Brussels puts economic security first
The EU’s recent actions to address the continent’s deteriorating economic security are transformative. Brussels plans to become a much more proactive and assertive player, both internally and externally, in tackling economic vulnerabilities. Yet these moves risk triggering strong domestic resistance due to their high economic costs, which could be mitigated by deepening the EU’s internal market and forging new trade agreements.
Much has changed for the worse since the publication of the European Economic Security Strategy in 2023. Back then, the EU’s main concern was its economic dependence on China, especially in critical sectors. Since then, China has begun to aggressively assert its dominance over rare earths by imposing unprecedented export restrictions, while the US has targeted Europe with tariffs and intense economic pressure. Now, the EU risks falling prey to economic coercion from both sides, each seeking to impose its strategic objectives on a vulnerable continent.
Three transformative shifts: security, interventionism, and assertiveness
Against this backdrop, the EU has intensified work on how the continent can deter others from weaponising its dependencies in the short term, while reducing them in the medium term. This has led to a strengthening of the European Economic Security Strategy and a series of important, related announcements in recent weeks. Taken together, they point to an ongoing transformation in the EU’s geoeconomic thinking and playbook.
First, security now takes precedence over commercial interests. The updated strategy clearly states that member states and businesses must accept economic costs in exchange for reduced vulnerabilities and greater security. This means that many companies will have to break with the lowest-price logic that has long guided their decisions, and instead prioritise secure — but often costlier — suppliers from Europe or geopolitically aligned countries to derisk supply chains.
In doing so, European industrial policy is set to draw heavily on Chinese lessons. The EU is considering „Made in Europe” content targets of up to 70% for products, which strongly echoes China’s „Made in China 2025” strategy. But such an ambition could cost EU companies billions annually by mandating them to buy more costly European components. The Commission also wants to tighten foreign investment rules to ensure greater benefits for European workers and firms, which again mirrors key elements of similar Chinese policies.
Second, the EU is prepared to move from merely encouraging diversification to legally enforcing it if current efforts fall short. This is especially true for reducing Europe’s dependency on Chinese raw materials under the new RESourceEU initiative, which will mobilise €3 billion next year to support projects providing alternative supplies. If that is not enough, the EU „would force European companies legally to diversify their sources of supply,” confirmed French Commissioner Stéphane Séjourné.
And this legal enforcement may become reality sooner rather than later. Despite being aware of the risks, many European businesses still invest in China, attracted by low costs, efficient supply chains, and access to the Chinese market. Even this year, twice as many companies have moved production to China as have diversified away from it. The trend is particularly strong in pharmaceuticals, machinery, and automotive, where firms are simultaneously shutting European factories and cutting thousands of industrial jobs.
Third, the EU is ready to use every tool at its disposal to strengthen economic security. „The EU will use existing tools irrespective of their original purpose and will deploy its toolbox more proactively when needed,” states the updated strategy, aiming to send a clear deterrent signal to third countries. This kind of flexible legal creativity is already visible in the EU proposal to use frozen Russian assets by invoking emergency powers originally designed for natural disasters.
The EU also wants to actively deploy its own economic leverages to counter foreign coercion. It emphasises the unparalleled weight of the European single market — and its importance for both China and the US — as well as the need to identify specific areas where others depend on the EU. In short, Brussels wants to start playing by the new geoeconomic rulebook.
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Offsetting the price of economic security
These clearly protectionist and interventionist tendencies in defence of EU economic security could trigger a strong backlash in certain European capitals and business circles. Countries whose exports rely heavily on access to the Chinese market, like Germany, may oppose forced diversification, while those especially dependent on American security guarantees, like Poland, may disfavour too escalatory responses to US economic coercion.
This is why the EU must, in parallel, offset the losses incurred by decoupling from China and the US by improving its single internal market and forging new, diversified trade partnerships. Only if concrete alternatives are in place to compensate for these costs will European businesses and more sceptical capitals follow the EU’s lead on economic security.
The first and best alternative is the European single market itself, which is still far from fully integrated. It suffices to say that existing barriers to trade between EU countries equal to a 100% tariff on services and a 65% tariff on goods. From this standpoint, it resembles the US–China trade war far more than the realisation of the free movement of goods and services — let alone labour and capital — as envisioned in its treaties. If these cross-border barriers were significantly reduced, European productivity could rise by roughly 20%, according to a recent IMF study.
In the meantime, the EU should build a diversified network of medium- and long-term substitutes for the Chinese market and suppliers beyond its own borders. Promising trade partners include large developing economies such as India and Indonesia, countries in Latin America and Africa, as well as reliable Western partners like Australia, Japan, and Canada.
These trade alternatives are already being actively explored. The finalising EU–India FTA negotiations could open European firms doors to the rapidly expanding market of the world’s most populous country. The final fate of the EU–Mercosur Partnership Agreement should be known in the near future, while the just-concluded EU–AU summit confirmed the critical minerals partnership. Meanwhile, Canada has just joined the EU’s SAFE mechanism, signalling the potential for a stronger mutual opening of defence markets.
