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Nachrichten, Termine, Experten
Nachrichten, Termine, Experten
Ahead of the European Council on 15–16 October, Brussels, Paris and Berlin are discussing faster trade defense, buy-European rules and a new diversification instrument as answers to the "China Shock 2.0." A new Kiel Policy Brief argues that this debate overlooks the question that must come first: what is Europe trying to achieve? Without clear strategic objectives, Europe risks expanding its toolbox without making it more effective. The Kiel Policy Brief identifies the institutional constraints standing in the way of the strategic trade and industrial policy France and Germany are calling for—and puts forward a concrete proposal to overcome them.
China now competes directly with the euro area in close to 40 percent of the sectors where Europe holds a comparative advantage, up from around 25 percent in the early 2000s. Germany is particularly exposed: cars, machinery, and chemicals lose exports to China and face growing Chinese competition at home and in third markets.
"Europe is sitting on its biggest geoeconomic asset, access to its own market, and has no way to use it," says Julian Hinz, head of the Trade Policy Research Group at the Kiel Institute and co-author of the Kiel Policy Brief. "China built its car industry by making market access conditional on local production. The EU cannot do the same, even if it wanted to. All of its instruments act on prices and the border, none on where production takes place."
The Franco-German non-paper does not close the gap
The authors review the full toolbox: countervailing duties, safeguards, subsidy conditions, public procurement, local-content rules, the Anti-Coercion Instrument, and sanctions. As trade defense, the toolbox is slow but largely sufficient. Against a strategic objective it fails entirely. The Franco-German non-paper of 5 October adds a reaction instrument, but otherwise relies on more and faster trade defense.
"The Merz–Macron paper offers more of the same reactive measures," says Julian Hinz. "A hundred defensive measures do not make a strategy. They invite lobbying at home and retaliation abroad. As long as Europe does not ask what it needs to produce itself, it will not be a strategic player."
The Kiel Policy Brief uses batteries as its example. Cells are a foundational input for drones and other autonomous systems, military ones included. Defense demand alone cannot finance a competitive cell industry, but a mass market for electric vehicles can. Localizing EV production is therefore a means to build battery capability in Europe, not an end in itself.
A competence gap and not only a missing instrument
The core problem is institutional: trade is a Union competence, national security stays with the member states. Europe therefore has no legal basis to act on a European security judgment at the level of the single market. The authors propose an economic-security instrument, a European counterpart to the logic of the US Section 232, built on existing Union competences now and on a Union competence for economic security in the longer run. It must be country agnostic and could also work against prior partners, including the United States.
"The legal room is larger than many think," says Christoph Herrmann, University of Passau. "The Council can reshape the external tariff by qualified majority, as the EU's steel measure shows. What is missing is an European security competence."
As a first step, the authors recommend opening an investigation to extend the EV duties to hybrids, an obvious loophole in a measure already in force.
Read Kiel Policy Brief now: China Shock 2.0 and Europe's Economic-Security Gap: Europe Needs a Tool to Link Market Access to Local Production (https://www.kielinstitut.de/publications/china-shock-20-and-europes-economic-sec...)
Media Contact:
Elisabeth Radke
Head of Outreach
T +49 431 8814-598
elisabeth.radke@kielinstitut.de
Kiel Institute for the World Economy
Kiel Office
Kiellinie 66
24105 Kiel
Germany
Berlin Office
Chausseestraße 111
10115 Berlin
Germany
Contact
+49 431 8814-1
www.kielinstitut.de
Prof. Dr. Julian Hinz
Director Trade Policy
T +49 431 8814-507
julian.hinz@kielinstitut.de
Prof. Dr. Katharina Erhardt
Research Director
katharina.erhardt@kielinstitut.de
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