Between China and America: Europe's Absence in the Battle for Tech Primacy

April 18, 2025

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The Silent Surrender of Industrial Prowess

The factory floor in Zwickau, Germany, once the embodiment of European automotive ingenuity, tells a story of continental decline. Here, Volkswagen workers assemble electric vehicles (EVs) with precision, yet the essential components - batteries powering the cars, semiconductors controlling their systems, and software guiding their operation - all originate elsewhere.

 

This scene in Zwickau is not isolated; it represents Europe's broader technological capitulation. The continent that birthed the Industrial Revolution now finds itself subordinate in the technological empire-building contest between China and America - a development threatening not merely European prosperity but its very autonomy.

 

Volkswagen possesses world-class engineering talent and manufacturing expertise. However, this potential remains constrained by decisions emanating from bureaucratic institutions obsessed with impeccable regulations rather than practical innovation. This frustration echoes across Europe's industrial heartland, where decades of technological heritage dissipate while policymakers in Brussels draft increasingly sophisticated frameworks - documents that read impressively but fail to secure technological independence.

 

The 2024 Draghi Report delivered a sobering verdict: Europe's industrial model lags two decades behind in breakthrough technologies. While Brussels has perfected the art of regulation, Beijing and Washington have mastered the science of innovation - from 5G networks to space exploration, from AI to quantum computing.

 

This technological subordination was illustrated when Dutch authorities, under intense American pressure, blocked ASML - Europe's crown jewel of innovation - from selling its advanced lithography equipment to China in 2023. These extreme ultraviolet (EUV) machines, which etch microscopic circuits onto silicon chips with near-magical precision, represent a rare European claim to technological leadership.

 

The aftermath was predictable: ASML's market value plummeted by over 30%, sacrificed on the altar of transatlantic loyalty. Coincidentally, the Dutch prime minister who acquiesced to US demands later secured an appointment as NATO's secretary general. ASML personnel contemplate a bitter irony: they create the world's most cutting-edge machines only to face restrictions on their sale.

 

Europe's 5G rollout mirrors this long-arm jurisdiction pattern. Following American bullying, Europe boycotted Chinese vendors, citing security concerns despite limited substantiation. As a result, by 2024, China achieved over 90% 5G coverage, while Germany - Europe's economic powerhouse - struggled to reach comparable penetration, with an effective range estimated around 60-70%. This tech gap translates into economic disadvantage, as industries going from manufacturing to healthcare await the connectivity needed for next-generation applications.

 

The Sovereignty Paradox: Masters of Documentation, Servants of Innovation

These examples reflect a broader trend: rather than embracing technological transformation on its own terms, Europe has retreated into defensive postures - restricting emerging technologies while echoing US policies toward China. Although containing 5G equipment and implementing "de-risking" may reflect legitimate concerns for civil liberties and market fairness, Europe's response has come at a heavy price - its technological sovereignty, the contemporary currency of global influence, has been compromised.

 

The downfall stems not from isolated policy missteps, but from misunderstanding how power works in the digital age. As Halford Mackinder focused on controlling Eurasian lands and Nicholas Spykman on maritime dominance, today's geopolitical contests unfold in cyberspace - where digital supremacy determines global authority.

 

In this asymmetric contest, Europe has chosen the pen over the sword. While Eurocrats remain trapped in outdated paradigms, producing thousands of pages dictating what technologies should and shouldn't do, Beijing and Washington build, deploy, and control the tools that define universal power. As EU institutions spend years debating the perfect ethical framework for AI, Chinese and American companies create the systems that will shape the future - or acquire them: whenever a European start-up succeeds, American venture capitalists typically purchase it. One actor writes rules, the others wield dominance.

 

Europe's self-imposed blindness to shifting paradigms - Trump's trade wars, the COVID pandemic, the conflict in Ukraine, and a looming tech bifurcation - has proven costly. The much-vaunted "Brussels Effect" - the ability to shape international standards through regulation - has diminished in the face of technological reality. The bloc has perfected an ambivalent approach: claiming strategic autonomy while undermining the industrial foundations that would make such autonomy possible.

 

In contrast, China read the geopolitical trends with crystal clarity. Beijing channeled massive resources into strategic industries, fostered ruthless internal competition among its champions, and implemented the dual circulation strategy to secure independence. While Europe crafted the world's most sophisticated regulatory frameworks, China built the world's most comprehensive industrial ecosystems - from rare earth mining to quantum computing research.

