European Economic Security Strategy and Its Impact

The EU has long been seen as a major force for multilateralism and free trade due to its open and liberal economic policies and single market. However， that changed in June 2023 when the European Commission unveiled the European Economic Security Strategy for the first time. This strategy identified economic risks to the EU， and proposed solutions and action plans to address these risks， reflecting the EU’s new understanding and thinking on economic security. In January 2024， the Commission took a step further by publishing its economic security package which introduced five new initiatives with the aim to strengthen economic security. The strategy shows EU’s changing view on the global political and economic landscape， and has important ramifications for the European Union， its external relations， and global economic dynamics.

Background

The economic security strategy begins with the economic security situation facing the EU， highlighting three challenges， namely the COVID-19 pandemic， the Ukraine crisis， and growing geopolitical tensions， and lays out pathways to address the new risks. The Joint Communication on a European Economic Security Strategy published by the European Commission and European Union High Representative Josep Borrell underscores the importance of minimizing risks in the context of increased geopolitical tensions and accelerated technological shifts. The economic security strategy shows the EU’s reflections on economic dependence as well as its concerns about the geopolitical situation.

I. Economic Concerns

The immediate reason for releasing the economic security strategy is concerns over economic dependence. A shortage of strategic products and disruption of the supply chain during the COVID-19 pandemic forced the EU to assess its economic dependence. The EU Industrial Strategy updated in 2021 identified 137 products which the EU was highly dependent on foreign sources. The Ukraine crisis further heightened its concerns. On the one hand， the EU is highly dependent on Russian energy resources. The European Commission had to take measures to ensure energy security just a month after the outbreak of the crisis. Dependence on a single non-EU country for critical raw materials is even more alarming. That is why the Critical Raw Materials Act has been adopted. On the other hand， being increasingly worried about economic dependence being weaponized in the context of the COVID-19 pandemic and the Ukraine crisis， the European Commission proposed to create an anti-coercion tool in 2020 and later adopted the Anti-Coercion Instrument.

Since 2016， the EU has been deeply concerned about its relative decline in strength. On economy and trade， its Open Strategic Autonomy ensures the capacity to make autonomous economic and trade policy while acknowledging economic interdependence. On emerging technologies， the EU is aware that it is lagging behind China and the United States. Traces of its anxiety and sense of insecurity can be found in the European Chips Act. All-round economic anxiety is the root cause of the economic security strategy that goes beyond the EU’s traditional policy framework. However， European integration based on the single market and free movement of factors keeps the EU from sliding further towards unilateralism. That is why the Union remains quite cautious， stressing “resilience”， “cooperation” and “open strategic autonomy” in an attempt to strike a balance between efficiency and security.

II. Geopolitical Considerations

Within the EU， economic security has increasingly become an important issue in the political agenda of major European countries. France has been championing “economic sovereignty” and “technological sovereignty”， opposing long-arm jurisdiction， and promoting EU strategic autonomy. Germany has adopted its National Security Strategy for the first time， putting forward the concept of integrated security and taking a resilient and competitive economy as the pillar for security. Following the footsteps of France and Germany， the EU launched its economic security strategy as a response to the calls of member states. The strategy can close the potential loophole resulting from a policy mismatch among member states， and give the EU a greater say in economic policy making. It can also be seen as a continuation of EU’s transition to a geo-political group which started when President von der Leyen proposed a geopolitical commission soon after taking office.

Externally， the turbulent geopolitical landscape and volatile world economy have made economic security issues more acute. Firstly， the EU has to reflect upon its economic dependence in the context of the ongoing Ukraine crisis. Secondly， the union has been deeply troubled by U.S. unilateralism which has not gone away despite a change of government. An example is the Inflation Reduction Act which aims to attract European companies with subsidies. Worse still， the possible comeback of Donald Trump may bring new frictions over the tariff. Thirdly， the EU faces intense competition from China which has been viewed as an economic competitor and a systemic rival since 2019. The dependence on the Chinese economy is often mentioned in the same breath as dependence on Russia. Finally， the securitization of economic issues is partly driven by America’s economic containment policy against China. The United States has been pressuring its allies to decouple from China economically and technologically. Faced with security “threats” concerning trade， investment， technology， raw materials， among other things， the EU finds it necessary to unveil a comprehensive economic security strategy in addition to the existing policy tools such as the framework for foreign direct investment review and the Digital Markets Act.

