Securing Inputs, Losing Markets: Why Europe Misread the Industrial Contest
IEP BOCCONI ANNUAL EVENT - The EU needs more than secure supplies of critical minerals to compete with China. Industrial partnerships and innovation must be part of its strategy. A commentary by Sophia Kalantzakos
IEP Bocconi Annual Event
At the IEP Bocconi Annual Event in Milan on 18 November, Sophia Kalantzakos will join Clara Poletti, Senior Advisor at the Centre on Regulation in Europe, and Giorgio Tomassetti, CEO of Octopus Energy Italia, for the panel Energy, Climate and the Green Transition: Building Security from the Inside Out.
Moderated by Valentina Bosetti, Professor of Environmental and Climate Change Economics at Bocconi University, the discussion will explore how Europe can strengthen its energy security during the green transition.
For a long time, Europe opted to frame its growing industrial weakness, especially vis-à-vis China, largely as a supply-chain problem. In the name of competitiveness, Brussels endeavored to secure minerals, diversify suppliers and build stockpiles. Both the diagnosis and the response fall short of addressing the true nature of the challenge.
First, Europe’s over-reliance and exposure have been not only to China, its main industrial competitor, but also to the United States. Washington of the post-World War II order is no more. And under the Trump administrations the fissure in the transatlantic alliance is complete.
Second, to compete with its economic rivals, China has openly and for decades been building an industrial ecosystem to upgrade its industrial base from lower-level manufacturing to an innovation-driven economy. The underappreciation of both these conditions, exacerbated in today’s contentious world, has cost Europe dearly. Though efforts at realignment with Asia, Africa and Latin America have begun, Europe still harbors false hope that current world order conditions do not constitute a radical structural change.
Critical minerals have served as the poster child of Europe’s vulnerabilities. China’s restriction of exports of gallium and germanium, and later rare earths and magnet materials, in response to US and European tariffs, exposed Europe’s weaknesses.
The Critical Raw Materials Act, strategic projects, joint purchasing and, since December 2025, the RESourceEU plan and a pilot for stockpiling followed. At the June 2025 G7 summit, Ursula von der Leyen presented a rare earth magnet made in Estonia from non-Chinese inputs to restore confidence.
Securing an input, however, is not the same as winning a market. China had developed a consolidated industrial supply chain that included mining, refining, components, manufacturing, infrastructure and final products. It was a long-term strategy that paid off, giving the PRC a decisive lead in affordable EV production, batteries and renewables, as well as AI and robotics.
The trade figures tell the story. In 2025, trade in goods between the EU and China reached about €760 billion, but the balance was heavily one-sided: Europe ran a deficit of almost €360 billion. In vehicles and parts, the EU now buys almost twice as much from China as it sells there.
The Electric Car Test
The car industry is the case that proves the point. Electrified cars now account for close to half of new car sales in Europe. For European carmakers, these sales are growing, but more slowly than they planned and at thinner margins than combustion cars.
The deeper problem lies in China, long their most profitable market, where buyers have turned to local brands. Chinese cars often offer more range, faster charging and more technology for the same price. European industry tends to explain its difficulties through high energy and labor costs and fragile supply chains. These matter, but they miss the larger point: Chinese manufacturers are innovating faster.
With the United States all but closed to Chinese electric cars by 100 percent tariffs, Europe has become their main Western market. When Brussels imposed its own countervailing duties on Chinese battery-electric cars in 2024, Chinese firms moved into plug-in hybrids, which the duties did not cover, raising their share of that market from 2 to 25 percent in the first half of 2026.
The battery story is even more sobering. Northvolt collapsed. Plans for a gigafactory at Termoli were shelved. Some of the largest battery plants now rising in Europe belong to Chinese firms. No stockpile of lithium would have changed this outcome.
The multiple crises and skyrocketing costs of energy for Europeans have exacerbated the problem. These costs are compounded by soaring re-armament budgets and now the runaway investment in the AI race. All of these claim the same public money, the same electricity and the same grid connections. Governments keep responding with temporary state aid and emergency measures, and few are honest with voters about the total bill.
Beyond Defensive Tools
It’s time for a reckoning. Industrial policy is not limited to subsidies, tax breaks, tariffs, export controls and stockpiles. Europe has used all of them. They are defensive tools that buy time at best. What Europe has avoided is the harder discussion about where it can realistically compete and with whom.
Clearly, Europe cannot compete with China by excluding it, nor can it afford to treat China only as the supplier of finished goods that it then taxes at the border. History offers a useful example. In the 1980s and 1990s, Volkswagen and other Western firms entered China through joint ventures that required local production, local suppliers and the transfer of know-how.
The roles have now reversed. Europe should invite Chinese capital, technology sharing and joint ventures on European soil, with clear conditions on local content, research, skills and employment. The understanding reached in Beijing in October on hybrid exports and rare earth licensing shows that market access and industrial access can be negotiated together.
Co-production can extend further. The Gulf states have sovereign capital, abundant energy and a clear ambition to build positions in clean technology and AI. Southeast Asia is becoming a manufacturing hub in its own right. Africa and Latin America hold many of the minerals Europe needs, and their governments seek processing and manufacturing at home. Europe can offer long-term finance, standards, market access and a partnership that leaves value in the producing country.
And as for energy? Europe must continue diversifying its energy mix toward renewables because relying on fossil fuels, whether from Russia, the US or the Gulf, has been its Achilles heel. Holistic action, mobilization and clear goal-setting should drive strategy under the new conditions of interdependence. EU competitors are not “enemies” but partners to work with.
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
