In his memoirs, Present at the Creation, former US Secretary of State Dean Acheson described the enormous task facing American planners after the Second World War.i Europe was in ruins and the United States had a clear objective: "to create a world out of chaos ... without blowing the whole to pieces in the process." Much indeed was done. Under American leadership, the foundations of a new world economic order were laid through the Bretton Woods institutions, the General Agreement on Tariffs and Trade and an expanding architecture of multilateral cooperation. Today, that order is breaking down. 

The significance of Donald Trump is not simply his personality or rhetoric. It is that large and increasingly bipartisan sections of the American political class have turned against the very trade system the United States once built. Washington now increasingly sees the old order as one in which America absorbed global surpluses while hollowing out parts of its own industrial base. Tariffs, export controls, industrial subsidies and economic coercion are no longer temporary instruments. They are becoming permanent tools of American statecraft. 

At the same time, the United States is retrenching strategically. Burden shifting, hemispheric defence and economic nationalism are becoming organising principles of American power. Even future administrations may soften Trump's language without fundamentally reversing the underlying trajectory. 

Yet Europe's challenge does not stem from Washington alone. In tearing down the old system, Trump is aided by Xi Jinping. Chinese industrial policy is now placing unbearable strain on the world economy. Through massive state support, subsidised financing, government procurement and strategic demand creation, Beijing has built manufacturing capacities without historical precedent. China is no longer merely competing within the global trading system. It is increasingly reshaping it around the logic of state-driven industrial power. The result is a macro-imbalances shock to the world economic system. 

Europe increasingly finds itself squeezed between two revisionist powers that are reshaping the international economic order in their own image. Washington is weaponising market access, tariffs and financial leverage in pursuit of reindustrialisation and geopolitical advantage. Beijing is weaponising overcapacity, export dependencies and state-backed industrial dominance. Both increasingly treat economic interdependence not as a stabilising force, but as an instrument of power. The old assumptions of mutually beneficial interdependence are eroding rapidly. Economic security, industrial policy and geopolitics are merging into a single strategic question. 

Europe's China shock 

Europe is entering a China shock of historic proportions. European assessments identify between 400 and 800 Harmonised System customs categories exposed to significant Chinese overcapacity pressure. The impact is already visible across steel, photovoltaics, electric vehicles, batteries, chemicals and machinery. But the deeper issue is not simply Chinese scale. It is the accumulation of structural industrial leverage. 

Over the past two decades, China has built extraordinary power not only through manufacturing capacity, but through the concentration of critical dependencies. From critical minerals processing and battery supply chains to clean technologies and advanced manufacturing inputs, Beijing increasingly occupies positions from which it can shape prices, squeeze competitors and weaponise access. 

China is no longer simply the world's factory. It is becoming the world's systemic industrial surplus power. This is not simply a trade problem. It is a question of whether Europe retains an industrial economy capable of sustaining technological leadership, military power and political autonomy in the future. 

The danger is not sudden collapse, but cumulative industrial erosion through dependence, market displacement and gradual loss of productive capacity. Europe increasingly finds itself in what many member states and businesses privately describe as a boiling frog scenario. Industrial capacities and technological ecosystems disappear slowly, until suddenly they are gone and dependencies become a fact. 

The next waves are already coming. Clean technologies, chemicals and machinery, the foundations of Europe's industrial model itself, are increasingly exposed. Aerospace, semiconductors and advanced manufacturing are likely to follow. This challenge is sharpened further by China's latest Five-Year Plan.ii Beijing is doubling down on self-reliance in strategic technologies including semiconductors, AI, aerospace, advanced manufacturing, quantum technologies and clean energy. Critically, overcapacity in strategic sectors is no longer treated as an unfortunate side effect of industrial policy, but increasingly as a strategic capability in itself. 

Chinese authorities are prepared deploy the full power of the state to secure industrial supremacy: subsidised finance, protected home markets, state procurement, localisation requirements, export controls, technology absorption, strategic standard-setting and the deliberate creation of industrial scale through engineered demand. The objective is no longer merely development. It is strategic dominance across the industries that will define economic and military power in the twenty-first century. 

