On February 11, over 1,000 industrial leaders gathered with European officials in Antwerp for an industry-focused summit.
Europe’s industrial sector, squeezed between the United States and China, is looking for ways to keep its place in the global economy.
A treacherous stability
EU industrial production has stayed flat since 2017. Considering the health, supply chain, energy, and trade challenges of the last decade, this stability stands out. Still, Europe’s global position has clearly slipped.
European industry now accounts for only 15% of global production, compared with 25% twenty years ago. The decline is similar in the United States.
China has been the main winner in this shift, now producing a third of the world’s industrial output, up from just 10% in the early 2000s.
Competition with China is ruthless
Chinese products, once seen as lower quality, now often meet or even surpass European standards. They compete with European goods both in global markets and within the EU.
Chinese companies often have production costs that are 30-40% lower, making them tough competitors.
At the Antwerp summit, industrial leaders warned that Europe could repeat what happened to its solar panel industry. Once strong, the sector quickly lost ground, and China now controls over 90% of the European market.
No simple solutions
In the medium term, Chinese competition could put half of Europe’s industry at risk. Several possible responses are being discussed.
One idea is to introduce significant tariffs. However, this approach splits opinion among industry leaders. Some worry that higher costs for Chinese inputs would hurt their own competitiveness and exports.
Another option is to weaken the euro against the undervalued yuan. But making the euro fall significantly, especially against a tightly controlled currency, is hard to achieve in practice.
Some policymakers support giving preference to European products in public contracts. Others argue that limiting access to cheaper foreign goods is risky, especially when budgets are tight. This policy would not help all sectors equally, or always protect the most vulnerable ones.
Barriers can be equivalent to 44% tariffs
Right now, simplifying regulations is the only area where most Europeans agree. But cutting red tape and easing environmental rules alone will not protect the most at-risk industries.
Looking past short-term protections, the real long-term answer is deeper European integration.
The International Monetary Fund says that internal EU barriers can sometimes act like tariffs as high as 44%. Some sectors are still fragmented, with companies protecting their home markets with government help.
Energy and investment as structural levers
European industrial companies pay between two and four times more than their US and Chinese counterparts for electricity and gas. This partly reflects the absence of a fully integrated energy market within the EU.
Financial fragmentation is still a problem. The 1957 Treaty of Rome aimed to remove barriers to moving capital, but this goal is still not fully met after seventy years. A true capital markets union would make it easier to finance and invest across the EU.
Along with better energy prices, more investment in competitiveness is crucial for the future of European industry.
Emerging opportunities
European industry’s decline is not a given. Lately, the sector has drawn new interest from international investors, helping European stock markets perform well.
As people question the AI boom and tech stock values, investors are turning back to more traditional sectors.
European markets, which used to lag because they had fewer big tech companies, are now benefiting from this shift.
This change has boosted European industrial stocks, which are up 7.7% since the start of the year. Still, some subsectors are more attractive than others. The European car industry, for example, is struggling with strong Chinese competition and is less appealing. See our full portfolio recommendation.