Europe vs China: Competitiveness in a Changing World — Part 3: How Competitive Imbalances Shape Geopolitics

 



About this Series

This article is part of a multi-part series examining how Europe’s competitiveness compares with China, what structural imbalances have emerged, how these shape geopolitical realities, and what priority agenda Europe must pursue to restore strategic strength. The series concludes by assessing Europe’s actual priorities and policy actions, comparing them with the ideal agenda identified earlier. Each instalment builds on the previous one to form a coherent and comprehensive framework for understanding Europe’s competitive position in the world economy.

About This Part

In this third part, we analyse how the competitiveness imbalances identified in Part 2 translate into geopolitical influence, vulnerability, and strategic behaviour. As Europe and China diverge economically—China rising in industrial scale, Europe struggling with systemic constraints—the geopolitical consequences become increasingly visible. This part connects the economic and strategic dimensions, showing why competitiveness is now central to Europe’s geopolitical autonomy.

1. Introduction: From Economics to Geopolitics

Economic competitiveness does not exist in isolation. When capabilities, dependencies, and industrial strengths diverge between major actors, the resulting imbalances shape foreign policy, security calculations, and global strategic alignment.

For Europe, geopolitical positioning has traditionally relied on:

  • strong economic performance,
  • technological leadership,
  • a stable rules-based institutional model, and
  • reliance on alliances rather than unilateral power projection.

China, by contrast, increasingly integrates economic instruments into its geopolitical strategy—leveraging industrial policy, supply-chain dominance, and market access as tools of influence.

As a result, competitive asymmetries between Europe and China create both vulnerabilities and opportunities, influencing diplomatic relations, strategic autonomy, alliance behaviour, and the global balance of power.

2. Economic Power as Geopolitical Leverage

2.1 The Rise of Geo-Economic Statecraft

China’s ascent has demonstrated how states can use economic capabilities as instruments of geopolitical influence. This approach, often described as geo-economic statecraft, includes:

  • leveraging market access to influence political positions;
  • using supply-chain dominance as strategic leverage;
  • deploying outbound investment to deepen bilateral relations;
  • shaping regional and global governance institutions;
  • strategically subsidising industries to set global standards [1].

Europe’s geopolitical position, meanwhile, has long rested on normative and institutional strength rather than geo-economic coercion. This creates asymmetrical competitive behaviour.

2.2 Market Power as Influence

China’s vast domestic market enables it to shape:

  • global production strategies,
  • foreign sectoral dependencies,
  • technology standards, and
  • corporate behaviour.

For European companies—especially in automotive, luxury goods, chemicals, and machinery—the Chinese market is essential for growth. This dependence complicates Europe’s ability to take geopolitical positions contrary to China’s preferences.

This dynamic illustrates how market dependence becomes political dependence.

3. Supply Chains and Strategic Vulnerabilities

3.1 China’s Upstream Dominance and Its Strategic Implications

China’s leadership in upstream and midstream industries—such as rare earth processing, battery materials, solar components, and specialty chemicals—creates strategic pressure points. Control over these segments does not require active coercion to be geopolitically meaningful. The simple possibility of disruption becomes a factor in foreign policy calculation [2].

China’s industrial capabilities thus translate into:

  • leverage in dispute scenarios,
  • bargaining power in economic negotiations,
  • influence in global standards-setting bodies,
  • ability to shape global energy and technology transitions.

3.2 Europe’s Exposure to Strategic Dependencies

As discussed in Part 2, Europe is highly dependent on China for:

  • battery materials and components,
  • solar module supply,
  • permanent magnets,
  • critical raw materials,
  • electronics components.

These dependencies constrain Europe’s ability to take assertive positions on issues where China has strong interests, such as:

  • human rights concerns,
  • technology transfer policies,
  • maritime security questions,
  • alignment with US strategic objectives.

Strategic dependency introduces caution into policymaking, sometimes resulting in European fragmentation.

3.3 When Dependencies Become Geopolitical Constraints

Dependency becomes a geopolitical constraint under conditions of:

  1. Concentration: when supplies come mostly from a single provider.
  2. Low substitutability: when alternative suppliers or processes are limited.
  3. High switching costs: when reconfiguring supply chains requires years of investment.
  4. Geopolitical divergence: when the supplier and dependent country have conflicting strategic priorities.

Europe faces all four conditions in multiple sectors.

