market, a crucial component built into a wide variety of connected goods such as cars, smart meters, computers and electric vehicle chargers. Even if Chinese-made cellular modules were banned from the European market, most of the final products that the EU imports from other countries would still use them to receive and process vast amounts of data. In this way, Chinese-connected components in, for example, a Korean or Japanese electric vehicle, may still pose cyber security risks. Therefore, strengthening Europe’s economic security requires non-EU companies to ‘design out’ China-produced connected components too.
- Third, the proliferation of unilateral EU rules and regulations impedes the ability of European companies to compete. Examples include the EU’s Environment, Social, and Governance (ESG) criteria, data use regulations, and supply chain auditing requirements. Chinese firms operate with a much lighter regulatory burden, both domestically and abroad.
Europe’s ‘country-neutral’ tools and processes are simply too slow.
Introducing shared economic security standards can address these challenges. These should include common G7 and partner data security requirements, environmental and labour standards, anti-subsidy, anti-dumping, and reciprocity rules. Narrowly selected products from economies that do not comply with these criteria would be made more expensive, for example through tariffs. Meanwhile economic security standards would simplify trade between partners, creating the required scale to generate production of critical goods in trusted countries. Non-likeminded partner states, especially those with large labour forces, should be invited to join the club.
Taking the initiative in the development of economic security standards with the G7 and partners would ensure the EU’s co-authorship of transatlantic policies.
Economic security standards on a broader scale could cause collateral damage and disrupt trade with global partners. This is why the Commission proposes starting off by developing economic security standards for a specific range of narrowly defined products. It would be wise to focus on sensitive items first, such as cellular modules. Taking the initiative in the development of economic security standards with the G7 and partners would ensure the EU’s co-authorship of transatlantic policies. What is more: engaging Trump 2.0 early can help protect the EU from the collateral impact of US policies. Otherwise, Washington will act unilaterally without taking EU interests into account.
Source EU-ISS