A combination of developments and factors are leading several European leaders to favour new and old-new industrial policies. Policymakers have become increasingly quick to identify intervention points and to justify targeted state involvement in strategic sectors. In the EU, this renewed approach is closely linked to the pursuit of technological sovereignty, which is presented as a response to the influence of foreign technology firms and intensifying global competition. Industrial policy is thus framed as a key instrument for securing technological autonomy. Yet this agenda remains conceptually ambiguous. Industrial policies are costly endeavours, which helps to explain their repeated failures. Frédéric Bastiat, once warned, public interventions generate both “the seen and the unseen” costs – and large programmes of state aid have them both. Despite this, EU policy discourse continues to pursue this model while emphasising technological sovereignty, often without clearly defining its objectives.
A parallel development is the proposed “Made in Europe” initiative, which recently attracted the signatures of more than 1,000 executives from EU-based companies. It reflects a growing political consensus around the need to strengthen Europe’s industrial and technological base. In a recent op-ed, Commission Vice-President Stéphane Séjourné presented this agenda as a foundation for renewed competitiveness and strategic autonomy. This thinking is now being translated into policy through initiatives like the proposed Industrial Accelerator Act, which would impose new domestic-content requirements on strategic technologies in exchange for public subsidies.
Under the proposed Act, foreign direct investments (FDI) exceeding €100 million in emerging strategic sectors would trigger mandatory screening. Foreign investors would also be prohibited from owning more than a 49 per cent stake in firms operating in designated industries, while around 50 per cent of manufacturing inputs would need to be sourced within the EU. Together, these measures mark a decisive shift towards a more interventionist and restrictive industrial policy model. Moreover, late last year, the EU reached a preliminary agreement to strengthen its general FDI screening framework, establishing a minimum scope of review that includes dual-use technologies and critical sectors such as AI and semiconductors. The screening rules also include critical entities in energy, transport and digital infrastructure.
Support for these and other types of interventions (e.g., “Buy European”-style measures) has grown in response to the continued decline of EU’s €2.58 trillion manufacturing base amid pressure from high energy prices, competition from lower-cost Asian producers, and persistent trade uncertainty linked to US policy volatility. However, the new initiatives have also met significant resistance from countries like Germany and Italy. In a new position paper by a group of like-minded countries in Northern Europe, it is estimated that “Buy Europe” rules in public procurement could wipe out all the benefits from the EU’s current agenda for regulatory simplification. An article in the FT reports another estimate, suggesting a mandatory EU preference would increase cost of €10 billion for EU companies buying inputs and components.
Stepping back, this new agenda illustrates a renewed emphasis on localisation, control, and technological self-reliance. Like elsewhere, policymakers in Europe favouring a new attitude of interventionism and “dirigisme” rarely work with clear concepts and objectives. It is assumed rather than proven that more activism will generate the desired results, but it is increasingly clear that Europe’s industrial and technological challenge is not too little interventionism or too little spending.
Sovereignty is not Self-Sufficiency
To show how this shift is unlikely to strengthen Europe’s position, it is first necessary to clarify what is “technological sovereignty.” European policy debates frequently conflate technological sovereignty with technological self-sufficiency. Yet the two concepts are distinct.
Technological sovereignty refers to the capability and freedom to develop, acquire, adapt, and redeploy technologies, to build upon existing knowledge, and to recombine these resources in response to changing economic and strategic needs. It emphasises flexibility, learning, and integration within global innovation systems.
Technological self-sufficiency, by contrast, refers to the ability to produce critical technologies domestically and to minimise reliance on foreign suppliers. In practice, this requires strong internal research and development (R&D) capabilities, sustained public support, or long-term control over access to external technologies and inputs.
Increasingly, European policy is drifting toward this latter interpretation. This shift reflects an assumption that control over domestic production equates to strategic autonomy. However, historical experience suggests that this equation is deeply problematic. By prioritising localisation over learning and integration, policymakers risk weakening, rather than strengthening, Europe’s long-term technological capacity.
Why Self-Sufficiency Usually Fails
Debates about technological autonomy, often framed in terms of national self-sufficiency, are not new. During the late 1970s and early 1980s, Japan’s Ministry of International Trade and Industry (MITI) coordinated large-scale research programmes in computing, software, and integrated circuits. Canada and Australia similarly explored tighter foreign investment controls and sectoral restrictions. In France, the Plan Calcul initiative sought to establish a nationally controlled computing industry capable of competing with IBM. Comparable strategies appeared in telecommunications, where France, Germany, and the UK backed proprietary digital switching technologies with heavy state support. Despite differences in context and sector, these efforts shared a common logic: technological capability was expected to emerge from protection, coordination, and national control.