Outline and Features

Though entitled European Economic Security Strategy， this strategy fails to define the boundaries of EU’s economic security. Instead， it is more focused on risks and “de-risking” solutions.

The strategy identifies four risks that the EU needs to confront： resilience of supply chains， security of critical infrastructure， technology security， and economic coercion， and proposes a risk identification mechanism led by the European Commission. Founded on a three-pillar approach of “enhancement”， “protection” and “cooperation”， it seeks to enhance the EU’s competitiveness through technology Ramp;D， better infrastructure and a strengthened single market， protect economic security through the adoption and refinement of policy instruments， and foster global partnerships by working together with like-minded countries to improve trade agreements， reform the World Trade Organization， and implement the Global Gateway strategy.

The strategy also sets out 11 action plans covering different fields and economic actors. On risk assessment， member states will jointly establish an EU-wide economic security risk assessment framework and draw up a list of critical technologies. The Single Intelligence Analysis Capability （SIAC） will be used to identify potential threats to European economic security. On investment， the EU foreign direct investment screening framework will be applied to review risks concerning FDI. On technology， critical technologies will be developed through the Strategic Technologies for Europe Platform （STEP） with a particular focus on Ramp;D of dual-use technologies. At the same time， further steps will be taken to fully implement the regulation for the control of exports of dual-use items. In addition， the EU also encourages due diligence and risk management on the part of enterprises as well as global cooperation and partnerships on economic security.

The defining features of this economic security strategy are comprehensive， aggressive， conservative， and flexible. Its comprehensive nature is manifested in three aspects. First， it covers extensive areas including economic and trade policy tools， technology Ramp;D， information security， and even emerging sectors as shown by the introduction of the Artificial Intelligence Act. Second， multiple stakeholders are identified in the strategy. It calls for the involvement of EU institutions in developing risk assessment tools， closer coordination among member states to close loopholes， participation of the private sector， and stronger global partnerships. Third， it is comprehensive in terms of policy tools. The strategy aims for a whole-process security guarantee mechanism starting from research and development to due diligence in relation to production and further to export control， which is quite different from the past approach characterized by specific and responsive policy tools. In the same vein， the proposed action plans also seek to address both symptoms and root causes with defensive policy tools for immediate issues and policies for competitiveness in the long run.

Another prominent feature is aggressiveness. On the one hand， existing tools will become aggressive and be applied more. For example， the European Commission will be able to initiate anti-dumping and anti-subsidy investigations. Shortly after the release of the economic security strategy， the Commission initiated an anti-subsidy investigation into electric vehicles imported from China. On the other hand， new tools such as the white paper on outward investment and risk assessment on outward direct investment have been proposed.

At the same time， the economic security strategy is quite conservative. The strategy marks a shift of the EU’s focus of economic activities from efficiency to a balance between security and efficiency. The mainstream economic policy rationale in the EU has become more conservative in both economic and political senses. Economically， economic activities are increasingly securitized with the creation of new policy instruments， protectionist trade policies， and new takes on global economic cooperation. Politically， the strategy has taken on a geopolitical dimension， linking economic activity to international politics， placing unprecedented emphasis on dual-use technologies， attempting to guard against technological leakage， and diversifying supply chains in favor of economies that conform to EU values.

Last but not least， the economic security strategy has a certain degree of flexibility. The EU’s emphasis on economic security from a geopolitical perspective deviates from its previous emphasis on fair competition. However， it differs from decoupling advocated by the US in the sense that the EU takes risk prevention as the goal instead of turning the economic security strategy into a geopolitical strategy. Considering that risks may only affect certain areas and may change as time goes by， the European Commission can therefore define risks in a flexible way in accordance with changes of the situation. In practice， due to its system of legislation and decision-making， the EU cannot get the economic security agenda set in one go. It needs to consult with the governments of member states， and accommodate their interests and capacities. In addition， adherence to the European approach means that policies and regulations are subject to professional scrutiny and values such as the freedom of academic research must be respected. This leaves the EU some leeway in its implementation of economic security.

