The continuing Russia-Ukraine war and geopolitical events in the international system have compelled the European Union to implement a major economic restructuring plan, which was met with a series of shocks. The EU’s economic security strategy in 2023 is an economic document by the European Commission and the High Representative that aims to protect the EU’s economic interests and values in a changing global environment. The strategy has three main objectives: to promote the EU’s economic base and competitiveness by strengthening the single market; to support a strong and resilient economy by investing in skills; and to foster the EU’s research, technological, and industrial bases. In addition, to protect the EU’s economic security against risks arising from certain economic flows, such as supply chain disruptions, cyberattacks, technology leakage, or economic coercion,
The strategy begins by openly acknowledging that Europe was inadequately prepared for various challenges, including the COVID-19 pandemic, the Russia-Ukraine war, and challenges from China. Furthermore, the strategy recognizes that the European market, along with its regulations and cohesion, possesses inherent strength within Europe. From a broad perspective, the European Economic Security Strategy, which is not legally binding, delineates three primary focal points: the promotion of competitiveness within the European Union (EU), safeguarding the EU’s economic security against both external and internal risks, and fostering collaboration with partners who share aligned interests with the EU to establish secure supply chains. The European Commission’s strategy requires member states and their industries to evaluate the economic security risks they face in four key areas. The assessment encompasses four risks that pose a threat to the European Union. These risks include those that jeopardize the resilience of the European Union’s supply chain, create challenges in cybersecurity infrastructure, violate technology, and create barriers to economic self-sufficiency. However, the strategy does not seek to limit the development of any country or fuel the dynamics toward an increased fragmentation of the world economy or a world divided into two different economic blocks.
One of the main objectives of the strategy is to protect the EU’s economic security against risks arising from economic coercion. The strategy promotes decoupling from China in key sectors that the EU deems sensitive, notably critical infrastructure, cutting-edge semiconductors, and specific raw materials and equipment needed for the green transition. These essential commodities, constituting approximately 6% of European imports, encompass semiconductors, specific rare earth elements, and raw materials. China currently possesses market shares exceeding 86% in certain markets. These factors represent significant vulnerabilities for the European economy and require immediate attention. The EU’s economic security strategy for 2023 does not explicitly propose de-risking China. The presence of China’s military-civil fusion implies that it is difficult to ascertain the reliability of any end user within China in terms of protecting advanced technologies originating from Europe. The competitive environment that China offers also presents a significant challenge to the European industry. China is emerging as a significant contender in the high-tech and growth sectors. Through its “Made in China 2025” policy, China strategically utilizes industrial policies to secure greater portions of the value chain. The aforementioned situation has presented a predicament for the European Union.
The European Union possesses an export control regime that governs the trade of dual-use goods. However, due to their various interests, the European Union’s member states currently implement these controls in a variety of ways. The strategy additionally delineates multiple mechanisms that the European Union can utilize to safeguard itself against potential economic security risks. Coercion can manifest when a third country endeavors to exert pressure on the European Union or one of its member states, compelling them to make a specific decision through the implementation or mere threat of trade or investment-related measures. The European Commission encounters inherent internal discord due to the presence of divergent interests, which in turn poses challenges to the attainment of consensus among all European Union member states concerning its economic security policy. In a broader sense, this disparity highlights the difficulties encountered by the United States and the European Union in attaining full alignment regarding the measures they adopt to mitigate risks associated with trade involving China. Therefore, although the United States, the European Commission, and presently the European Council have expressed their public support for reducing the risks associated with trade with China, internal disagreements among member states may lead to the European Union implementing a more protracted approach to mitigate its economic reliance on China. This approach would involve implementing trade measures that are more precisely calculated.
By focusing on China, the EU effectively narrows down the scope of numerous initiatives, thereby decreasing their financial and administrative burdens while also mitigating the potential risks associated with protectionism. In light of escalating geopolitical risks, it is important to assess the prospective implications and financial ramifications of decoupling from China for the European Union. In the context of a trade conflict resulting in penalties on trade with China, companies possess the ability to adapt their strategies over time and engage in trade with neighboring countries, such as those within the ASEAN region. Consequently, the potential macroeconomic costs may be elevated. In the realm of economic security, the European Union should contemplate relinquishing its country-agnostic stance in favor of promoting free trade.
The world’s political predicament in Europe is increasingly escalating daily. The military action of Russia in Ukraine serves as evidence of Europe’s significant reliance on security provisions provided by the United States. In response to China’s dominant competition in East Asia, the Biden Administration has pursued a strategy of technological competition with China while concurrently seeking the support of American allies and partners. Nevertheless, the United States’ approach to China has had a dual impact on Europe. Hence, the imposition of economic sanctions on China in the event of a military confrontation in the Taiwan Strait would have severe repercussions for the European economy. It is also important to note that China serves as the third-largest export market for the EU.
In light of the heightened risks and the complex predicament at hand, European diplomacy must prioritize two key objectives. Firstly, it should intensify its endeavors to persuade China and the United States to refrain from exacerbating geopolitical and ideological tensions, which can pose challenges to its economy. Secondly, it should establish networks of technological and trade collaborations with middle powers in a similarly precarious situation, including South Korea, Vietnam, Indonesia, Israel, Japan, and India, apart from China. However, considering internal dynamics within Europe, it is important to analyze the potential response of China to an enhanced transatlantic economic security stance. Furthermore, it is crucial to assess the compatibility of future European measures with the World Trade Organization and determine whether these measures may be perceived as concealing protectionism by other nations. Such perceptions could significantly hinder the revitalization of the multilateral rules-based system, which the European Union consistently claims to prioritize in its agenda.
In concluding remarks, it can be added that the global economy is currently undergoing a significant shift. A focus on relative gains and losses concerning perceived rival powers is replacing the idea of achieving mutually beneficial outcomes. In this context, the European Union acknowledges that economic security, energy autonomy, the resilience of supply chains, and technological supremacy are now more important than the preservation of open markets. It suggests a significant transformation occurring in the global political economy, to which Europe should strive to adapt more effectively.