IVA's President: Some thoughts on Strategic Indispensability

Dear IVA Friends, 

Four years ago this week, Russia launched its full-scale invasion of Ukraine. The resistance of the Ukrainian people has been impressive and deserves our full support. Nothing short of complete respect for Ukraine's independence, sovereignty, and territorial integrity is acceptable. The Ukrainians themselves will decide their own future. 

In the coming week, the European Commission is expected to present its “Industrial Accelerator Act,” a bill aimed at accelerating the green transition in industry and strengthening European competitiveness. The bill was announced last year, and Industry Commissioner Stéphane Séjourné's “Made in Europe” concept is expected to form a significant part of the legislation. It is also the most controversial part.

Séjourné argues for a European equivalent to “Made in China” or “Buy American.” More specifically, he envisions that European companies will be given priority in public procurement across the EU: “Wherever public money is spent in Europe, it must contribute to European production and employment,” says Séjourné.

Europe is caught between the dominance of China and the US (in technology, trade, defense, etc.). Neither China nor the US plays fair when it comes to favoring their own markets. How should the EU navigate this reality? And how should we think about “Made in Europe”?

EU member states are divided over Séjourné's proposal. Some, including Sweden, Ireland, the Baltic states, Denmark, and the Netherlands, are hesitant and warn that these “protectionist tendencies” will increase the regulatory burden and drive investment away from the EU. Other countries see the proposal as a pragmatic and tactical way to deal with a new reality.

I do not believe that abandoning a rules-based free trade system is a strategic or viable path in the long term. At the same time, we cannot stick to yesterday's rules when the world has changed so profoundly. Prioritizing Europe in, for example, defense equipment procurement would, if handled correctly, not only strengthen our economies, but also be the right thing to do strategically and in terms of security. But what will this mean when we need to procure cloud services for public administration and there are no credible suppliers in Europe? And how do we ensure that “Made in Europe” does not support uncompetitive companies and lead to inferior products and slower growth?

Caught between China and the US, Europe is now searching for its role. One idea I have encountered in both German and French public debate is that Europe has something to learn from countries such as India, South Korea, and Australia, i.e., economies referred to as “middle powers” in a geopolitical context. These medium-sized economies have managed to capitalize on their strategic assets and thereby gained significant influence in international politics. In plain language, this means taking advantage of areas, products, markets, or technologies that are indispensable to the US and China.

The Geostrategic Europe Taskforce recently published an interesting report titled “Relearning the language of power,” in which the group of experts identified some 40 areas where China is dependent on imports from the EU, and some 70 where the US is dependent: for example, insulin, medtech, farm machinery, and paper.

Of course we must use these insights about our unique strengths, dependencies, and indispensabilities tactically. But to use them strategically requires political will. In practical terms, this means toning down our focus on Europe's own vulnerabilities and chokepoints and prioritizing trading partners, technologies, and investments based on security, resilience, and long-term strategic interests. Europe is actually too important for China and the US to seek full confrontation or refrain entirely from cooperation.

Science, technology, and politics are interconnected in ways far different than ever before. We have to work with the world as it is today without losing sight of the world we aspire to. Strategically and in the long term, we must strive for a rules-based global order and free trade. At the same time, we must be aware of our strategic indispensability and act tactically in this new world.

There is a place for European influence if we use trade policy pragmatically and tactically in today's geopolitical situation.  

Some thoughts from IVA´s President are published in Swedish in IVA's newsletter, and in English on IVA's LinkedIn.