The Strategy in Practice

Since the release of the European Economic Security Strategy， the EU has sped up the legislation of economic and trade bills. Progress has been made on the European Chips Act， the Artificial Intelligence Act， and the Critical Raw Materials Act. In the field of investment， the Union is working to improve its foreign investment screening mechanism. According to statistics， as of September 2023， 21 EU member states have established their FDI screening mechanism at the national level. Inter-state coordination has also been included in the economic security package. In the area of trade， the EU Foreign Subsidies Regulation has entered into force. In the area of technology， the Commission has developed a list of critical technologies： quantum computing， biotech， advanced semiconductors， and artificial intelligence. The abundance of legislative initiatives and their rapid progress show that economic security is widely followed and supported by various countries and political parties. The steps taken by the EU to turn economic security policies into laws also show the importance it attaches to economic security. In the future， more ideas and proposals in the economic security strategy may be translated into laws and regulations.

However， the EU also faces obstacles in advancing its economic security agenda. Some companies are not happy about the higher demands they need to meet as proposed in the strategy. Several industrial associations have already voiced criticism and concern about the EU’s ever-widening regulatory network. There may also be opposition from some political parties and political forces over putting economic security before economic liberalism and expanding EU’s authority. Building consensus on economic security in the European Parliament will not be easy against the backdrop of weak economic recovery and rising populism. Member states see de-risking in different ways. While France and Germany are enthusiastic about the economic security agenda， Central and Eastern European countries show little interest， and Hungary goes further by expressing direct opposition to de-risking from China. The Corporate Sustainability Due Diligence Directive has stalled largely due to the concerns of some member states over the high cost of compliance that hurts the interests of small and medium-sized enterprises. In addition， the reality is not that optimistic. To advance the economic security agenda， the EU needs to pay for technology Ramp;D input， the Global Gateway and friendshoring. However， an EU that has just emerged from the COVID pandemic and still faces high inflation and bailout pressure induced by the energy crisis is in a serious shortage of financial resources. There will be serious challenges in advancing the economic security strategy in terms of both financial resources and consensus-building.

Impact

The European economic security strategy will surely have an impact on economic growth. At the macro level， the strategy poses a great challenge to EU’s economic governance in terms of concept and practice. Striking a balance between efficiency and security and a proper use of vertical industrial policy will test the decision-making of the EU and its member states. At the micro level， complicated compliance requirements on investment， trade， technology， research， among others， will increase corporate costs and dampen investor confidence， perpetuating the internal debate on fairness and efficiency. Rising protectionism may also produce more trade frictions with other economies.

The economic security strategy may become a “double-edged sword”. On the one hand， it can strengthen coordination of economic policies among member states， give EU institutions especially the European Commission more power， and possibly advance the integration process. On the other hand， different views and policies on economic security may sharpen disagreement between EU institutions and member states， among member states， and among different political forces.

The impact of the strategy on the EU’s external relations depends on how it is implemented. On the one hand， the emphasis on emerging technologies will intensify competition with other developed economies such as the United States. On the other hand， the pursuit of diversifying the supply chain may bring opportunities to economies with “similar values”.

From a global perspective， the economic security strategy may signal a shift of the EU’s role in global governance. A strategy from the geopolitical and protectionist lenses tarnishes the EU’s image as a champion of free trade， and undermines global trade and commerce. A strong emphasis on values and stricter rules may produce more barriers and frictions， and further fragment international economic governance. The EU’s pursuit of economic security may in the end bring economic insecurity to itself and other countries.

The economic security strategy is both a continuation of its strategic autonomy and de-risking efforts and a policy shift to view economic activities more from a geopolitical perspective. It takes stock of the existing policy tools and proposes new means to ensure economic security in the future. It is a reflection of how the EU sees and understands the political and economic environment as well as the major challenges it faces in a changing geopolitical landscape.

This strategy will have an impact on not only the global economy and politics but also thinking on global governance. The interplay between this strategy and the EU’s digital and green transition， as well as the Common Foreign and Security Policy will put the wisdom of future EU leaders to the test.

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Ding Chun is Director amp; Professor at the Center for European Studies of Fudan University