Thursday, June 20, 2024

Evaluating Europe’s Economic Security Strategy

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“In today’s global politics, if you are not sitting at the table, you are probably part of the menu.” This phrase is increasingly common around the corridors of the European Commission in Brussels. It corresponds with the idea that the European Union, sometimes characterized as an herbivorous power that performs well in a cooperative, rules-based world, needs to learn to use the language of power and adapt to an international reality characterized by great power competition. Otherwise, it risks being devoured by carnivorous powers willing to use hard power, break multilateral rules, and weaponize interdependence.

The European Union’s great unfinished business is still to equip itself with the tools of “hard” security and collective defense. But since this requires a much deeper level of political integration, the European Union has started to create instruments to protect its economic security and reduce the risks associated with globalization. The Europeans coined a new phrase—“de-risking”—which the Biden administration has readily adopted. De-risking refers to the U.S. relationship with China, supplanting the reviled “decoupling,” which implies de-globalization and, therefore, enormous economic costs. De-risking occupies a primordial place in the European Economic Security Strategy, which was published in June and discussed at the June 2023 European Council meeting. The concept also features prominently in Germany’s Federal Government Strategy on China, released in July 2023.

The European Economic Security Strategy was drafted jointly by the European Commission and the high representative for foreign affairs; it is intended as a guide for the European Union to promote the competitiveness of its industry, protect itself from external threats, and forge partnerships with other countries. The publication is an important step forward for the European Union, which until now did not link economic issues to security and foreign policy, as other great powers have always done, and had an optimistic view of globalization. In fact, in the United States, China, Russia, or India, where nationalism and concerns about economic security are on the rise, the link between foreign economic policy and geopolitics has always been explicit. But the practice of economic statecraft is not straightforward in the European Union. It is still far from being “the United States of Europe” and therefore must coordinate the position of 27 countries in a context where some competencies (such as trade) are decided in Brussels while others (such as foreign policy or national security) are still decided in national capitals. 

In recent years, and quite reluctantly, the European Union has begun to fine-tune its foreign economic policy tool kit. It has adopted an investment screening mechanism, an anti-subsidy policy, an anti-coercion instrument, and a carbon border adjustment mechanism (CBAM) to ensure a level playing field and promote the fight against climate change. But it has also tried not to make anyone uncomfortable. In fact, it speaks about “open” strategic autonomy while it continues to claim that all its measures are compatible with the World Trade Organization (WTO). However, Covid-19 and the Russian invasion of Ukraine have caused the European Union to wake up from its liberal dream and to start taking economic security more seriously, even reassessing the advantages of globalization. These recent shocks have shown the public with tremendous harshness that economic interdependence can be weaponized, from the field of health (masks and medicines) to the field of energy (gas and oil). And there is an emerging consensus in Brussels that threats are multiplying and that the European Union cannot be taken by surprise again.

The European Union maintains that its strategy is not designed against anyone and that it does not aim to slow down the development of other countries. In fact, the “country-agnostic” approach has become a central feature of EU foreign policy, particularly when compared with the U.S. strategy that puts China at the center of its geostrategic focus. Moreover, the European Union insists that further cooperation through new free trade agreements and WTO reform is an integral part of its economic security—and also demonstrative of its philosophical belief in the value of multilateral institutions.

Although observers are quick to claim that the conspicuous absence of China in the Economic Security Strategy underscores a core weakness of the European Union, it more likely denotes a fundamental difference in security considerations between the United States and European Union. Both are living in drastically different threat environments at the moment. The United States views China as an imminent economic and security threat—and a challenge to generations of hegemonic power and the Washington Consensus—but Brussels is confronted with a war at its doorstep and a Russia that has weaponized interdependencies and flagrantly violated international law. 

Despite this key difference, overall, the Economic Security Strategy represents clearer alignment with the new economic doctrine of the Biden administration, which National Security Advisor Jake Sullivan and Treasury Secretary Janet Yellen have recently articulated. In fact, the EU proposal to establish export controls on specific technologies is modeled on the U.S. decision of last October, which the Netherlands and Japan, important players in global semiconductor supply chains, also adopted. It remains to be seen whether the European Union will also follow the United States in the establishment of an outbound investment screening mechanism, something which many of its member states oppose for fear of Chinese retaliation and because the tool could lead to the fragmentation of the world economy.

The Economic Security Strategy does not entail the adoption of concrete measures. It is intended as the start of a conversation in which all member states, including those most reluctant to align blindly with Washington, will participate. It serves, overall, as an attempt to outline various categories of economic threats to the European Union, further underscoring that geopolitical risk has begun to bleed into almost every policy domain.

In the coming months, the European Commission will scrutinize the risks associated with the resilience of supply chains (including energy security), physical and cyber security of critical infrastructure, technology security and leakages, and the weaponization of economic dependencies or coercion. It will create expert groups to assess which are the most crucial dangers, and it will propose ways to coordinate member states’ decisions to avoid a divergence of policies that would make the European Union vulnerable. This is likely to lead to more tensions between member states.

But beyond internal European dynamics, it remains to be seen how China will react to a stronger transatlantic economic security posturing, to what extent future European measures are WTO compatible, and if these measures are perceived by others as protectionism in disguise, which will greatly complicate the revival of the multilateral rules-based system that the European Union keeps saying it intends to promote. Another outstanding question is to what degree the European Union is designing these economic security strategies with the United States in mind. After all, the EU anti-coercion instrument was designed during the Trump administration as a defensive trade capability for the European Union. With potential political power shifts on the horizon in the United States, the European Union is hedging its risk by bolstering its bloc-wide security tool kit.

The world is facing an economic paradigm shift. The “win-win” vision embedded in the liberal idea of comparative advantages is giving way to one in which relative gains and losses in relation to perceived rival powers matter more. If the European Union itself claims that economic security, energy autonomy, resilience of supply chains, or technological supremacy are now as or more important than maintaining open markets and increasing efficiency, then something profound is changing in the global political economy, and Europe should adapt better, and quickly.

Federico Steinberg is visiting fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C., and a senior analyst at the Royal Elcano Institute. Emily Benson is director of the Project on Trade and Technology and senior fellow of Scholl Chair in International Business at CSIS.

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