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Joint Statement of the Council of Economic Analysis (CAE) and the Franco-German Council of Economic Experts (FGCEE)
Authors are Xavier Jaravel, Sébastien Jean and Isabelle Méjean (CAE), Gabriel Felbermayr, Monika Schnitzer, Achim Truger and Martin Werding (GCEE).
Summary
Rising geopolitical tensions and the weakening of the rules-based trading system radically change the context and stakes of the EU’s trade policy. Alongside the usual focus on gains from openness, economic security needs urgent consideration, too. This is especially true with regard to China, because its policy choices have propelled it into a position of commercial dominance across a widening set of strategic sectors. This is not only a threat for significant parts of the EU’s manufacturing industry, it also creates strategic dependencies that can be exploited for coercive purposes, as recent Chinese export restrictions have illustrated.
The EU must therefore recalibrate its economic strategy to preserve the gains from trade while building resilience and reinforcing its own sources of economic and industrial strength. The objective is to reshape interdependence so that it provides both insurance against disruptions and incentives for partners refraining from exploiting dependencies. This requires diversifying critical supplies, preserving production capacity where its loss would heighten dependence, and investing in capabilities that strengthen the EU’s ability to absorb and deter coercion. The corresponding benefits must be weighed against the costs they may impose on consumers, case by case.
Across-the-board tariffs are a costly, poorly targeted response and therefore not recommendable. On the defensive side, diversification should be pursued through trade agreements, and resilience criteria in public procurement and public support, and incentives, in extreme cases obligations, for firms, as in the Critical Raw Materials Act. Trade defence instruments should complement diversification: alongside the improved use of antidumping and countervailing measures, with coverage extended to close substitutes benefiting from the same subsidies, safeguard measures should be considered when surging imports threaten an EU industry. On the offensive side, measures must start with policies improving conditions for investment, firm creation, and innovation. They should include a strengthened role of public procurement in supporting innovation. Also, where domestic production is necessary to develop critical capabilities, targeted local content requirements may be justified.
While these measures operate in the long term, the rapidly mounting pressure of Chinese competition requires a more timely response. Faster, more efficient and appropriately scoped use of existing trade defence instruments would be a practical priority. To do so, the EU can simplify procedures, devote more resources to investigations and reconsider its own rules or interpretations that unnecessarily delay intervention or narrow its scope.