Europe should understand what this means. China’s self-reliance agenda is increasingly a displacement strategy: replacing foreign suppliers first in China, then in third-country markets, and ultimately inside Europe itself. The implications are profound. Europe risks being hit simultaneously by a double shock: losing access to the Chinese market while also losing competitiveness inside Europe and globally. Some European companies already understand this reality. Others still operate under assumptions formed in an earlier era of interdependence. 

Europe's coercion lesson 

For years, Europe approached economic relations through the assumption that openness itself would ultimately generate convergence and stability. That assumption is breaking down. China increasingly treats economic interdependence as a strategic instrument. The United States increasingly treats economic leverage as an extension of geopolitical power. Europe has learned this lesson the hard way. It first confronted it in its relationship with Russia, where dependence on pipeline gas was turned into a form of weaponised interdependence. The energy shock surrounding Russia’s war against Ukraine demonstrated that economic exposure can no longer be treated as separate from hard security, but must be understood as one of its central dimensions. 

Over the past year alone, Europe has faced repeated cycles of coercion from multiple directions: Trump's Liberation Day tariffs and threats of wider economic retaliation, Chinese export controls on critical minerals, coercive pressure during the Nexperia affair, and even American threats linked to Greenland.iiiiv 

As European Council President António Costa said following the Turnberry negotiations with Washington, “Escalating tensions with a key ally over tariffs, while our Eastern border is under threat, would have been an imprudent risk.”v 

Taken together, these episodes reveal a fundamental shift. Europe is no longer operating inside a rules-based system in which economic relations are insulated from geopolitical pressure. It is increasingly operating in a world in which economic coercion is becoming normalised. 

The Greenland episode was particularly revealing. Only once Washington began seriously to believe that the EU might deploy the Anti-Coercion Instrument did European signalling begin to regain credibility. Europe discovered something important: deterrence begins only once others believe you are genuinely prepared to retaliate. 

Beijing noticed this as well. The immediate question then becomes: if Europe has red lines vis-a-vis the United States, what are its red lines vis-a-vis China? This is now Europe's urgent economic security question: how can Europe face simultaneous American and Chinese power play and the macro-imbalances shock reshaping the world economy? 

Capabilities without credibility 

Europe's problem is not that it lacks leverage. It is that others do not believe it will use it. On paper, the European Union possesses formidable economic capabilities. The Anti-Coercion Instrument gives the Commission broad authority to respond to coercive actions against the Union or its member states. The true power of the instrument lies in the leverage afforded by the Single Market itself. Few markets are as valuable for American technology companies or Chinese exporters as the European one. The EU also possesses anti-subsidy instruments, safeguard measures, procurement tools and foreign-subsidy rules capable of restricting market access. 

Europe additionally hosts several strategic industrial chokepoints. A recent report by the Geostrategic Europe Taskforce identified “41 critical chokepoints where China depends on the EU for more than 80 per cent of its imports, and 67 such dependencies for the United States.”vi Dutch company ASML dominates advanced lithography equipment essential for semiconductor production, and Infineon power components are critical for next-generation Nvidia processors and AI data centres. European firms remain critical suppliers in specialised machinery, chemicals and energy systems. 

Yet capabilities alone do not deter. As Edward Fishman argues in Chokepoints, economic coercion does not emerge spontaneously. It is built patiently through institutional, financial and technological control over critical nodes of the global economy.vii The United States spent decades constructing the legal and institutional machinery that allows it to weaponise the dollar system today. China is now attempting something similar across industrial supply chains and critical materials. 

