Europe’s hidden ace in the US-EU standoff: Heavy industry

Europe’s postwar reliance on the US for security is fading, as figures like Germany conservative leader Friedrich Merz advocate for European strategic independence. This shift requires Europe to defend its interests alone, even against Washington. A key strength in any strategic competition with the US is Europe’s industrial power, particularly in manufacturing.

The Foreign Policy publication points out in their latest article that Europe, led by Germany, surpasses the US in steel, vehicles, ships, and civil aircraft production. It also has lower debt-servicing costs, giving it financial leverage to support Ukraine and enhance its defense. However, to maintain this advantage, Europe must invest in its defense sector and protect its industrial base from China’s trade dumping and US tariffs.

While many European leaders admire the US tech sector, manufacturing remains vital to Europe’s economy, contributing 16.4% of gross value added compared to 11% in the US Manufacturing employs 30 million Europeans, while US tech employs just 6.5 million. Prioritizing high-tech over traditional manufacturing is a false choice—Europe’s industrial edge is essential for its economic growth and security.

Manufacturing is a major driver of European productivity growth. Unlike the US, where digital technology fuels productivity, mid-tech sectors like automotive and machine-building have led growth in Europe’s largest economies. To sustain defense spending, Europe needs industrial-generated tax revenue and sustainable debt levels. ASML, a leading European tech firm, is a machine-builder, and clean technology exports account for 4% of Germany’s GDP—higher than in any other G7 nation.

Industrial production is also crucial for rapid rearmament. Europe produces more vehicles and steel than the US, and Airbus built twice as many planes as Boeing in 2024. Europe’s defense supply chains, including steel and chemicals, remain robust despite high energy costs. The US serves as a warning: its weak commercial shipbuilding industry has hindered military production. In contrast, Europe maintains expertise in specialized shipbuilding.

Even as Europe seeks technological parity with the US, its competitive strength lies in manufacturing. The EU has long run a trade surplus with the US in goods like machines and chemicals. While Washington aims to reindustrialize, labor shortages and immigration restrictions limit expansion. Manufacturing ensures that the EU remains a key partner for a transactional US administration.

Yet, Europe risks losing this advantage due to inaction. Defense industries suffer from fragmented production and years of underspending—falling short of NATO’s 2% GDP target by €850 billion. Meanwhile, China’s industrial overcapacity threatens European manufacturers. Since its property bubble burst in 2021, China has flooded global markets with excess autos and machinery, undercutting European exports. German net car exports have halved since COVID-19, while China now exports 5 million more cars annually than it imports.

Trump’s impending tariffs on EU goods and the rollback of Biden’s green subsidies further endanger Europe’s industries. With both China and the US closing off markets, Europe must act. Germany is leading the way, abandoning its debt brake to launch a massive defense and infrastructure spending package worth 11% of its GDP. But increased spending alone is not enough—the EU must direct investments toward strategic industries.

A clean industrial deal should prioritize European-made goods while maintaining trade with allies like Canada and the UK. Military production must shift toward standardized, mass-produced equipment. Defense contracts are already revitalizing Germany’s stock market, proving that targeted demand can rejuvenate European industry.

Ironically, the industrial policies championed in Biden’s Inflation Reduction Act and CHIPS Act are now more urgently needed in Europe than in the US The EU is taking steps, but efforts must be more ambitious and coordinated. Europe’s manufacturing base, skilled workforce, and economic strength provide a foundation for security and rearmament. However, if EU leaders fail to act decisively, internal divisions—not external threats—may be the greatest danger, echoing US Vice President J.D. Vance’s warning about “the enemy from within.”

By Nazrin Sadigova