Economic security: Why the EU is changing strategy

The world is becoming less stable. Geopolitical shocks, supply-chain breakdowns, war, and rising economic nationalism have eroded the predictable global order. How should the EU steer through these stormy waters and still protect its industry, citizens, and strategic interests?

At an Esade conference on economic security, Damien Levie, economic security advisor to the EU Commission Directorate-General for Trade, warned that Europe is facing a “new world economic order” and must rethink how it defends itself—fast. The event was hosted by EsadeGeo and the Center for Corporate Governance.

Europe is adapting, but too slowly

The changed environment in which Europe finds itself is predominantly down to three external powers: Russia, China, and the United States. Each creates distinct risks for European companies, supply chains, and competitiveness. Simply maintaining good trade relations with these countries is no longer enough to guarantee that Europe can protect its security or its prosperity.

This is significant for businesses. Europe depends on external suppliers for fuel, parts, and technologies. When those suppliers or the states behind them choose to restrict flows—for political, strategic, or economic reasons—factories stop, energy bills spike, and entire sectors are affected. Equally worrying, Europe’s fragmented decision-making and limited fiscal muscle mean it struggles to respond quickly and effectively.

Russia: The failure of interdependence

Levie describes Russia’s invasion of Ukraine as an “existential threat to Europe”. Aside from the humanitarian crisis and the need to host refugees, there’s an economic impact.

The strong export link and Europe’s heavy reliance on Russian energy made sanctions costly

“At the start of the war, when we discussed sanctions against Russia with the US, the pain to us in Europe was significantly more than for the US,” explains Levie. “The US exports to Russia total around $5 billion, whereas EU exports are $90 billion.”

The strong export link and Europe’s heavy reliance on Russian energy made sanctions costly. The resulting increased energy prices meant harsh adjustments for households and industry as the EU sought to punish Moscow.

The EU learned the hard way that trade and economic interdependence do not necessarily prevent conflict.

China: Deflation, dominance, and the weaponization of dependencies

China is gaining power with a strategy that combines strong support for domestic industry with efforts to make the world dependent on Chinese products and supply chains. Levie noted that China has experienced 30 months of industrial price deflation and warned about the “weaponization of dependencies,” where export controls or other restrictions can be used to apply pressure on trade partners. The case of Nexperia, a Chinese company making electronic chips, perfectly illustrates this “weaponization”.

In response to intervention from the Dutch government over concerns regarding governance at Nexperia, China blocked the export of chips for weeks. “The Chinese authorities did not hesitate for one second in imposing new controls,” says Levie.

Car manufacturers, including Volvo and Volkswagen in Europe, rely on the chips, and the result was that production was slowed and almost halted. The episode showed how a single bottleneck in a global value chain can cascade into factory shutdowns and huge economic disruption.

The United States: From rules to deals

The US is disengaging from multilateralism in favor of bilateral pressure and more transactional deals. “Alliances are put into question, and international institutions are put into question,” says Levie. The US didn’t attend COP 30 or the recent G20. And although it is still at the World Trade Organization (WTO), it’s redefining its engagement.

This new playing field with less predictable rules and more power exercised directly weakens institutions and limits the ability of smaller powers to negotiate collectively. For Europe, which often speaks with many voices, this heightens the need for unity and strategic coordination.

Europe’s response: Promote, protect, partner

The EU hasn’t been sitting idly. Levie discussed the EU strategy in response to the tempestuous economic climate.

Promote: Building Europe’s industrial base 

Europe is now embracing industrial policy in ways that would have been unthinkable two decades ago: increased investment (Chips Act), support for net-zero technologies (Net-Zero Industry Act), a raw-materials strategy in the pipeline, higher defense investment, and a move towards ‘Made in Europe’ for critical sectors. And simplifying regulation to make life easier for companies at home by reducing the number of rules and red tape.

Protect: Guarding technology and markets

The EU is tightening foreign direct investment (FDI) screening, expanding export controls, enforcing foreign-subsidy regulation, and pushing research security measures to reduce technology leakage. The goal is to protect the EU without stifling growth. For example, the EU is seeking to maintain scientific openness and collaboration while balancing political risk.

EU openness must be accompanied by deliberate policies that reduce vulnerability

Levie also mentioned the Anti-Coercion Instrument as a strong defensive tool: if an outside power tries to force the EU’s hand through trade or economic pressure, the EU can retaliate collectively. The instrument is powerful but, so far, unused.

Partner: Building resilience through alliances 

To reduce the risk of depending too heavily on a limited number of trade partners, the EU is pursuing new trade agreements and strategic collaborations. “We are benefiting from tailwinds to conclude new free trade agreements,” explains Levie. Progress has been made on deals with Japan and the UAE, and talks with Mercosur, India, and Indonesia are progressing. This approach makes the supply of critical raw materials more diverse. Enlargement, Levie argued, also strengthens the union over the long term by increasing economic scale and stability.

Can the EU act like a geopolitical power?

While Levie is cautiously optimistic about the strategy, he is realistic about its limits. The EU lacks the governance structures and fiscal capacity that large powers wield. He warned that de-risking is not happening fast enough, neither at the EU level nor within companies themselves. The Nexperia example shows why businesses must diversify suppliers; governments must share risk information and align policy; and public-private investment must support key sectors such as chips and clean tech.

Governments and companies must “work together” says Levie. In practice, that means regular information-sharing between states and industry, joint stress-tests of supply chains, co-funding of resilient production capacity, and legal tools that allow the EU to act collectively when pressured.

A crossroads for Europe

Europe has to forge new partnerships, empower businesses, and protect its own interests in order to evolve into a more powerful and shock-resistant unit. Levie’s message is not that Europe should shut up shop, but that openness must be accompanied by deliberate policies that reduce vulnerability. But these changes need to happen swiftly, and member states have to move together. That way, the EU can not only weather the new economic order, but maybe even shape it.