The Kiel Institute is pressing European policymakers to establish clear industrial objectives before expanding the bloc's trade defense instruments.
In a new policy brief, researchers argue that without a defined strategy, additional defensive measures risk adding administrative complexity without strengthening Europe's long-term industrial capabilities.
The intervention comes as Brussels, Paris, and Berlin weigh stronger trade defenses, European purchasing preferences, and diversification measures ahead of the European Council meeting on October 15–16.
China's Competitive Reach Expands
According to the Kiel Institute, China now competes directly with the euro area in nearly 40% of sectors where Europe holds a comparative advantage.
That figure has risen from approximately 25% in the early 2000s.
Germany faces particular exposure in automobiles, machinery, and chemicals, with domestic producers encountering Chinese competition at home, in China, and in third-country markets.
Julian Hinz, head of the Trade Policy Research Group at the Kiel Institute and a co-author of the brief, said the EU has yet to develop an effective way to use access to its single market to advance industrial objectives.
"Europe is sitting on its biggest geoeconomic asset, access to its own market, and has no way to use it," Hinz said.
He contrasted Europe's approach with China's development of its automotive industry, which linked market access to local production.
Hinz said the EU's existing instruments primarily affect prices and border conditions rather than determining where production takes place.
"China built its car industry by making market access conditional on local production. The EU cannot do the same, even if it wanted to.
All of its instruments act on prices and the border, none on where production takes place," he said.
Reactive Measures and Institutional Gaps
The researchers assessed countervailing duties, safeguard measures, subsidy conditions, public procurement, local-content rules, the Anti-Coercion Instrument, and sanctions.
They concluded that these tools provide a largely sufficient framework for conventional trade defense but do not establish a comprehensive strategy for industrial development.
The Franco-German non-paper dated October 5 introduces an additional response instrument but relies primarily on expanding existing trade defenses.
Hinz argued that a larger collection of reactive measures would not resolve the underlying strategic problem.
"The Merz–Macron paper offers more of the same reactive measures," he said.
He warned that repeated defensive actions could encourage domestic lobbying and provoke retaliation from trading partners.
"A hundred defensive measures do not make a strategy. They invite lobbying at home and retaliation abroad.
As long as Europe does not ask what it needs to produce itself, it will not be a strategic player," Hinz said.
The policy brief uses battery manufacturing to illustrate the difference between a defensive trade measure and a strategic industrial objective.
Battery cells are essential components for drones and other autonomous systems, including military applications, but defense demand alone cannot finance a competitive battery industry.
A large electric vehicle market could provide the scale needed to support European battery production.
The researchers therefore present localizing electric vehicle manufacturing as a way to build battery capabilities rather than an objective in itself.
The brief identifies an institutional divide as a central obstacle.
Trade policy falls under EU authority, while national security remains the responsibility of member states, leaving the bloc without a clear legal basis for translating a collective European security assessment into action through the single market.
The authors propose an economic security instrument modeled on the approach of US Section 232.
They envisage using existing EU powers in the near term and establishing an explicit Union competence for economic security over the longer term.
The proposed mechanism would not discriminate by country and could apply to existing partners, including the United States.
Christoph Herrmann of the University of Passau said European institutions already possess more legal flexibility than policymakers sometimes assume, pointing to the Council's ability to adjust external tariffs through qualified majority voting.
"The legal room is larger than many think," Herrmann said.
He cited the EU's steel measure as an example of the Council's ability to reshape external tariff policy.
However, Herrmann said the absence of a European-level security competence remains a key institutional gap.
"The Council can reshape the external tariff by qualified majority, as the EU's steel measure shows. What is missing is a European security competence," he said.
As an initial measure, the researchers recommend investigating whether existing EU duties on electric vehicles should be extended to hybrid vehicles, which they identify as a gap in the current measures.
The Kiel Institute says Europe needs clear economic security goals and stronger legal powers to address China's growing industrial competition.
