In Other News – A View from Abroad – 1/12/2023

A view from Abroad
Once a month, In Other News features a short op-ed heavily informed by the European perspective. We hope that these special monthly pieces will offer our readers an enriched understanding of global events and allow for a more robust international risk calculus.

Economic security and strategic autonomy should unite the EU and Washington, not divide us. There’s an active European conversation happening right now regarding economics, trade, and investment, and it’s closely linked to broader debates about the future of European security. The pandemic, Russian attack on Ukraine, and increase of China’s international assertiveness, have all collided to compel the EU member states to enhance their economic security and re-envision strategic autonomy. But while the concepts of economic security and strategic autonomy partially overlap and are often used interchangeably in the current European political discourse, EU policy decisions and relations with the United States will be strengthened if they’re treated as distinct goals.

Economic security can be defined as protecting the most important activities in the economy, like defending technological innovations, securing novel research from intellectual espionage, making supply chains more robust, countering cyber threats, and scrutinizing foreign takeovers in strategic sectors. On most of these dimensions, EU member states are up to speed and have taken many concrete steps to make improvements throughout the past year.

Strategic autonomy, however, focuses more on reducing external dependencies of European governments, companies, and societies. To make this happen, Europe needs to be able produce its own strategic goods and should maintain adequate supplies. This is a greater challenge, but one that can be met with increased economic alliances. The immediate need for strategic autonomy has led to intense discussions among EU member states, and Brussels has now broadened the concept to an “open” strategic autonomy, presenting an opportunity for enhanced collaboration with the United States.

While the EU is rightly working on a plan to increase its strategic autonomy, there are some structural obstacles that need to be overcome so that outside allies can be included. The draft European Chips Act that aims to strengthen the European semiconductor industry is promising, but further operationalization, like in the ‘trusted cloud’ initiative, quantum tech and Artificial Intelligence, remains a challenge. Advancements in these areas are stymied by the division of competencies between the EU in Brussels and its member states, which is more convoluted than in the economic security domain.

Further, while European discussions on strategic autonomy mirror those of Washington, the allies’ strategies aren’t always aligned to an optimal degree. For example, the US Inflation Reduction Act (IRA) has real economic implications for Europe and comes at an important moment. But the EU isn’t exactly sure how it will be impacted by the package, and it’s scrambling to secure its position.

European Council President Michel has called for a special session in mid-February to discuss how the IRA will impact the European economy and ensure, among other goals, that European companies get exemptions from the IRA, like companies in Canada and Mexico do. Michel has also requested that the European Commission prepare a package of instruments to support the competitiveness of European business, indicating concern about the potential of the IRA to distort fair competition.

Trade conflicts and competition fears among Western democracies, especially pertaining to their relations with China, threaten the kind of global security we need moving forward. The United States is understandably working to protect its competitive position by limiting the export of advanced technology to China, controlling foreign takeovers, and better promoting its economic interests like with semiconductors and clean technology. But to prevent a subsidy war, this calls for a form of cooperation between the EU and the Washington that’s greater than the current agreement to inform each other– especially on the financing side.

While NATO has proven an excellent forum for allied dialogue and joint decision making on foreign policy and defense issues, an equivalent forum in the economic sphere is lacking. Modernization, reform and revitalization of the World Trade Organization, expansion of the EU-US Trade and Technology Council and more frequent G7 meetings could help address this gap. Memories of Cocom which regulated strategic exports to the Warsaw Pact countries during the Cold War springs to mind as the kind of innovative policy thinking that the current circumstances demand.

Indeed, China and Russia would only profit from disagreement, competition or even conflict between the established democracies of the world on the economic front. And there’s no better time for enhanced economic cooperation between the EU and Washington. With better coordination, based on agreed international rules on trade, the West and allies can make sure not to play into the hand of autocratic competitors.