Industrial policies

    EU industrial strategy: No clear signal for strengthening the economy

    With its EU industrial strategy the EU Commission is defining the political need for action on behalf of the industry. It had already presented a strategy as early as March 2020. Then the corona pandemic came. In May 2021 the Commission presented an updated strategy.

    With its EU industrial strategy the EU Commission is defining the political need for action on behalf of the industry. It had already presented a strategy as early as March 2020. Then the corona pandemic came. In May 2021 the Commission presented an updated strategy.

    No clear commitment to industrial growth

    In terms of its overall approach, the update of the industrial strategy is better than the previous version, which for long stretches was merely an instrument for implementing the Green Deal and neglected other necessary action. However, the most conspicuous weakness of the 2020 strategy remains: The EU Commission once again refrains from defining a long-term target for strengthening the industry. Only the definition of such a target creates a self-commitment that generates real pressure to act and creates public and political awareness of the need to strengthen industry within the EU.

    The purpose and main objective of an industrial strategy should be to generate industrial growth with it. This commitment is missing. For this reason, the EU Commission continues to refrain from defining a long-term target for strengthening industry (e.g., growth of industrial gross value by x% by the year x), similar to the target defined for CO₂ reduction (climate neutrality by 2050). Without such a target, there is a lack of self-commitment that generates real pressure for action and creates public and political awareness for the need to strengthen industry in the EU. Although the EU has every reason to pursue industrial economic growth with all its might. Over the past decade, it was the slowest economic region in the world after Japan. It should not send the signal that it has abandoned its claim to compete in the global race for growth.

    Accompanying industrial transformation

    Ecological and digital transformation requires companies to make unprecedented investments – for research and development, the construction of new manufacturing facilities, retraining and further education of employees, and not least for the development of a Europe-wide infrastructure for charging and refueling. Last but not least, this also requires political support.

    It is therefore to be welcomed that at the end of 2020 the EU earmarked a portion of EU funds for these purposes when deciding on the EU budget. However, the adaptation of competition, antitrust, and state aid legislation envisaged for the transformation needs to take place very soon. It is also welcome that the Commission intends to draw up ways of transformation for the relevant industrial ecosystems together with the industry so as to define the specific need for political action more precisely, and that it intends to prioritize work on the "mobility" ecosystem.

    One shortcoming in the industrial strategy, however, is the lack of commitment to minimizing the economic transformation costs and to an openness toward technology. To minimize the economic costs of transformation, it is imperative that the transportation sector be included in the CO₂ emissions trade – as is a policy of openness toward technology. Yet prioritizing certain technologies through unilateral regulatory projects or discretionary government investment policies not only increases the economic costs of transformation, but also narrows the range of technological development paths and deprives consumers of the freedom of choice in their technologies.

    Strategic autonomy & open markets in harmony

    It is right that the Commission's strategy places further emphasis on strengthening strategic autonomy. The dependence of EU industry on certain raw materials and products (such as batteries, hydrogen, semiconductors, cloud technologies), which can be sourced from only a few non-EU countries, makes EU industry vulnerable. In this respect, it is to be welcomed that the Commission wants to discuss these dependencies and feasible solutions with industry, among others. It is also welcome that, in addition to ramping up its own manufacturing, the Commission sees a further solution in strengthening foreign trade and entering into international partnerships such that German companies can further diversify their value chains and thus increase the number of supply options for critical raw materials and products.

    It is even more difficult to understand, however, why the industrial strategy has not even considered the important instrument of opening markets via further free trade agreements. Although the EU has a great deal of potential to catch up, as the example of the large RCEP free trade zone shows. Also with regard to other goals, such as the implementation of climate agreements or sustainability targets, free trade agreements are an important platform to deepen cooperation in important areas. It is important to work toward a further opening of global markets and, so as to avoid strategic dependencies, not to ultimately resort to protectionist instruments and a severing of international supply chains.

    Economic Intelligence

    Dr. Volker Schott

    Macroeconomic cycle, economic analyses

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