In theory, deterrence is easy. As former US Secretary of State John Foster Dulles once put it, you “deter aggression by making it costly to an aggressor.” How and in what way those costs are signalled and implemented is the harder question.viii 

As the US strategist Thomas Schelling understood better than anyone, deterrence ultimately rests not simply on material power, but on the ability to communicate credible willingness to impose costs. Schelling's central insight was that deterrence is fundamentally communicative: the ability to shape an adversary's expectations.ix  

Deterrence requires credibility. At present, neither Washington nor Beijing appears particularly convinced that Europe is willing to impose significant costs in response to coercive behaviour. Over the past years, Europe has repeatedly signalled reluctance to act in ways that might also impose costs on itself. This has created a profound credibility deficit. 

As Robert Jervis put it, a credible deterrent depends on “the perceived cost of the punishments that the actor can inflict and the perceived probabilities that he will inflict them.” Europe’s problem is not primarily lack of capability. It is that both Washington and Beijing increasingly discount Europe’s willingness to bear the costs of confrontation.x Europe today is widely perceived as predictably pliant. That perception matters enormously because coercion works best against actors perceived as unwilling to bear economic pain. 

The problem is ultimately political. European leaders still struggle fully to grasp the scale of the geoeconomic shift underway. Many continue to engage China primarily through a traditional market-access lens focused on deals and commercial opportunities, even as Beijing accelerates self-reliance and strategic decoupling. Yet if Europe fails to prepare politically now, the options may simply disappear. Within a few years, industrial decline, technological dependence and supply-chain displacement may lock in irreversibly across key sectors. Europe therefore requires not merely new instruments, but a new strategic mindset. 

A doctrine of reactive assertiveness 

In late 2025, many in Europe expected the Commission finally to articulate a genuine economic security doctrine. Instead, what emerged was a halfway communication: important in parts, but ultimately still hesitant about the scale of the geoeconomic rupture now confronting Europe.xi The problem is no longer simply one of refining trade policy tools. It is one of strategic doctrine. 

The European objective cannot realistically be to reshape China or restore the world of hyper-globalised interdependence that characterised previous decades. Rather, the emerging task is one of resilient coexistence: ensuring that Europe can continue to prosper and remain politically autonomous without allowing either Washington or Beijing to shape its strategic choices. 

To achieve this, Europe requires its own doctrine of reactive assertiveness.xiixiiixiv Such a doctrine would not seek confrontation for its own sake, nor pursue indiscriminate protectionism. Rather, it would define clear red lines, prepare credible response mechanisms in advance, and react automatically and proportionately when coercive behaviour occurs. The key lesson from recent years is straightforward: deterrence without visible willingness to act does not deter. 

As Keren Yarhi-Milo has argued “a reputation for resolve is one of the hardest things for leaders or states to control.”xv Resolve is not declared. It is inferred from behaviour. Europe therefore cannot restore credibility through declarations alone. It can do so only through repeated demonstrations that coercion and escalation will trigger meaningful European responses. 

Europe can no longer afford to remain trapped in a pattern in which it is perceived as always barking and never biting. As Jervis noted, “while subtlety and sophistication in a policy are qualities which observers usually praise and statesmen seek, these attributes may lead the policy to fail because they increase the chance that it will not be perceived as it is intended.” Europe’s problem today is not excessive strength, but insufficiently legible resolve. This requires a psychological shift. The era in which Europe could separate competitiveness policy from economic security policy is over. Industrial erosion is now a strategic vulnerability. Dependence creates coercion risks. Supply chains have become geopolitical assets. 

A European Section 301 

The EU’s first priority must be to strengthen and accelerate the current toolbox. Europe should refine import surveillance mechanisms and deploy safeguard measures far more rapidly in sectors facing systemic overcapacity shocks, such as chemicals and machinery. At the same time, traditional product-by-product trade defence instruments are too slow to address challenges of this magnitude. Europe must be prepared to stack measures, absorb short-term costs and defend strategic sectors before industrial ecosystems disappear irreversibly. 