 

This weakness extends to investment patterns. China directs a significant portion of its R&D through state mechanisms and expands the Digital Silk Road - embedding its tech architecture across emerging markets from Asia to Africa and Latin America. Meanwhile, Europe's investments remain fragmented and timid. The Critical Raw Materials Act exemplifies this - heavy on regulation yet light on funding. As China and America race ahead, Europe's share of global AI venture capital has shrunk to 6%. Even more telling, as of 2024, the 27 EU states collectively host just over 100 unicorns, while China has more than 170 and the US, 660.

 

The asymmetry extends to the very notion of technological power. In Beijing and Washington, technology policy integrates security, economic, and political objectives into coherent strategies advancing national interests. In Brussels, these elements operate in isolated silos. Competition authorities celebrate billion-euro fines against American tech giants, while European alternatives vanish. When problems become undeniable, the European Commission responds with plans, strategies, and dialogues that lead nowhere - offering no new funding, only repackaged or reallocated resources under flashy labels to create the illusion of progress.

 

Nowhere is this contradiction clearer than in Europe's digital policy. The Digital Services Act and Digital Markets Act are impressive regulatory efforts to govern online platforms, yet they target technologies developed abroad, by foreign companies, using data processed elsewhere. The EU excels at writing rules for games it did not create.

 

The result is the sovereignty paradox: the more Europe regulates without innovating, the more dependent it becomes on the very technologies it seeks to control; a market, not a maker; a consumer, not a creator; a subordinate, not a leader.

 

The "Electric Rivalry": EVs and Geopolitical Turmoil

Europe's regulatory-first mindset collides with reality in its industrial strongholds, where policy frameworks confront the pressures of global competition. This tension is most evident in the EV revolution, which has turned a conventional industry into a high-stakes geopolitical battleground.

 

The EU's plan to phase out combustion engines by 2035 requires comprehensive transformation - new manufacturing facilities, domestic battery production, extensive recharging networks, and workforce retraining. Yet throughout 2024, Europe channeled its political capital almost exclusively toward mimicking American protectionism, imposing tariffs of up to 45.3% on Chinese EVs following an anti-subsidy probe - a move that echoed Biden's more aggressive 100% tariffs rather than addressing the transformation required.

 

These contradictory policies - accelerating electrification while raising barriers to the world's most affordable EVs - trigger uncomfortable questions European leaders steadfastly avoid: How does protectionism benefit Europe's export-focused auto industry? Can European vehicles excel globally while sheltered from competition? What will drive innovation and affordability? Will European consumers across all income levels embrace EVs if prices remain elevated?¹

 

China's response showcased its tactical sophistication and acute grasp of Europe's situation. Instead of retaliating against automotive exports, Beijing targeted European pork, dairy, and cognac - industries with strong political weight in key member states. By focusing on premium exports, China maximized pressure while keeping its broader objectives intact.

 

Meanwhile, the Brussels elite remains fixated on yesterday's battles as China prepares for tomorrow's victories. Beijing continues strengthening its global position through the "new three" productive forces - EVs, batteries, and renewables - viewing European threats and tariffs as desperate and impractical attempts to contain its technological advancement.

 

The raw numbers expose Europe's precarious position in the electric mobility race. China produces 60% of the world's EVs, with exports reaching 42 billion USD by 2023. European manufacturers, burdened by higher costs and lacking scale, struggle even in their own markets. EU efforts to reduce reliance on Chinese batteries and raw materials have yielded impressive policy reports and legislation - the latest being the March 5, 2025, Industrial Action Plan for the European Automotive Sector - but little industrial progress.

 

That plan, notably, addresses batteries. Just days later, Northvolt - Europe's supposed champion against Chinese battery dominance - went bankrupt, underscoring the gap between ambition and execution. Backed by 10 billion EUR from Volkswagen, BMW, the German government, and European Investment Bank loans, Northvolt was intended to rival CATL and BYD. Its failure is more than a business collapse; it reflects Brussels' inability to translate vision into industrial success.

 

The Material Foundations of Power: Dependencies Exposed

The transition to electrified transport has exposed Europe's reliance on China for critical raw materials. Beijing supplies 98% of the EU's rare earth elements and dominates lithium, cobalt, and graphite processing. This is not just a supply chain fragility, but a power imbalance that undermines Europe's position in the digital transformation of industry. It is hard to pinpoint when this strategic chaos began.

