The EU has been a classic free trader by its very nature as an economic bloc. However, Trump’s trade war against its closest ally, China’s increasing willingness to coerce other countries economically, and especially Russia’s war of aggression against Ukraine has shaken the EU’s confidence. Therefore, the quest for an EU-wide economic security approach has recently been high on the agenda.

In response to geopolitical developments over the past few years, the EU has overhauled its defensive toolbox at lightning speed, e.g. by introducing an instrument against economic coercion and putting forward new industrial policies like the CHIPS Act to become less dependent on other countries for critical inputs and more resilient to the weaponisation of economic relations.

The European Economic Security Strategy proposed on June 20th by the European Commission appears to be a logical step to take it from there, especially after the strong statement on economic security made by the G7 leaders in Hiroshima in May.

However, on the same day the Strategy was proposed, German Chancellor Olaf Scholz met with Chinese Prime Minister Li Qiang in Berlin for the 7th Sino-German intergovernmental consultations. The meeting had a strong business-as-usual tone and left many wondering how seriously Germany, as a leading economic power in the EU, is taking the Zeitenwende in regard to critical dependencies on China and other countries. The meeting also raised questions on how strong the support for the newly-proposed Economic Security Strategy is among Member States.

What is in the strategy?

The Strategy is an attempt to create a common understanding of economic security and to build a more cohesive EU approach to the topic. This is rather new and unfamiliar for the EU and its Member States, some of which, e.g. Germany, have had the propensity to treat economics and security in separate realms, though overlaps were not completely avoidable.

The aim, therefore, is to “provide a framework for a robust assessment and management of risks to economic security at EU, national and business level while preserving and increasing our economic dynamism.” The Strategy broadly identifies the following four major risks to European economic security:

  1. Resilience of supply chains
  2. Physical and cyber security of critical infrastructure
  3. Technology security and technology leakage
  4. Weaponisation of economic dependencies or economic coercion

Measures to assess and reduce these risks are centred around three pillars, which for the first time, cluster already existing or implemented measures related to economic security in the EU. There is also a need to enhance some of these measures as well as prospective new instruments including:

  • Promoting the EU’s competitiveness and growth, strengthening the Single Market, supporting a strong and resilient economy, and fostering the EU’s research, technological and industrial base, especially regarding green tech and semiconductors.
  • Protecting economic security through a range of policies and tools, including targeted new instruments where needed. Better coordination and aligning export control regimes to prevent the outflow of sensitive technology as well as a review of the inbound investment screening framework are mentioned as already existing policies to achieve this. A strong call on Member States that have not done so yet (9 out of 27) to put an inbound investment screening in place.
  • Partnering and further strengthening cooperation with countries worldwide to foster economic security, notably by working with reliable partners, such as the G7 countries, to address shared security concerns through diversified and improved trade agreements, strengthening international rules and institutions, and investing in sustainable development.

The Strategy generally takes a country-agnostic approach and is thus not solely directed at China, as some observers may think. The idea of an anti-coercion instrument (ACI), for example, goes back to the Trump era. As 2024 might again bring in a less EU-friendly US Administration. The Strategy also addresses transatlantic relations if the need arises. Moreover, reducing critical dependencies was triggered by Russia’s war against Ukraine in particular, and also by the Covid19 Pandemic.

What is missing and why?

A clear definition of “economic security” is not given in the Strategy, though there is a brief reference to the G7’s attempt to provide a definition. The question, therefore, remains whether all Member States will be able to draw a clear and common understanding of what economic security means from this document or if they have started talking about a concept which could mean something different for each of them. This is especially important when considering that the securitisation of economic activity has many red flags for some Member States.

The Strategy lacks binding commitments and regulations in some areas, such as coordination of export control and outbound investment screening, but only promises that more documents will be issued in the course of this year.

This is understandable to a certain degree since its aim is to offer a framework and quite a few of the issues it covers still lie in the competence of the Member States, which need to be engaged intensely in the coming process. Lengthy discussions are bound to follow, especially regarding a new tool for outbound investment screening, which is far from a done deal.

At the end of the day, the European Union is a 27-member bloc and not a sovereign state. It is often even hard to ensure smooth coordination among the three key EU institutions, let alone getting 27 individual states with their own range of vested interests and political actors on the same page.

It is interesting to note that as opposed to Russia, which is mentioned three times throughout the Communication, China seems to be “the country that must not be named”.  Still, there are direct links between the China speech made by Ursula von der Leyen in March and the European Economic Security Strategy, such as the potential need for outbound investment screening to prevent civilian technology from being used to enhance military capacities.

Looking at how a close ally deals with economic security

To better understand how the EU could develop its newly discovered economic security effort and what is possible, a look at Japan is worthwhile. Japan introduced the Economic Security Promotion Act (ESPA) in 2022, which is based on incentivising and intervening at the same time: On the one hand, ESPA contains measures to incentivise private sector companies to diversify their supply chains in certain critical goods, such as chips or batteries, by financially supporting corresponding corporate strategies.

On the other hand, the state is given the means to intervene in the software, hardware, and services companies use, which have been identified as “too big to fail” in critical infrastructure. It is also part of ESPA to have patents undergo a security review, which might lead to non-disclosure in the case of sensitive technology.

Moreover, Japan introduced its very own Ministry for Economic Security. While such a step might be premature for the EU at this point, having an Economic Security Commissioner at some time in the future might be worth considering.

Is the European Economic Security Strategy a Zeitenwende? Yes and no.

The proclamation of the Strategy itself is indeed a Zeitenwende in the EU’s trade and investment policy. However, it lacks the specifics of some of the measures proposed, which, given interference with Member State competences, cannot deliver to this point – yet.

Therefore, the discussion on how to shape and implement this Zeitenwende and corresponding policies at the EU and Member State level practically has yet to be discussed in detail.

Publishing the Strategy, therefore, is only the beginning of the EU’s journey towards a more coordinated and cohesive approach towards the bloc’s economic security. Taking a page from Japan’s playbook might be worthwhile during this process.

About the author

Cora Jungbluth is a senior expert in the Europe’s Future Program at the Bertelsmann Stiftung. Her research focus is foreign direct investment and international trade (especially the role of emerging economies). Her research focus is on China, foreign direct investment and international trade (especially the role of emerging economies).

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