Although these efforts occasionally produced technically sophisticated systems, they rarely generated lasting leadership. Their successes were typically partial, temporary, and dependent on continued access to international markets and knowledge networks. Moreover, many of these strategies emerged in an era when global value chains were less fragmented and industrial capabilities could more easily be concentrated within national borders. Today’s production systems are far more complex and internationally dispersed, making comprehensive domestic control substantially more difficult and costly.
The Plan Calcul experience illustrates this limitation particularly clearly. Despite substantial public investment, French and European systems remained poorly aligned with emerging international standards and platforms. As computing shifted towards modular architectures and interoperable ecosystems, nationally oriented designs struggled to adapt. Short-term protection ultimately undermined long-term competitiveness. These historical patterns suggest that technological self-sufficiency tends to weaken, rather than strengthen, innovation capacity over time.
How Industrial Capabilities Are Built: The Chinese Model
A contrasting model is provided by China’s industrial development over the past three decades. From the early 2000s onward, policy combined coordinated state support with firm-level capabilities in large-scale production, cost control, and rapid learning. China’s emergence as a manufacturing hub was driven by the interaction between scale, cost discipline, a rapidly expanding domestic market, and systematic efforts to attract and embed foreign producers within domestic ecosystems.
This long-term orientation was visible in sector planning. In 2006, China launched a 15-year Science and Technology plan that designated low-emission and new-energy vehicles (NEVs) as one of its 62 priority areas. Under this plan, rechargeable power battery was identified as a key technology for the area. Policymakers anticipated a transition toward electric, plug-in hybrid, and fuel-cell vehicles and aligned industrial, technological, and market policies accordingly. Support gradually expanded from public procurement to private demand: in 2013, EV purchase subsidies were extended to individual consumers, accelerating market formation and enabling domestic firms to scale production, learn by doing, and reduce costs.
Over time, this same foundation allowed Chinese firms to enter increasingly complex technological sectors, including telecommunications equipment, renewable energy, advanced manufacturing, and segments of semiconductors. At the same time, major cities evolved into dense innovation ecosystems. Shenzhen illustrates how this model operates at the ecosystem level. Its competitive strength lies in dense networks of specialised suppliers, manufacturers, and logistics providers, which enable rapid prototyping, short production cycles, and continuous design iteration at exceptional speed and low cost.
Chinese firms gradually expanded market share across low-, mid-, and selected high-tech sectors where one or more of three conditions were present: high capital intensity, a large – often state-supported demand base, and emerging industries without an established global leader. As domestic capacity deepened, China also generated reverse dependencies, with foreign markets increasingly reliant on Chinese production. While most visible in low- and mid-tech industries, similar dynamics are now evident in EVs, solar energy, telecommunications equipment, and parts of robotics. These outcomes reflect decades of capability building including technology transfer and years of financial support across entire value chains rather than isolated policy interventions.
Europe is not China
Timing further compounds these differences. China’s ecosystem formation began when many advanced industries were still in formative stages, allowing domestic firms to enter emerging value chains. Europe is attempting to build comparable capabilities in sectors where production systems, supplier networks, and cost structures are already deeply integrated elsewhere. The challenge for Europe, therefore, is to strengthen its own capability base under conditions of institutional fragmentation and late entry.
The relevance of China’s experience for Europe lies less in imitation than in contrast. China is still highly dependent on foreign firms in several critical sectors, including biopharmaceuticals, high-end machine tools, commercial aircraft, and advanced semiconductors. Despite ambitious objectives, the “Made in China 2025” strategy has delivered limited results in key areas. Chinese firms continue to trail leading global competitors in market share, revenue generation, and frontier innovation. Even where progress has been made in selected segments, such as automotive antennas and telematics, this has not translated into sustained competitiveness in international markets.
At the same time, China’s industrial policies have generated significant structural imbalances. The prioritisation of high-tech manufacturing and strategic industries, combined with limited fiscal support for household consumption, has contributed to persistent overcapacity and slowing economic growth.
