Europe’s Industrial Policy Dilemma: Lagging Behind China and the US, Allianz Trade Calls for Innovation Ecosystems and Strategic Collaboration

The absence of a strong industrial policy is causing the European economy to fall further and further behind. The EU is lagging far behind China and the United States. Rather than developing policies based on its own strengths, the billions it invests are mainly used to limit its backwardness. In its report ‘Industrial policy: old dog, new tricks?’, credit insurer Allianz Trade argues that this is a dead end.

Industrial policy and subsidies are more relevant than ever, says the credit insurer. According to the report, in 2023, governments implemented 2,642 industrial policies. The most popular are those that grant subsidies to local industries and businesses. The United States, China and India are models in this respect. Among the best-known recent examples are the US Inflation Reduction Act (IRA) and the CHIPS and Science Acts. The European Union has reacted with astonishment to these protectionist measures, describing them as violations of the rules of the World Trade Organisation.

As for Europe, it has itself adopted the Green Deal and the Regulation for a Net Zero Industry, among others. Allianz Trade believes that the EU’s industrial policy is a balancing act gone too far. The policy pursues a wide range of underlying objectives, such as balancing the green and digital transitions, preserving the single market, promoting innovation and maintaining national control over policies. The strategy also targets a range of sectors such as semiconductor technologies, hydrogen, industrial data, space launchers and zero-emission aviation. According to the credit insurer, the technology neutrality of European industrial policy has led to less targeted support for innovative technologies than in the US.

Johan Geeroms, Head of Risk Underwriting Benelux at Allianz Trade: “Studies show that many EU measures are mainly reactive. Take the measures introduced by the EU last year to reduce dependence on China, particularly for rare metals such as lithium (legislation on critical raw materials). Suddenly we’re getting into mining… after years of leaving the extraction of rare metals to other countries to avoid environmental damage in Europe. A typical example of a race lost in advance to try and catch up”. According to Johan Geeroms, rare metals are threatened by the same kind of dependency as oil. “In addition to OPEC, we will also see the emergence of OPEM.

In the report, Allianz Trade argues in favour of a European industrial policy focused on innovation ecosystems. The report speaks of ‘horizontal’ policies targeting specific themes. Johan Geeroms: “We should not subsidise a specific industry, such as the automotive industry, but rather seek to group together around a theme, such as mobility. We then need to invest not only in electric vehicles, but also in recharging stations, battery technology, the electricity grid, public transport and alternative mobility options. A broad field that reflects the specialisations of all the Member States. With industries that benefit and complement each other”.

Airbus is an example of European collaboration going in the right direction,” emphasises Johan Geeroms. “That’s what we need to do. Dare to think big. Collaborate between several European countries to become a world leader in aerospace. Drawing on products, expertise and technology from all over Europe. This collaboration also creates technological know-how and strengthens European defence. It’s a win-win situation.

According to Johan Geeroms, Europe should start from its own strengths and dare to think two steps ahead, instead of always following China and the United States. “And when you put in place an industrial policy of this kind, you have to be wary of bureaucracy. The proliferation of administrative obligations slows down innovation. We must also avoid a situation where only a few large companies benefit from subsidies, as is the case with the American CHIPS law.