If she wants the EU to be greener, fairer, and more resilient, Ursula von der Leyen, or whoever comes next, should stay away from trade spats and support a more ambitious industrial policy instead.
The annual State of the European Union speech (SOTEU), which Commission presidents deliver to the European Parliament in Strasbourg every September, had never been a particularly exciting occasion. That changed in 2020, when the EU was in the midst of a global race to develop and purchase vaccines against Covid-19, and continued through to last year, when the EU was responding to Putin’s invasion of Ukraine. From 2020 to 2022, Commission President Ursula von der Leyen’s speeches moved away from the technocratic verbiage of years past to grandstanding announcements that often surprised her own officials in Brussels.
With one important exception – the announcement of an investigation into Chinese subsidies for electric vehicles (EVs) – this year’s speech went back to being (relatively) boring. Perhaps the Commission thinks that the crisis is ending and that it can slowly return to its usual, more technical, self. Von der Leyen laid out a range of important but dull policy ideas. But she did not reveal whether she plans to be around to implement them after next year’s Parliamentary elections in June. EU capitals and the European institutions alike agree, however, that she will almost certainly win a second term if she runs for it.
It may not be easy to predict von der Leyen’s next career move. But it was not hard to guess the topics she would touch upon in her legacy speech. She has a strong record on devising the EU’s responses to the pandemic and to the war in Ukraine. She came to office promising to steer Europe through the so-called twin digital and green transitions, and she has stood her ground on both, sometimes against the wishes of her own conservative political family and her most important allies.
Those who were looking for cues on von der Leyen’s energy and climate agenda for a possible second term might have been disappointed, however. The energy crisis seemed to be almost a memory of the past. Von der Leyen was eager to portray Europe’s response to Russia’s weaponisation of gas supplies as a success story, without dwelling much on the energy challenges ahead. One topic she was keener to delve into was the thorny political tension between farming activity and nature conservation. By saying that Europe should find a balance between agriculture and nature conservation, she risked annoying her conservative European People’s Party (EPP), which has been campaigning to thwart nature restoration legislation by portraying it as pitted against the interests of farmers across the EU.
But the most noteworthy feature of this year’s speech was von der Leyen’s shift from geopolitics to geoeconomics. In essence, she tried to answer what will become the EU’s most pressing question in coming years: how Europe can cope with increased global tensions and US isolationism. With crucial elections next year in Europe and the US, no end in sight to the war in Ukraine, and mounting Sino-American tensions, it is only rational for the EU to hedge against both populists at home and authoritarian or isolationist forces abroad. One obvious way to do this is to reassure Europeans that their jobs will be safe and the economy strong, regardless of a change of resident in the White House, China’s increasingly competitive tech and green industries or Europe’s ambitious plans to fight climate change.
In her speech to the Parliament, von der Leyen tried to answer what will become the EU’s most pressing question in coming years: how Europe can cope with increased global tensions and US isolationism.
That is presumably why von der Leyen chose to frame the EU Green Deal as a growth strategy, and not only an ambitious set of environmental, energy and climate policies. Her new strategy also explains her renewed commitment to protecting European industry from what she considers to be unfair competition, coming mainly from China.
The EU officially considers China to be “simultaneously … a partner for co-operation and negotiation, an economic competitor and a systemic rival”. That mirrors differences between EU member-states. The French, for example, have been calling for an investigation into Beijing’s subsidies for its electric vehicle manufacturers. Germany, on the other hand, has often opposed the EU taking too assertive an approach to Beijing, out of fear of Chinese retaliation.
Von der Leyen firmly backed the French approach in her speech. The Commission’s new anti-subsidy investigation might ultimately lead to the EU imposing additional tariffs on EV imports from China, above the current level of 10 per cent.
Such an investigation carries big risks. The EU has launched vast numbers of anti-subsidy investigations targeting China since 2010, mostly covering much smaller industries like paper, steel, fabrics, optical fibre, tyres and electric bicycles. But few investigations tackled high-value manufactured goods, and none focused on a market as large or as politically important as electric vehicles. This investigation is therefore far more likely to provoke China into retaliation.
There is also no guarantee that the investigation will ultimately justify new tariffs. The Commission will have to identify direct government subsidies targeted at the electric vehicle industry. It must also prove that they cause the threat of material injury to European car-makers: the Commission cannot punish China merely because its car-makers have lower production costs. Proving these things will not be straightforward. Besides, Chinese vehicles are sold domestically at far lower prices than in Europe, so there is little evidence of ‘dumping’ – this may explain why the Commission chose to launch an anti-subsidy rather than an anti-dumping investigation. It is also unclear how much subsidy (if any) actually distorts competition in Europe as opposed to merely increasing demand in China.ZM_CMM_ST_soteu_26.9.23
Zach Meyers is a senior research fellow, Camino Mortera-Martinez is head of the Brussels office and Sander Tordoir is a senior economist at the Centre for European Reform.
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