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After thirty years of quite peaceful coexistence between the economic and geopolitical spheres (1990-2020), the former is being overtaken by the latter as competition between Great powers returns. This is taking place in a hitherto unknown context, due to two essential characteristics: firstly, an unprecedented level of global economic and technological interdependence, and secondly, the common constraint of climate transition, implying both coordination in response and increased competition for access to the necessary scarce resources.
Against this backdrop, the “European Economic Security Strategy“, published on June 20, 2023 by the European Commission and the High Representative for Foreign Affairs and Security Policy, sets out the challenges facing the European model in the current global competition, and offers Member States guidelines for adapting the European Union to meet these challenges over the long term. The importance of this document is further underlined by the State of the Union address given by the President of the European Commission, Ursula von der Leyen, in Strasbourg on September 13, 2023, who used the expression “economic security” for the first time in this type of speech.
What is “economic security”? In the early 2000s, the term was linked to welfare economics, with work at its heart: the concept reflects the degree to which people are economically protected against the risks of losing their income (unemployment, illness, retirement). In 2004, for example, the International Labour Office (ILO) devoted a report to the subject entitled “Economic Security for a Better World“, the title of which is sure to make strategic analysts smile twenty years on. The study showed a correlation between individual happiness and “the degree of income security, measured in terms of income protection and minimization of inequality”. Social protection and the nature of employment contracts were at the heart of the possible response to economic insecurity. What is the current state of the debate in a context of heightened competition between major powers? We are not that far from the original definition: it simply applies to entire states, not just individuals. In fact, what is the “degree of economic protection of a State against the risks of loss of its revenues taken as the sum of the economic activities taking place on its territory”? This would be my proposed definition.
But what significance does this have within the unique framework of the European Union? The European Commission is intended to deal with economic issues, which are at the heart of its exclusive and shared competences. However, while the economy is the Commission’s by right, security remains the responsibility of the Member States. The Common Security and Defense Policy was developed within an intergovernmental framework, in which the Commission is not empowered to issue proposals on its own. Beyond its immediate operational consequences, this European Economic Security Strategy raises a powerful question about the European model as it exists today: is it adapted to this new situation? By integrating the economy with national security, the competition between China and the United States calls into question the balance of European construction established in 1957, and raises the issue of redefining roles and responsibilities within the European Union. We will begin by outlining the background to the drafting of this joint communication, then analyze its various elements before presenting its full implications for the European Union and its Member States.
The end of the three decades of “happy globalization” is reflected in the integration of the economy within national security.
Without attempting here to retrace the revival of power logic at work in recent years, and in particular the genesis of Sino-American competition, it is important to recall the context in which the European Commission’s initiative in favor of economic security is taking place. On October 12, 2022, the U.S. National Security Strategy (NSS) was released and presented by National Security Advisor Jake Sullivan at Georgetown University. This document concludes that the structural interweaving of national security and the economy will be the key challenge of the world to come, marking a clear break with the post-Cold War period (1990-2020). Of course, this is not a new observation, and the twin crises of COVID-19 and the Russian invasion of the Ukraine have served as an eye-opener and gas pedal. Nonetheless, the fact that the United States of America, the world’s leading power, has officially taken note of this fact materializes the shift to another environment to which new rules apply, as I explained in an article from January 2023 (in French).
Counter-intuitively for the European public, the NSS 2022 is a harsh assessment of the globalization of economic exchanges over the past thirty years: it denounces the existing rules on trade, designed to privilege corporate mobility over workers and the environment; the limits of free-market that is unable to respond to the sustained pace of technological change, disruptions in supply chains and the worsening climate crisis; the race to the bottom in corporate taxation at global level, which needs to be remedied by a global minimum tax. The NSS 2022 also denounces China’s non-market posture: China “benefits from the openness of the international economy while limiting access to its domestic market, and it seeks to make the world more dependent on the PRC while reducing its own dependence on the world”. From then on, the key issue becomes the security of supply chains, which implies, for a number of strategic products, a decoupling between China and the United States. The economy becomes an integral part of national security, through the concept of economic security.
