Eurozone: De-risking versus de-industrialisation – Rabobank

RaboResearch highlights that Chinese competition is eroding key Eurozone industrial surpluses in vehicles, chemicals and machinery, raising economic-security concerns. Europe is shifting towards selective de-risking, using trade-defence and diversification tools to slow de-industrialisation rather than reverse it. The automotive sector and other strategic industries will be central tests of this managed integration approach.

European industry under Chinese pressure

"Between 2016 and 2025, the EU's trade balance with China deteriorated across core industries: its vehicle and chemicals surpluses became deficits, while deficits in machinery and electronic equipment widened. Chinese-made cars, solar panels, batteries and other net-zero products gained market share. The dispute is therefore no longer just about the bilateral deficit. It is about industrial scale, investment and technological leadership."

"For Europe, the cost of inaction also looks higher. Competition is spreading through automotive, chemicals, machinery, clean tech, aerospace and biotech, affecting sectors that support skilled jobs, supplier networks and R&D. Losing scale could weaken technological capacity and deepen dependence, while high energy costs, high administrative and regulatory burdens and weak investment already weigh on European industry. Chinese clean-tech inputs lower transition costs today but create exposure to disruption or coercion tomorrow."

"Managed escalation is more likely to slow European de-industrialisation than reverse it. The bucketing strategy can help preserve capacity in strategically important sectors, but ultimately Europe will also need to address its domestic competitiveness weaknesses. The automotive sector will be an important test, particularly as Chinese producers increasingly invest in European supply chains."

"Even so, selective de-risking appears more sustainable than unrestricted openness or broad decoupling. The likely end-state is continued trade within firmer boundaries: openness in non-strategic goods, conditional Chinese investment in important sectors and tighter protection of critical capabilities."

"Last week’s understandings in Beijing may make that adjustment less abrupt, but a new and stable equilibrium remains some way off. The direction of travel is towards continued trade, but within increasingly explicit economic-security boundaries."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)