Europe is currently readjusting its economic policies: On one hand, the EU Commission is advancing its free trade agenda with new partners, while on the other, it addresses unfair trade practices by third countries and increasingly seeks to protect its industry. The "Industrial Accelerator Act" (IAA) symbolises this balancing act. The draft report on the IAA, published by the European Parliament in mid-September, strongly leans towards industrial policy interventionism—indicating the direction the debate might take.

Companies under pressure

Rising hurdles in foreign trade and numerous unfair trade practices by third countries pose challenges for German companies both domestically and abroad. Increased bureaucracy and costs further burden businesses. As confirmed by the DIHK survey "Going International": 69% of internationally active companies report an increase in trade barriers in their foreign operations—a record high in the survey's history. Furthermore, even 83% of companies are affected by additional regulatory and administrative requirements from Germany and the EU.

Creating resilience through diversification

Europe should internationally advocate even more strongly for rules-based trade while simultaneously improving domestic location factors across the board. Where necessary and appropriate, the protection of certain industries from unfair trade practices should also be addressed. At the same time, Europe must avoid getting drawn into trade conflicts, excessive market interventions, or subsidy races. Equally important is the conclusion of further trade agreements to reduce dependencies and open new markets. More resilience is achieved not through isolation but through diversification.

Protectionism and subsidy races come with a cost

The Industrial Accelerator Act marks a paradigm shift in previous European industry and trade policy. The approach proposed in the IAA, preferring EU-produced products in public procurement and funding, protects European manufacturing. However, this plan significantly interferes with entrepreneurial freedom and is likely to result in additional costs for public institutions and consumers, with the economic impact remaining unclear. Moreover, there is a risk of yet-unknown side effects. A look at steel protection measures illustrates the potential sector-specific consequences: downstream sectors are increasingly grappling with rising costs and a weakened competitive position in international business.

Ensuring targeted industrial policy interventions

When policymakers take measures to protect industries, they should be targeted, temporary, and used only as a last resort. Legislators should also consider the effects on other parts of the economic value chains. So far, these criteria are insufficiently met in the IAA.

Strengthening Europe and expanding technology leadership

Autarky in many global value chains is neither realistic nor desirable. International division of labour has significantly contributed to the economic success of Germany and Europe. Therefore, the primary focus should be on improving conditions in Europe: reducing bureaucracy, lowering energy costs, accelerating approval processes, driving digital transformation, and strengthening the scaling of disruptive innovations. The research base in Germany and Europe already exists—now technology leadership must also be expanded, for example, through better implementation of ideas into new products or business models.

Positive signals, such as adjustments to the AI Act to facilitate the use of industrial AI, are steps in the right direction. Especially the industrial SMEs need a powerful digital infrastructure to enable the widespread application of new technologies like AI. In addition, coordinated and temporary funding instruments—such as "Important Projects of Common European Interest"—can be helpful in disseminating technologies across Europe.