Europe has reached a curious point in its economic history. Having spent decades teaching the virtues of competition, it is increasingly convinced that its own industries cannot survive without protection.
This change has not occurred without reason. Chinese manufacturing has advanced at remarkable speed, American industrial subsidies have altered investment decisions, and Europe's dependence on imported energy has exposed weaknesses once dismissed as manageable costs of globalisation.
The response from Brussels has been to enlarge the role of the state. The European Commission's Clean Industrial Deal, followed by its proposed Industrial Accelerator Act on 4 March, represents a substantial change in the philosophy of European economic governance. The latter seeks to favour European-made, lower-carbon products in selected forms of public procurement and public support, while accelerating investment in strategic manufacturing.
Its stated ambition includes raising manufacturing's share of the European Union's GDP from 14.3 per cent in 2024 to 20 per cent by 2035. The political appeal is obvious. A continent concerned about deindustrialisation wants the means to defend its productive capacity.
Yet industrial decline cannot be reversed simply by making industrial policy more fashionable. The essential question is not whether Europe should support its industries. It is what that support is intended to accomplish.
Protection is not competitiveness
A subsidy can preserve a factory that would otherwise close. It can also preserve the conditions that made the factory uncompetitive. An import restriction may provide domestic producers with additional time to adapt. It does not ensure that they will use that time well.
The history of economic development contains examples of successful state intervention. It also contains expensive demonstrations of how easily temporary support becomes permanent entitlement. The difference lies in the obligations attached to public assistance.
Europe should be particularly cautious about policies that confuse the geographical location of production with its economic value. A product manufactured within the European Union is not necessarily innovative, efficient or strategically indispensable. Nor is every import from abroad evidence of a dangerous dependency.
Dependence becomes strategically significant when an economy cannot obtain an essential input from alternative suppliers within an acceptable period and at a tolerable cost. This distinction should guide industrial policy far more carefully than political enthusiasm for the phrase 'Made in Europe'.
The electric-car test
Consider the electric vehicle industry. European manufacturers face serious competition from China, where extensive supply chains, manufacturing scale and technological progress have transformed the industry's economics.
Europe has responded with trade defence measures, while also exploring negotiated arrangements that permit certain Chinese-made vehicles to enter the market subject to minimum prices and other conditions.
Such measures may protect European investment and employment. But if protection reduces competitive pressure without accelerating technological improvement, consumers will eventually pay for the difference.
A Europe of unequal champions
There is another danger. Europe is not a single industrial economy. It is a collection of national economies with unequal fiscal resources, different specialisations and often conflicting political priorities.
Germany and France possess greater capacity to support domestic champions than many smaller member states. A more interventionist Europe could therefore strengthen existing industrial concentrations rather than produce a genuinely integrated market.
The result would be a paradox: an industrial policy intended to increase European sovereignty could deepen the internal divisions that weaken Europe's economic power.
Fix the home market first
The more promising course begins with the obstacles European companies confront before they encounter foreign competition. Energy remains expensive in many parts of the continent. Permitting procedures can delay investment for years. Capital markets remain fragmented. Businesses seeking to expand across borders continue to face unnecessary legal and administrative complexity.
These weaknesses are not evidence of insufficient protectionism. They are failures of Europe's own economic organisation. No tariff can compensate indefinitely for an electricity system that makes production uneconomic. No subsidy can create a competitive continental company if the internal market prevents it from expanding efficiently.
The state has an important role in developing infrastructure, supporting research, securing critical supply chains and absorbing risks that private investors cannot reasonably carry alone. But its involvement must remain conditional upon results.
Public support should have identifiable objectives, measurable performance requirements and credible expiration dates. Companies receiving assistance must demonstrate progress in productivity, innovation or strategic resilience.
Otherwise, industrial policy risks becoming a mechanism for transferring public resources to politically influential firms.
Support with conditions
Europe's industrial future will not be secured by choosing between the market and the state. That is an old argument, increasingly detached from the realities of modern competition. The challenge is to determine where public intervention can make private enterprise stronger, rather than more dependent.
Europe has finally recognised that economic power cannot be separated from industrial capacity. It must now recognise something equally important: industrial capacity is worth defending only when it has a credible future.
Without that discipline, Europe may succeed in preserving the factories of yesterday while failing to build the industries of tomorrow.