Based on this strategy, the United States has implemented a two-pronged policy: on the one hand, to decouple from China in a number of critical technologies listed in the NSS (“microelectronics, advanced computing and quantum technologies, artificial intelligence, biotechnology and biomanufacturing, advanced telecommunications, and clean energy technologies”) and, on the other, to convince its allies to align their practices. Sullivan’s “small yard, high fence” doctrine has provoked lively debate, as its scope of application seems so vast, encompassing almost all the technologies of humanity’s future around an anti-Chinese rhetoric. On March 30, 2023, the President of the European Commission Ursula von der Leyen introduced the more balanced concept of “de-risking”. The term comes from the financial world, which defines it as “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk”. It is this idea of risk mitigation that should be retained, although no text has officially defined the term in the context of strategic competition. As for the persuasive work of the United States’ allies, it was expressed in particular through the G7 and led, at the Hiroshima Summit of May 19-21, 2023, to the establishment of a shared vision of what economic security encompasses. This “G7 Leaders’ Statement on Economic Resilience and Economic Security” covers seven areas: supply chain resilience, critical infrastructure resilience, responding to non-market policies and practices, addressing economic coercion, countering harmful practices in the digital sphere, cooperating on international standards setting, and preventing leakage of critical and emerging technologies. It has the merit of seeking to formalize the constituent elements of economic security in order to limit its scope and avoid applying the notion to any economic situation. The notion of “de-risking” is officially included in the G7 communiqué, a sign of the consensus that has developed around it, although it is still not defined.
Nevertheless, the ASML affair demonstrated, as early as January 2023, that the USA was also prepared to impose its views on its allies through coercion. Let’s go back to the facts: following the introduction on October 7, 2022 of highly restrictive national measures concerning the export of semiconductor technologies to China, the United States put pressure on the Dutch government to ban the export of photolithography machines for the semiconductor industry (photolithography consists in etching integrated circuits onto silicon wafers, the raw material used by semiconductor manufacturers, and ASML is the world leader in this field). The Netherlands, reluctant at first, finally acceded to the US demand, announcing the expected export restrictions from September 1er 2023, and sparking a vigorous debate within the European Union around three issues.
First, there is the issue of consistency: if this decision is taken unilaterally on the grounds of Dutch national security, any retaliatory measures taken by China will only make sense against the European Union as a whole, due to the single market. Moreover, if China files a claim at the World Trade Organization (WTO) against the introduction of this new export control, it will be the European Commission, under its exclusive trade competency, which will have to defend the Dutch national measure. Second, there is the issue of autonomy: the Netherlands has had no room for maneuver vis-à-vis the United States, and ASML has obtained nothing in exchange for the resulting loss of market share. In a seminar, Belgian Prime Minister Alexandre de Croo expressed the feeling shared by many European officials that they had been “bullied” by the United States, which had not engaged in any serious consultation process, but had imposed its views on the matter. Third, there is the issue of coordination: ASML, like all companies, has a network of suppliers in Europe, particularly in Germany (optics, lasers, chemical components), and research partners (French Atomic Energy Commission, Belgian Imec). What about direct purchases by China? How coherent is the policy pursued at European level, given that the single market favors the interweaving of companies? Whether or not we are in favor of the measure presented here, can European export control policy for semiconductors be determined by an American-Dutch agreement drawn up under pressure?
The European Union, World’s third economic power, is deploying an economic security strategy in in order to face the threat of “technological drip-feed restriction”
The ASML case demonstrates the nonsense of Europe’s disarticulation when it comes to economic security. It has led to what I would describe as a “drip-feed restriction” approach to the export of technological goods, based on extra-European injunctions. It raises the question of European decision-making autonomy in technological and trade matters. Again, technology is synonymous with security, and therefore with the responsibility of Member States, whereas trade is an exclusive competence of the European Commission, embodied by the Airbus-Boeing dispute, which demonstrated the latter’s ability to defend European interests against the United States.
European decision-makers, at both national and EU level, became aware of this vulnerability thanks to the two successive shocks of COVID-19 and Russia’s aggression against Ukraine. The pandemic led to massive disruption of supply chains in the healthcare sector, from masks and respirators to active pharmaceutical substances and vials, a disruption that spread to other economic sectors as a result of confinement. The war in Ukraine led to the disruption of Russian gas and grain supplies, although many other products and sectors were, and still are, affected. In each case, the European Union’s most massive reaction was ultimately that of the Commission, whether through joint purchases of vaccines and the lifting of competition rules for pharmaceutical companies, or the establishment of solidarity lanes to secure Ukrainian exports and diversify away from Russian energy dependency.
At the European Council of December 16, 2021, the Heads of State and Government of the 27 Member States agreed on a proactive approach: “In the face of increased global instability, growing strategic competition and complex security threats, the EU will take more responsibility for its own security and in the field of defence, pursue a strategic course of action and increase its capacity to act autonomously.” Two weeks after the attack on Ukraine, on March 11, 2022, the 27 Heads of State and Government of the European Union adopt the Versailles Declaration, as part of the French Presidency of the European Union. This document covers three dimensions: “a) Bolstering our defence capabilities; b) Reducing our energy dependencies; and c) Building a more robust economic base.” The aim of the third point is to reduce Europe’s strategic dependence in the most sensitive sectors (critical raw materials, semiconductors, healthcare, digital technology, food products – a list that is likely to be adapted according to political orientations), and to develop industrial policy and trade defense instruments.
