With Trump’s tariffs, the EU has fallen victim to great power geo-economic ambitions for the third time. Putin’s decision in 2022 to turn off the gas taps dealt a severe blow to Europe’s energy-intensive industries. Still today, Europeans face four-to-five times higher gas prices than Americans. This pain is partially self-inflicted: the closure of nuclear power plants and gas fields throughout the 2010s had made the EU even more dependent on Moscow. China’s market distortions and supply chain coercion constitute an even greater threat.
But at a time of large-scale war in Europe and a brewing conflict in East Asia, the EU needs strong industries for more than just competitiveness and employment: economic and national security are at stake. The EU must start with what it can control: prioritising EU and partner industries, cutting red tape, and boosting energy production.
The UN projects that China will capture 45% of global manufacturing by 2030.
Trump hits Europe where it hurts. His 10% baseline tariff makes EU companies less competitive in the US. Even worse: European firms, such as chemical producers and other energy-intensive industries, may shift even more production from the EU to the US.
It is tempting to dismiss Trump’s coercion through ‘reciprocal’ tariffs – including the current 90-day pause – as erratic and irrational. Yet, there is a goal: reindustrialisation. The President’s Trade Policy Agenda laments US reliance on ‘fragile international value chains’, noting that ‘much of [America’s] industrial might has moved overseas, and innovation has begun to follow.’ When it was still an industrial powerhouse, the US dispensed with ‘three rounds of adversaries by winning two world wars and defeating communism.’ Today, however, ‘the US can only produce each month about a third of the 360 000 artillery rounds the military […] needs to deter adversaries.’ China is the ‘biggest source of [the US’s] large and persistent trade deficit.’
China’s power trade strategy – meaning its push to transform itself into a self-reliant fortress while keeping everyone else dependent – is even more of a threat to Europe. Beijing has long sustained overcapacities in sectors like steel-making. Recent and looming overcapacities – in sectors such as passenger vehicles, legacy chips, industrial machinery, medical devices, IT equipment, and new materials – create a far bigger problem for the EU. The UN projects that China, already producing 35% of all manufactured goods globally in 2020, will capture a 45% share by 2030. This surge is driven by smart infrastructure investment, massive subsidies, local content requirements, and other discriminatory measures.
But China poses more threats. In response to Trump’s tariffs, Beijing has introduced export controls on additional essential materials for defence and other critical sectors. China has already greatly reduced the export of gallium, a material used to produce computer chips. Halting materials exports would severely undermine the EU’s competitiveness, its rearmament, digital and green transitions, and the medical sector.
During peacetime, today’s three-pronged economic onslaught on the EU would ‘merely’ threaten European prosperity. But in an era of great power competition, having a strong industrial capacity serves three more purposes. First, industrial might is needed to maintain deterrence. Whether Europe can fight a long war relies on its ability to sustain defence production, medical and telecommunications services, and other critical sectors. In turn, this depends on uninterrupted access to key components.
Second, a position of industrial strategic indispensability gives the EU leverage. Innovation happens not just in product design, behind computers, but also where manufacturing happens. Keeping competitors dependent on key European products is important. For example, the world depends on ASML’s production of lithography systems. These are used to manufacture the vast majority of semiconductors, the heart of all digital products, globally. . Third, military deterrence depends on innovations in the civilian economy. For example, the development of AI-robots along assembly lines can be leveraged to maintain a military-technological edge.
Much remains uncertain about US tariffs. These are a negotiation tool. One suggested goal is to force partners into alignment with US policy against China, including the introduction of EU tariffs against Beijing. A joint transatlantic reindustrialisation strategy would be more effective than the EU going it alone. A zero-to-zero tariff agreement, as proposed by the Commission, Merz, and Musk, would contribute to this. This week’s US decision to pause tariffs on the EU while raising them above 100% on China raises hopes.
Strengthening Europe’s industrial backbone has never been more urgent.
But Brussels cannot sit still until Washington comes to its senses. Trump’s China tariffs put Washington on track to actual decoupling. Domestic demand in China is not picking up. If the EU falls for China’s present diplomatic charm offensive, it risks becoming an economic dumping ground. Putin has more levers to undermine EU industries too. Despite EU ambitions, 18% of Europe’s gas imports came from Russia in 2024. Norway supplies one third, almost entirely through vulnerable subsea pipelines. The Kremlin may strike again, for example when Russian-European tensions over security guarantees for Ukraine boil over.
The EU must do whatever it can to kickstart the reindustrialisation that the Commission advocates. In addition to cutting red tape, two low-hanging fruit policies stand out. To start, the EU should increase demand for products from European and partner industries. This includes introducing ‘buy likeminded’ clauses already in 2025. This is a powerful tool: public procurement makes up 14% of European GDP.
Second, the EU should boost energy production, including of gas and nuclear. An ‘all-of-the-above’ strategy has a better chance to save European manufacturing than a ‘renewables-only’ orthodoxy. China’s ongoing expansion of coal capacity, alongside its leadership in green tech, continues to give it an advantage. Xi’s promise to peak carbon emissions by 2030 provides China’s economy with more leeway than Europe’s 55% reduction pledge. Seeking energy dominance, Trump has stripped the US of any climate responsibilities. He seeks to remove environmental constraints too.
Strengthening Europe’s industrial backbone has never been more urgent. Measures that artificially raise the cost of manufacturing in Europe risk not reducing emissions but pushing industry off our continent. This is dangerous. Europe needs industry to deter Russia’s aggression, which is backed by China’s unmatched manufacturing power and technological prowess. Yes, the EU can use discomfort with Trump 2.0 to attract America’s best and brightest, close new trade deals, and pursue other opportunities. But to guarantee its security, Europe must above all kickstart reindustrialisation.
