21. 11. 2024
AUTHOR: Linda Kalcher & Neil Makaroff
The European Union is perceived as unprepared to face a second Trump administration and preemptively obeying his wishes. National governments and the incoming European Commission have less than two months before 20 January to anticipate his announcements, set up systems to monitor their implications on the EU and align around potential joint responses. The December European Council is the prime opportunity for leaders to build on the ‘New Competitiveness Deal’ agreed in Budapest with a united stance and concrete measures.
Across the EU, strategic sectors such as automotive, steel, wind, heat pumps and battery manufacturing are facing a competitiveness threat from China and (still) the US. When President Trump slashes a 60% tariff on Chinese products, a lot of these could be re-routed to the European market, asserting even more pressure on the European industry. Furthermore, the EU’s reliance on liquefied natural gas (LNG) imports exposes its industry to high price volatility on international markets. This can get worse with the potential risk of the Trump administration using LNG as a political bargaining tool. Unless quick actions are taken, the risk of deindustrialisation appears more concrete and immediate.
At international level, President Trump’s announcement to withdraw from the Paris Agreement and potentially from the UN Framework Convention on Climate Change (UNFCCC) could be a predestined moment for the EU to strengthen its cooperation with major economies and allies in the Global South even further.
The need for a Competitiveness Deal package at the December European Council
On the back of the informal European Council in Budapest, leaders have the opportunity to adopt a more meaningful and substantial Competitiveness Deal that responds to the scale and urgency of the competitiveness threat.
They can agree on a package in the December European Council that concretely addresses concerns by companies and shows the EU stays course on its decarbonization trajectory given the clear benefits for economy, security and prosperity. This package can endorse the European Commission’s vision of a Clean Industrial Deal, in particular by charting a net 90% emission reduction trajectory by 2040 that enhances industrial competitiveness.
It could include:
- a commitment to invest in the European economy, potentially through new and additional investments for Ukraine, security, military spending as well as for industrial decarbonization and net-zero industries.
- the principles of a Competitiveness Fund that mobilises at least €50 billion per year for the decarbonisation of the industry and the emergence of net-zero industrial value chains. Hence it could unlock €668 billion needed by the European industry by 2040. The fund can succeed NextGenerationEU when it expires in 2026, ensuring continuity of net-zero investment regardless of when the new EU budget comes into force.
- the adoption of a net 90% climate target for 2040 as guiding pathway to make European industry more competitive.
- concrete reassurances that adequate support will be provided to households and industries, including:
- policies to strengthen the Energy Union, phase-out Russian fossil fuel imports by 2027 at the latest and lower energy prices. This could be aligned with the Electrification Plan, published in the first 100 days of the new European Commission.
- address household concerns on the carbon pricing for transport and heating, also called the second emission trading scheme (ETS2). It will start in 2027, a year in which 10 EU countries are scheduled to have elections.
- sectoral measures to rebuild the business case for manufacturing strategic net-zero technologies in the EU and speeding up processes to initiate European value chains
The Competitiveness Deal in the European Council could be even stronger if the European Commission would publish its Clean Industrial Deal mid-December, including a concrete amount for industry in the Competitiveness Fund. In addition, the European Commission can set up an “economic security” taskforce that monitors activities of the US and China that could affect European companies, especially on trade and investments.