Based on this political impetus, the Commission has set to work. At the European Conference on Defense and Security on October 11, 2022, European Commissioner for Internal Market Thierry Breton stressed that a true Defense Union “is to extend the notion of security and defence to new sectors”, explicitly pointing to four areas: cyber, space, critical infrastructures and technological superiority. The first half of 2023 saw an acceleration in the Commission’s initiatives, notably with the draft European regulation on semiconductors proposed as early as February 2022, which came to fruition in April 2023 (EU Chips Act), the proposal for European legislation on critical raw materials presented on March 16, 2023 (European Critical Raw Materials Act), or the final political agreement on the Anti-Coercion Instrument (ACI) on June 6, 2023. Nevertheless, the growing importance of responding to strategic competition and crises, as well as the multiplication of measures and their fields of application, have generated the need for a global and coherent approach.
This is the aim of the European Economic Security Strategy, published on June 20, 2023 as a joint communication from the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy. Mentioning the concept of economic security 69 times in 17 pages, the document takes note of Europeans’ inadequate preparation for the new geopolitical context and the merging of the economy and national security. The challenge is summed up in a remarkable paragraph (p. 2): “While the European Union has done a lot to respond to specific challenges in recent years, it now needs a comprehensive strategic approach to economic security, de-risking and promoting its technological edge in critical sectors. The aim 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. This is all the more important to put in place at a time when these risks are both evolving rapidly and merging with national security concerns. A prime example of this is the speed with which critical new technologies are emerging and blurring the boundaries between the civil and military sectors.”
The Strategy identifies four main risks: “(1) resilience of supply chains; (2) physical and cyber security of critical infrastructure; (3) technology security and technology leakage; and (4) weaponisation of economic dependencies or economic coercion. These risks can occur along the entire value chain, from knowledge creation and basic research to commercialisation and manufacturing at scale.” This has led to three areas of work designed to address these risks: a) promoting the Union’s economic base, competitiveness and growth (EU Industrial Strategy, legislation on critical raw materials, European semiconductor regulation, etc.), b) protecting against economic security risks (trade defense instruments, anti-coercion instrument, foreign direct investment control regulation, export control, research security, etc.), c) developing partnerships for economic security on a multilateral basis (G7, G20, WTO, EU-specific mechanisms such as Global Gateway). The philosophy underlying these three axes is based on the principles of proportionality and precision.
The founding elements of European integration are revolutionized by the shift to economic security: competition, relationship with the United States, and the State nature of security.
While this European Economic Security Strategy presents an ambitious program for adapting the European Union to global strategic competition, which is an event in itself, its effects are revolutionary in three aspects.
Firstly, it formally puts an end to the dogma of competition in Brussels. As the President of the European Commission Ursula von der Leyen pointed out in her State of the Union address on September 13, 2023, “Competition is only true as long as it is fair. Too often, our companies are excluded from foreign markets or are victims of predatory practices. They are often undercut by competitors benefitting from huge state subsidies”. And she cited China fifteen times to illustrate her point, denouncing unfair practices in solar panels and electric vehicles, announcing the opening of an investigation into the artificially low prices of the latter, which are endangering the European automotive industry, and welcoming the first measures taken in favor of greater independence for the European Union in critical sectors (energy, semiconductors, access to raw materials, bottlenecks in supply chains). She concluded by introducing the concept for the first time in this type of speech: ” This shows why it is so important for Europe to step up on economic security.” In a speech that was part of the political campaign for the European elections of June 2024, without losing sight of her own possible renewal, the emphasis on the concept of economic security is a strong message to a European public eager for protection. It helps to make the European project more acceptable in many Member States, as illustrated by the rapid evolution of the Italian Prime Minister Giorgia Meloni even if it does lead to reluctance within some Directorates-General of the European Commission.
Secondly, this strategy aims to forge a third way between the Chinese model (non-market) and the American model (decoupling). As U.S. National Security Advisor Jake Sullivan succinctly put it in his October 2022 presentation: “Market access has been the orthodoxy of all trade policy for 30 years: it no longer corresponds to today’s challenges.” Significantly, the World Trade Organization (WTO) is not mentioned at all in the National Security Strategy 2022. Without getting into the debate on the scope of the distinction between de-risking and decoupling, which would deserve an analysis of its own, let’s just note the sharp divergence between Europeans and Americans. The European approach maintains its conviction in the usefulness of traditional free-trade agreements and the functioning of multilateral institutions. This is why the European strategy emphasizes the role of the G7, the G20, the UN, the development banks and, of course, the WTO. Contrary to the President of the European Commission speech, the text of the European Economic Security Strategy does not mention any State, neither China nor the United States, as the proposed measures remain indiscriminate. Let’s fully appreciate the meaning of the document (p. 14): ” Even in an environment of strategic rivalry and economic competition, there is scope for international cooperation on common challenges and a need for clear rules guaranteeing fair and open trade, thus putting guardrails on the trend towards “might is right”, economic fragmentation or protectionism.” What an indictment of American policy, from the Inflation Reduction Act’s subsidization of electric vehicles to the ASML affair! Europe’s strategy is as much about rebalancing relations with the United States as it is about protecting the European economy from Chinese aggression, which corresponds both to its own geopolitical positioning and to the expectations of many potential partners (Brazil, India, Indonesia, Canada, etc.).
