The pandemic has shed a harsh light on the geopolitics of supply chains. Europe is finally taking the measure of how asymmetric interdependences are jeopardising the resilience of the Single Market and of industrial ecosystems. Redrawing the balance of power is an arduous process that relies on diversification but not only. It entails a multi-fold response for which the European Union is paving the way.
Over two thirds of the European cloud market are concentrated in the hands of a few American providers while 96% of solar wafers are produced in China. This goes to show how Europe’s path towards digital leadership and green transformation is strewn with overreliances. From basic raw materials, such as magnesium, to high-tech products, like semiconductors, we need to take our industrial and economic destiny in our own hands. Times are changing: for the past two years, Europe has been updating its software, based on a more assertive industrial policy to help us tackle our dependences more effectively.
Managing our dependences starts with understanding them better. In its 2021 industrial strategy update, the Commission undertook an unprecedented in-depth analysis of Europe’s dependences in the most strategic sectors, such as critical raw materials, active pharmaceutical ingredients or semi-conductors.
We are keeping up the pace: in a few weeks, we will present new in-depth analyses for additional key sectors, such as solar panels, cybersecurity, construction products or streaming services. Only with this crucial knowledge will we be able to anticipate and provide adequate policy tools to address disruptions and shortages along supply chains.
Among these policy tools, diversification is key. The European Union can team up with international partners to strengthen supply chains and diversify imports. We can already draw from a great deal of experience diversifying our sources of supply, for example the strategic partnerships on raw materials with Ukraine and Canada. Cooperation with African countries has also gained momentum with the recent EU-African Union Summit, where both continents committed to laying the ground for more integrated, sustainable and resilient raw materials value chains.
In parallel, it is paramount that Europe also invest in its own industrial capacities. To this end,
Industrial alliances have proved to act as catalysts for identifying the most pressing needs – in particular in terms of investment – and for championing the most game-changing projects, including Important Projects of Common European Interest.
This collective effort is bearing fruit: on batteries, for example, Europe has invested three times more than China in the last few years, with twenty gigafactories coming up. Regarding hydrogen, 750 projects are now in the pipeline, ready to emerge by 2030, while in the cloud sector, 40 European IT companies have devised a roadmap to develop the next generation of data processing technologies.
When striving to pool the right resources for the right projects, Europe should also pay particular attention to deep tech capital venture, often a decisive factor for scaling up breakthrough innovation and staying in the technological race. With only 7% of the global cohort of unicorns based in Europe, we are still lagging behind. The European Innovation Council, created last year under Horizon Europe, should help us close the gap: only for 2022, 1.7 billion euros will give innovators a strong leg-up to take their technological knowhow out of the sandbox and create new markets, for example in quantum computing, the next generation of batteries and gene therapy.
We have entered a new industrial era, where global value chains become geopolitical instruments. Europe is ready to defend its interests. Prevention of distortive foreign subsidies, foreign direct investments screening mechanism, anti-coercion instrument, standardisation strategy: the Commission is gradually fleshing out Europe’s regulatory arsenal against ill-intentioned or inhibiting third countries.
These measures express a more assertive and worldly stance, already perceived last year when the Commission put in place a vaccine export-control scheme, to offset the “America First” vaccine strategy and lift the ensuing blockages that were hampering the fight against the pandemic. The rebalancing of global supply chains is on track.
Addressing dependences requires a 360° policy angle, based on constant monitoring, partnerships, strategic investment and a robust regulatory framework. The Commission’s proposal for a European Chips Act, presented in February, epitomises this comprehensive approach. Accelerating the transition from research to the factory, investing in European mega factories, promoting international partnerships, ensuring security of supply in case of crises: our entire toolbox is mobilised to create a state-of-the-art European chip ecosystem.
Openness, but on our conditions: this is Europe’s management of interdependence in global supply chains.