But beyond that, Europe requires a more credible assertive instrument of its own. Existing EU mechanisms remain too fragmented, too legalistic and too slow to address systemic geoeconomic pressure. Europe should therefore seriously consider creating a European equivalent to Section 301 of the US Trade Act. What Europe currently lacks compared to the United States is not trade instruments as such, but speed, centralisation and strategic discretion. Existing European tools remain fragmented across anti-subsidy investigations, safeguards, procurement measures and legal procedures that often take years to conclude. They are still designed for a slower WTO-centred era. 

A European Section 301 would represent something fundamentally different: a mechanism capable of rapidly investigating systemic distortions, assertive behaviour and macroeconomic destabilisation, and of deploying proportionate retaliatory measures before industrial damage becomes irreversible. 

The critical shift would be doctrinal as much as institutional. Existing European instruments still largely depend on lengthy legal procedures and narrowly defined evidentiary thresholds rooted in a WTO-centred system. A European Section 301 would move closer to the logic long embedded in American economic statecraft: that political determination of systemic unfairness or coercion can itself justify action. Alternatively, such a mechanism could operate through automatic triggers tied to clearly defined thresholds of overcapacity, loss of own productive capacity or discriminatory behaviour. The point would be to reduce the gap between recognising a strategic threat and acting upon it. 

The purpose would not be indiscriminate escalation. The purpose would be credibility. Europe must be capable of putting something on the table that credibly signals that sustained coercion, overcapacity dumping or strategic market distortions will trigger a response, including, if necessary, restrictions on access to the Single Market. Such an instrument should not formally target China or any other country specifically. Rather, it should provide Europe with a mechanism capable of managing the consequences of simultaneous American and Chinese power politics and the macro-imbalances shock reshaping the global economy. 

Europe must stop thinking purely defensively. The task is not simply to shield Europe from pressure, but to create enough credible leverage that others must factor European responses into their own strategic calculations.EU leaders must prepare institutionally for a world of permanent escalation management. Economic coercion increasingly emerges simultaneously across trade, technology, security, critical minerals and geopolitics. The EU currently lacks the transversal capacity required to analyse and manage such multi-domain escalation scenarios. Proposals for a European Economic Security Council therefore deserve serious consideration.xvi 

Finally, Europe's challenge is not purely economic. China's partnership with Russia, the re-export of dual-use technologies and the possibility of a Taiwan crisis all raise urgent questions for European deterrence. Can Europe deter a Chinese blockade of Taiwan? What economic response capacities would Europe actually possess? How would Europe expose the global costs of such a scenario? How would it communicate credibly to Beijing that a Taiwan crisis would become a path of mutual economic destruction? Europe has barely begun to confront these questions. 

At the same time, Europe should avoid caricaturing China as invulnerable. China itself faces slowing growth, weak domestic demand, high youth unemployment and increasing reliance on exports. Beijing needs access to the European market more than ever. That reality matters because it also constitutes leverage, if Europe is willing to use it. 

The price of action and the price of inaction 

The EU does not need to dominate the international system, nor mirror either American unilateralism or Chinese state capitalism. But it cannot remain a bystander as Europe becomes a playing field for the power politics of the US and China.  

The era of unconditional openness is ending. The task now is to preserve Europe's industrial capabilities, political autonomy and strategic room for manoeuvre in a world increasingly defined by coercion, overcapacity and great-power rivalry. Europe must therefore prepare its publics for an unavoidable reality: there is a price to pay for acting against coercion and industrial distortion through retaliation, higher costs and economic friction. But there is also a price to pay for not acting. That price may ultimately be much higher: industrial decline, technological dependence, loss of innovation ecosystems, strategic vulnerability and gradual loss of political autonomy. 

The central challenge for Europe is therefore no longer simply competitiveness. It is whether Europe retains the industrial, technological and political foundations required to remain an autonomous power in the future. To do so, Europe will require not only capabilities, but credibility, not only markets, but red lines, not only instruments, but the willingness to use them. The costs of action will be real. But the costs of strategic passivity may prove irreversible.

This is an essay found in the Brussels Economic Security Review vol. 1. Read the full Review here.