4. Technology Leadership and Strategic Control

4.1 Technological Sovereignty as a Strategic Asset

Technological leadership—not simply innovation—is an essential component of geopolitical influence. Control over critical technologies (such as semiconductor equipment, aerospace systems, and emerging dual-use technologies) provides Europe with leverage and strategic relevance.

Europe holds strong positions in:

  • semiconductor lithography equipment,
  • aerospace manufacturing,
  • industrial automation,
  • advanced materials,
  • green hydrogen research.

These strengths give Europe counter-leverage in some areas vis-à-vis China.

4.2 China’s Technological Ambitions

China’s strategic objectives include achieving self-reliance in:

  • semiconductors,
  • industrial robotics,
  • aerospace,
  • biotechnology,
  • AI and quantum technologies.

The Made in China 2025 and subsequent industrial strategies aim explicitly to reduce external dependencies that currently limit China’s strategic autonomy [3].

This creates a dynamic where both sides seek to reduce dependency, though starting from asymmetric positions.

5. The Role of Alliances and Strategic Alignment

5.1 Europe’s Balancing Act

Europe must navigate a complex geopolitical landscape where:

  • The United States is its primary security partner.
  • China is a major economic partner and systemic rival.
  • Global economic transitions (e.g., electrification, decarbonisation) depend on Chinese technologies.
  • Strategic autonomy requires reducing dependency but not decoupling.

The tension between economic interdependence and geopolitical divergence results in a strategy often described as “de-risking, not decoupling.”

5.2 China’s Bilateral Strategy Toward Europe

China tends to engage Europe through bilateral channels, leveraging differences among EU member states. This creates:

  • diverging national China policies,
  • inconsistent risk assessments,
  • fragmented EU responses to strategic challenges,
  • reduced coherence of Europe’s geopolitical posture [4].

Competitive imbalances amplify these divergences: member states with stronger industrial ties to China tend to adopt more cautious foreign-policy positions.

5.3 The US Factor

The United States increasingly expects Europe to align more closely with its approach to China on:

  • semiconductor export controls,
  • technology transfer restrictions,
  • critical supply-chain reshoring,
  • security issues in the Indo-Pacific.

Europe’s willingness to align depends in part on its economic exposure to China and its own industrial resilience. The weaker Europe’s competitiveness, the more constrained its strategic choices become.

6. How Imbalances Translate into Global Influence

6.1 Areas Where China Gains Influence

China’s competitive strengths translate into geopolitical advantage in:

  • standard-setting for emerging technologies,
  • green technology markets,
  • access to raw materials in developing countries,
  • Belt and Road infrastructure ties,
  • strategic influence in multilateral institutions.

Economic dominance becomes agenda-setting power.

6.2 Areas Where Europe Retains Influence

Europe maintains leverage through:

  • regulatory leadership (the “Brussels effect”),
  • high-value technologies difficult for China to substitute,
  • global norms shaping (data protection, environmental standards),
  • fiscal and market access incentives.

But this influence erodes if Europe loses technological and industrial ground.

6.3 The Emerging Competitive Geography

The global landscape increasingly reflects:

  • China-centred industrial ecosystems
  • US-centred technological blocs
  • Europe as a regulatory and high-value technology hub, but one that risks strategic marginalisation if industrial capability declines

Europe as a regulatory and high-value technology hub, but one that risks strategic marginalisation if industrial capability declines

Europe must strengthen its competitiveness to avoid becoming a rule-setter with declining relevance.

Conclusion

Competitive imbalances between Europe and China now shape geopolitical behaviour as much as economic outcomes. China’s industrial scale, upstream resource control, and rapid technology progression give it structural influence. Europe’s strengths in regulation, advanced technology, and institutional frameworks offer counter-balances, yet are undermined by systemic vulnerabilities and strategic dependencies.

Geopolitics is increasingly a reflection of economic structure. To preserve strategic autonomy, Europe must understand how its competitive weaknesses translate into geopolitical constraints.

In Part 4, we examine the root causes of Europe’s weaknesses—focusing on capabilities, capacities, and structural features that have contributed to Europe’s declining competitive position.

References

  1. Luttwak, E. (1990). "From Geopolitics to Geo-Economics: Logic of Conflict, Grammar of Commerce."
  2. European Commission. Report on Strategic Dependencies and Capacities.
  3. State Council of the People’s Republic of China. Made in China 2025.
  4. European Council on Foreign Relations (ECFR). EU–China Relations and Strategic Fragmentation.
  5. OECD. Trade in Value Added and Global Supply Chains.
  6. European External Action Service (EEAS). EU Strategic Outlook on China.

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