The US is warning the European Union on trade — again. This time it’s about the bloc’s looming push for “Made in Europe” rules to shore up its industrial base after a painful shellacking at the hands of Chinese competition and Trumpian tariffs. It’s pretty rich of the US to claim the EU is acting unfairly on trade and undermining transatlantic defense. More notable is pushback from non-US trading partners and the economic cost of such measures longer-term. They ultimately point to the need for a sharper competitiveness fix.
Proposed “Made in Europe” rules mandating local content in electric cars and other green-tech sectors deemed strategic show an urgent need to tackle de-industrialization. The German industrial sector so loathed by Donald Trump lost 120,000 jobs last year; a similar number disappeared in the last two years among the continent’s car suppliers, who estimate Chinese rivals have a cost advantage of around 30%. There’s a need to reduce reliance on fossil fuels, but also onChina, whose mix of high subsidies, overcapacity and genuine innovation has made the likes of automaker BYD Co. globally dominant. The EU has moved to deliver more free-trade deals and less red tape in response; stronger stuff is now needed.
There are upsides to a requirement that around 70% of content per vehicle be produced locally, which is what auto suppliers including Valeo SE have pushed for. It wouldn’t be a big change from current levels (assuming batteries aren’t included.) What it would do is set a floor, stem the bleeding of jobs and buy time for the kind of skills and technology catch-up former European Central Bank President Mario Draghi has championed. It would make relative winners out of home-grown firms and their political backers who are eyeing a slew of elections next year. Similar rules for steel and green-tech might also encourage shorter, more sovereign supply chains.
The downsides are the costs that accumulate over time. They include more paperwork and less choice: Stricter local-content rules for North American cars after 2020 have worked out to an estimated additional tax of 2.5%, according to a US Federal Reserve paper. Efforts to fix an un-level playing field in trade can also go too far and stifle the benefits of comparative advantage, supporting uncompetitive industries and inviting retaliation. South Korean firms account for four-fifths of EU battery-cell manufacturing capacity, according to think-tank Bruegel; too much meddling could slow, not accelerate, the energy transition.
Careful tweaking can mitigate some of these issues. Inviting like-minded allies into the supply-chain tent is one way that Europe can play industrial-policy Tinder, as economist Sander Tordoir recently put it, rather than stay celibate. This could involve coordinating trade measures, particularly against China overcapacity, or encouraging joint ventures. Similarly, the scope of local-content rules should be very selective when it comes to picking sectors or products; sticking a flag in every industry makes absolutely no sense. For example, propping up solar-panel factories seems like a questionable move given China’s huge head start and massive market share.
What can’t be tweaked is the need to try something sharper when it comes to competitiveness: Admitting that not everything needs to be “Made in Europe” and, by extension, that not everything needs saving. Instead of fighting over quotas and rules, officials should be rolling up their sleeves and thinking honestly about where the EU has a fighting chance of competing over the next decade — not “picking winners, but letting the losers go,” as economist Dani Rodrik termed it in 2024.
The bloc’s competitive position in wind turbines, grid technologies and heat pumps looks stronger than in solar or EV batteries: Why not prioritize those? German finance minister Lars Klingbeil said last year that Europe needs a “strategic industrial policy.” If anything needs to be made in the EU, it’s that.
This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.
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