Europe’s Economic Strategy: Choosing Battles in the Face of Chinese Competition

European economists urge a strategic industrial focus, advising Europe to prioritize sectors like defense and robotics while conceding mature industries like solar panels to China, where competition is unwinnable. They call for a technology-for-market approach, encouraging Chinese investment in areas like batteries with technology-sharing agreements. France and Germany aim to strengthen Europe’s battery industry and competitiveness, focusing on critical sectors to ensure economic resilience amid growing Chinese dominance.

A group of prominent French and German economists has called on Europe to adopt a more strategic approach to industrial policy by identifying sectors where it can compete effectively and relinquishing those where Chinese dominance is already insurmountable. In particular, the economists recommend focusing on industries with long-term strategic value while conceding areas like solar panel manufacturing, where European efforts have faltered.

These recommendations have been laid out in a series of five memos presented during the recent Franco-German Council of Ministers meeting. Commissioned by the governments of France and Germany, the memos address key themes such as trade relations with China, energy policy, economic growth, defense strategies, and labor market dynamics.

Prioritizing Strategic Sectors

The economists emphasize the importance of safeguarding sensitive industries such as defense, space, and robotics, which are critical for Europe’s technological and geopolitical autonomy. In contrast, they suggest that mature industries, such as solar panels, be left open to cheaper imports from China. This approach, they argue, allows Europe to allocate its resources more efficiently while focusing on areas where it can still establish a competitive edge.

Jean Pisani-Ferry, a French economist and one of the memos’ authors, highlighted the solar panel industry as a prime example of a sector Europe should forgo. Speaking to French television channel BFMTV Business, Pisani-Ferry explained that Chinese manufacturers have achieved a level of dominance that renders European competition futile.

“Chinese industry has pulled far ahead, and Europe no longer has a viable solar panel industry,” said Pisani-Ferry. “But this isn’t as problematic as it might seem. Solar panels, once installed, don’t create ongoing dependence, unlike energy sources such as gas. It’s a battle we’ve lost, and it’s time to move on.”

Encouraging Collaboration in Competitive Fields

For industries where Europe aims to maintain or enhance its competitive standing, the economists advocate for a technology-for-market approach. This strategy would encourage Chinese investments in critical technologies, such as batteries, while ensuring technology-sharing agreements with European stakeholders.

Despite longstanding discussions about requiring Chinese companies operating in Europe to transfer technological know-how, no concrete measures have been enacted. For instance, France has introduced generous tax credits of up to €200 million (approximately $234 million USD) to attract foreign investment in its battery sector, but these incentives come with no stipulations regarding technology-sharing.

French President Emmanuel Macron has championed such initiatives as part of his broader vision to revitalize industrial regions. During a visit to the Chinese company Envision’s battery plant in northern France this past June, Macron lauded the project as a symbol of his administration’s push to reindustrialize Europe’s so-called "rust belt."

Strengthening Europe’s Battery Industry

Following the Franco-German council meeting, both Paris and Berlin reaffirmed their commitment to bolstering the European battery industry. They pledged to enhance the sector’s competitiveness and explore bloc-wide preference schemes for critical industries. These measures, which include public procurement strategies, aim to position Europe as a leader in the production of key industrial goods.

The economists’ recommendations highlight the need for Europe to adopt a pragmatic and forward-looking industrial policy. By selectively supporting industries that offer strategic value and embracing collaboration in others, Europe can better navigate the challenges posed by Chinese competition while safeguarding its long-term interests.

This strategic shift reflects a recognition that Europe’s economic resilience depends not on competing in every sector, but on excelling in the right ones.