 

When China restricted exports of gallium, germanium, graphite, and rare-earth technologies in 2023, Europe learned that regulatory power means little without manufacturing capacity. Simultaneously, Huawei's Ascend chips and DeepSeek's AI models emerged as serious competitors to American technology, leaving Europe even further behind. Brussels responds with investigations and policies delivered with evangelical fervor yet remains reliant on Chinese components and machinery.

 

The EU's internal divisions further weaken its position. Central and Eastern European nations, benefiting from Chinese manufacturing investment, hesitate to confront Beijing. Hungary and Slovakia, but currently also France and Spain, are securing major deals in battery and EV production, while Germany's automakers struggle between preserving their dominance and deepening reliance on Chinese consumers and suppliers.

 

These fractures complicate high-stakes negotiations. The EV tariffs required careful political maneuvering, as some states feared either political or economic backlash. Spain, for instance, attempted to balance competing interests, only to please none. Exploiting these rifts, China has applied diplomatic pressure, offered investment incentives, and selectively granted market access - splitting the EU from within.

 

Continuing the current approach relegates Europe to a secondary role, its regulations ignored and industries left behind. Treating foreign corporations as antagonists rather than partners inhibits the very innovation and competitiveness Europe requires. Focusing exclusively on regulatory safeguards blinds the EU to the realities of realpolitik.

 

Europe's Path Forward

Europe's path is not predetermined. Just as it created Airbus to confront America's dominance in aviation, it could now consolidate its fragmented technological capabilities into viable competitors. A "Digital Airbus" could achieve this by focusing on select sectors rather than dispersing efforts too broadly. Success demands more than ambition - it requires clear priorities and a shift in approach.

 

Rather than boosting prohibitions, Europe could pivot toward partnerships, establishing joint ventures with Chinese manufacturers in EV battery production or 5G deployment. A stronger digital investment fund - exceeding the Digital Europe Programme's limited eight billion EUR budget for 2021-2027 - could emulate China's financing for AI, semiconductors, and green technology without diluting resources across too many segments.

 

Indeed, Trump's climate policy shifts present openings for China-EU collaboration in decarbonization, where innovation and economic interests align. Instead of trade restrictions, Europe could negotiate reciprocal market access. Retaliation offers diminishing returns; engagement preserves industrial competitiveness.

 

Europe must reform its competition policies to enable the rise of tech champions capable of competing globally. Existing antitrust rules, designed for the industrial age, weaken European firms while Chinese and American giants expand unchecked. A technology exemption could allow deeper cooperation. Preferential procurement policies for European technologies in critical infrastructure would strengthen the domestic industry, while a scale-up fast track could accelerate regulatory approval for high-potential tech ventures.

 

A more structured approach to EVs could establish clear terms for market access - quota-based sales for Chinese manufacturers subject to annual review, oversight of factory openings, mandatory technology transfers, and reciprocal licensing to protect European intellectual property while leveraging China's supply chain strengths. Joint standardization efforts on vehicle connectivity, charging infrastructure, and data governance could further align interests. Beijing, eager to avoid pushing Brussels closer to Washington, has incentives to combine forces. Since 2017, its economy has grown by 40%, yet European exports to China have fallen by 30% - a trend neither side can afford to ignore.

 

Does prioritizing regulatory safeguards over geopolitical influence truly serve European citizens in the long run? As China and the US shape the rules of engagement and use technology as an instrument of influence, Europe risks becoming a passive observer in a contest that will determine the global balance of power. This extends beyond digital privacy laws or consumer electronics; it is about who holds genuine influence in an unforgiving international system. Power does not wait, especially for a continent mired in indecision.

 

In essence, Europe faces a choice: it can either continue down a path of regulatory obsession - where resources are merely reshuffled, risk-taking is left to the private sector, and bold initiatives are adopted only when handed down by transatlantic allies - or assert its technological competitiveness. The digital age rewards those who build systems, not those who write rules. The real question isn't whether Europe can afford decisive action, but whether it can survive the consequences of changing nothing.

 

 

This article is from the March issue of TI Observer (TIO), which explores the AI-powered digital economy, analyzing how nations navigate the balance between development and governance, while examining the impact of technological advancements on global competition and the broader international order. If you are interested in knowing more about the March issue, please click here:

http://en.taiheinstitute.org/UpLoadFile/files/2025/3/31/14372768c45e0ae0-6.pdf

 

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