Thirdly, and most importantly, the introduction of economic security – the integration of the economy into national security – revolutionizes the very model of the European Union as it emerged from the 1992 Maastricht Treaty. Let’s recall the context in which the EU was created by this Treaty: the Cold War just came to an end, offering the possibility of benefiting from the peace dividends, and opening the way to the establishment of an international system based, on the one hand, on international stability guaranteed by the United Nations and American power and, on the other hand, on economic globalization, these two elements having their own sphere between 1990 and 2020 and interacting little during these thirty years. The 1992 framework has survived in the successive European treaties to the present day. It is in accordance with the history of European construction since 1957, but above all it perfectly corresponds to the context of its time: while the European Commission has exclusive competence in matters of customs, competition, currency and trade, it has no competence in matters of security, in the sense of national security, which falls within the remit of each Member State – and therefore the Council of the European Union, acting unanimously when a debate is brought to European level. Each to his own sphere. However, the weaponization of economy for the benefit of security interests of the world’s major powers is transforming this equation, blowing up the historical structuring of the division of responsibilities between the Commission and the Member States. How should we respond? At national level, in view of public opinion’s growing aversion to the dangers of the vast world, and in the hope of retaining control over its decisions, but at the risk of European incoherence and the weakness of most Member States? Or at the EU level, with a further transfer of powers to the Commission? The only certainty lies in the fact that the current division of roles no longer meets the challenges of today’s world, and needs to evolve rapidly.
The coexistence of the economic and geopolitical spheres that characterized the “happy globalization” period from 1990 to 2020 enabled the development of trade by multinational companies within an institutional framework approved by States, in this case the World Trade Organization. The result has been the creation of global value chains, based on a dual rationale of optimizing production costs and specializing corporate activities to enhance their financial value. It has brought clear benefits, both in terms of reducing global poverty, and in terms of lower prices for consumers. With the return of strategic competition, governments are regaining the upper hand by increasingly subordinating the economy, and hence companies, to geopolitical imperatives. While the directions taken by China and the United States are national policy choices, this new context poses a more existential problem for the European model, which is founded on a distinct division of competences between security and economy, the former in the hands of Member States and the latter in the hands of the European Commission. The external shock of Sino-American economic, trade and technological combativeness tends to favor the Europeanization of responses, with the European Union level offering the possibility of securing the most vulnerable States. In the case of ASML, the discussion would have been of a very different nature with the Commission instead of the Netherlands on the other side of the table.
While the iterative methods used to develop European solutions may seem laborious compared to the decision-making process in the United States and given the urgency of moving forward on these issues, the progress made over the past twenty years is nonetheless gigantic. At the time within European Trade Commissioner Pascal Lamy’s cabinet, I can testify that the words “industrial policy” – which he used – were perceived at best as a lack of taste in a Commission ideologically dominated by the Directorate-General for Competition. In April 2022, the answers given by the Director General of Competition, Mr. Olivier Guersent, at his hearing before the European Economic and Social Committee as part of the referral “What ways and means for a real strategic autonomy of the EU in the economic field?” gave me the feeling I had moved into a different spacetime when I heard him utter the words “strategic autonomy”, “fair treatment of our companies in foreign countries”, “subsidies for European projects of common interest”, “control of state aid given by foreign powers”, “complementarity between competition policy and industrial policy in the service of competitiveness”, “being in a world of interdependence and not overdependence”.
However, the relationship with the Member States is not natural on these issues, and the Commission seems to be moving faster than most of them when it comes to economic security. If all the measures proposed in the European Economic Security Strategy are implemented, this will amount to a massive transfer of national security powers to the Commission, by extending its economic and trade powers. Will this lead to greater integration or rejection? The introduction of economic security at EU level has shaken traditional lines within the Commission and the Member States, and continues to do so forcefully. The European Strategy in this area has the merit of raising the right questions to equip the EU with the tools it needs to manage Sino-American competition, in order to be a player and not a hostage.
Olivier Sueur, is consultant in strategic business and public affairs, teaching at SciencesPo Paris and Associate fellow at the Institute for Applied Geopolitical Studies (IEGA). He is a former deputy assistant secretary for NATO, the European Union and the United Nations at the French Ministry for the Armed Forces (Directorate General for International Relations and Strategy – DGRIS), and previously negotiator for France at NATO’s headquarter.