Importantly, the actual development of Chinese industries did not follow a coherent, centrally planned trajectory. In sectors such as automobiles, electric vehicles, and batteries, policy implementation was characterised by experimentation, fragmentation, and frequent policy reversals. Large amounts of public and private capital were invested in projects that failed to materialise, leading to widespread firm exit and repeated waves of consolidation. Many observers retrospectively attribute a high degree of rationality and control to this process that did not exist in practice.
Structural transformation in China was politically contested and socially costly, and in many cases resisted by state authorities. Nevertheless, this prolonged process of failure, restructuring, and entrepreneurial experimentation proved necessary for the emergence of commercially successful firms. China’s recent achievements therefore reflect a long period of trial-and-error rather than the execution of a stable and transferable policy blueprint, made possible by a unified and rapidly expanding domestic market, high levels of state ownership, strong political capacity to coordinate long-term industrial support, and a high tolerance for overcapacity and firm exit as part of a broader learning process.
The EU, by contrast, operates through fragmented governance structures, divided industrial and political authority between member states and EU institutions, persistent fiscal constraints, and competition rules that limit sustained, loss-tolerant capability building. These institutional features constrain the scope for large-scale, long-term industrial experimentation.
This timing problem is particularly visible in the transition towards electric mobility and digitalised manufacturing. European policymakers face competition from Chinese producers that benefit from integrated supply chains, lower input costs, and extensive production experience. Some Chinese EVs are already approaching cost parity with conventional models. These advantages further reflect structural differences in labour costs, regulatory frameworks, state support, and industrial ecosystems that cannot be easily replicated through short-term policy interventions. As a result, European initiatives increasingly resemble late-stage attempts to recreate conditions that took other countries decades to establish.
These structural constraints become clearer when examined through specific sectoral experiences – batteries and semiconductors.
Recipe of Growth: Openness and Ecosystem Development
The European battery sector illustrates the importance of openness and international integration. Although the proposed Industrial Accelerator Act emphasises strengthening domestic supply chains, much of Europe’s existing battery production capacity has been created through FDI. South Korean firms such as LG Energy Solution, SK Innovation, and Samsung SDI currently account for around four-fifths of European battery cell manufacturing capacity. With support from the European Investment Bank, LG Energy Solution developed Europe’s largest battery factory in Wroclaw, Poland, representing around 35 percent of total capacity. SK Innovation began construction of its €1.6 billion plant in Iváncsa, Hungary, in 2022, while Samsung SDI has invested more than €1.5 billion in its Göd facility since 2016.
More recently, Chinese investment has increased. In 2025, CATL began constructing a major battery plant in Debrecen, Hungary, with a potential capacity of 100 GWh per year and an investment of €7.3 billion. These projects play a central role in supporting Europe’s transition to electric mobility.
This development has been made possible by openness to foreign capital, and cross-border integration. However, emerging EU policy frameworks that emphasise ownership restrictions and localisation targets risk undermining the very mechanisms that enabled this growth. Such policies prioritise regulatory compliance over innovation and experimentation. At the same time, significant challenges remain. Forecasts of domestic production growth remain uncertain and depend on whether announced investments are actually realised. Since 2018, about 10 planned EU battery projects have faced delays, reductions, or cancellation, with some estimates suggesting that more than half of announced gigafactory capacities are at risk of delay or cancellation, highlighting the sector’s fragility and the challenges in building a competitive battery industry in Europe.
Similar limits are visible in the semiconductor sector. Initiatives such as “Chips 2.0” aim to strengthen Europe’s domestic capabilities through subsidies and regulatory support. However, building and sustaining advanced fabrication facilities is not primarily a legislative exercise. Semiconductor competitiveness depends on deeply integrated supply chains, specialised equipment, advanced materials, sophisticated packaging and testing, and long-term capital commitments. These elements emerge through sustained clustering.
Estimates examining scenarios in which Europe’s access to foreign firms is severely restricted, or, in some cases, entirely eliminated-suggest that achieving technological self-sufficiency would require rebuilding entire technology stacks. Complete technological independence would be up to ten times more expensive than investing in resilient and diversified networks, while also imposing substantial opportunity costs. In the semiconductor sector alone, rebuilding domestic capacity would require approximately €680 billion in manufacturing infrastructure, €300 billion for core software, €500 billion for cloud and AI capacity, €200 billion for digital services, and €250 billion to close skills gaps. When opportunity costs are included, total investment approaches €3.6 trillion.
Taiwan’s competitive position illustrates why such efforts are so difficult to replicate. Its experience highlights both what is possible and how difficult such success is to replicate, reflecting sustained investment beginning in the 1970s. Taiwan’s leadership stems from the development of an ecosystem that enables the reliable, rapid, and repeated industrialisation of advanced technologies. This advantage rests on complementary capabilities spanning chip design, manufacturing, packaging, and testing. This mutually reinforcing industrial structure has sustained competitiveness for decades.
Taken together, these sectoral cases suggest that technological ecosystems cannot be legislated into existence. Efforts to substitute international integration with domestic autonomy require long time horizons and, when pursued prematurely, tend to generate substantial economic costs.
Regulation, Control, and the Misconception of Power
Contemporary EU debates increasingly focus on reducing dependence on foreign, primarily American and Chinese technologies. However, this diagnosis is incomplete. Each time the EU declares its intention to “catch up,” it responds with another Act or Directive, as if ambition could be generated through regulation and paperwork alone. As a result, compliance costs rise, development cycles lengthen, and opportunities for learning diminish. Restraint is often mistaken for strength.
Technological power emerges from openness, interoperability, and early standard-setting, not from insulation. Autarky trades relevance for control, and control without relevance is not sovereignty. Yet regulatory approaches increasingly dominate European policy, to the point where innovation, scale, and global competitiveness become secondary objectives. Regulation becomes the default response even when markets remain immature, technologies are still evolving, and Europe lacks a meaningful industrial presence. As a result, many current initiatives risk remaining partial and reactive responses to structural transformations that began decades ago, rather than addressing their root causes.
Although the Industrial Accelerator Act initially targets the energy and automotive sectors, its underlying logic points toward broader application across the industrial base. This regulatory, control-oriented approach is not new, and has shaped European policies, often with counterproductive results.
In fact, EU decisions have added directly to many of the dependencies they now seek to reduce. Germany’s decision to phase out nuclear power after 2011 increased reliance on imported gas. The widespread restriction of fracking limited domestic energy production and reinforced dependence on LNG imports from Azerbaijan, Qatar, and the US. At the same time, the rapid expansion of intermittent solar and wind power, without sufficient backup capacity, has not produced proportional gains in generation or sustained reductions in energy costs. Crucially, many of these choices were sustainable only because other countries absorbed the consequences. The US’ shale revolution, along with gas production in Azerbaijan and Qatar, played a decisive role in preventing a severe energy crisis in 2022. Europe’s energy security was preserved not through self-sufficiency, but through external support.
In industrial policy, measures such as the ban on internal combustion engines have weakened parts of Europe’s manufacturing base, while large-scale spending initiatives, such as Germany’s heavy emphasis on hydrogen, which have often resulted in misallocated resources. This reflects the abrupt pace of the transition, which has frequently proceeded without a sufficiently developed industrial base or the production capabilities required to support it. Europe has attempted to accelerate decarbonisation without first securing the necessary manufacturing capacity.
Three Tests for European Technology Policy
Experts increasingly describe European policymaking as dominated by “luxury rules”- dense layers of regulation that extend across nearly every sector of the economy. These rules undermine innovation by fragmenting European markets, and slowing decision-making. Whether the Industrial Accelerator Act will ultimately be adopted remains uncertain. Nevertheless, it already offers a cautionary lesson for other proposals built on similar ambitions.
To avoid repeating past mistakes, European policymakers should return to first principles and start with a simpler approach: applying three outcome-focused tests to major industrial and technology initiatives, grounded in Europe’s actual political and economic realities.
- Learning-velocity test: Does the initiative accelerate experimentation, prototyping, and scale-up across firms and sectors? Or does it raise compliance costs, lengthen development cycles, and discourage risk-taking?
- Innovation-output test: Does the policy increase Europe’s capacity to generate breakthroughs, accelerate commercialisation, and support globally competitive firms – rather than merely reshuffling existing production?
- Pull test: Does the policy strengthen Europe’s ability to attract global talent, capital, and entrepreneurial activity, and enable European standards and platforms to diffuse internationally?
If a simple reality check returns “no” across these tests, then it is time to rethink the approach and go back to the drawing board.
Taken together, these criteria highlight a central weakness of current European technology policy: its emphasis on regulatory control and localisation does little to accelerate innovation, or strengthen Europe’s position within global technological ecosystems. European debates about technological sovereignty therefore risk mistaking regulatory control for industrial strength. Without rebalancing policy away from control tools and toward sustained capability formation, Europe risks pursuing the illusion of autonomy while falling further behind in technological relevance.