Russia’s war in Ukraine and the COVID-19 pandemic have taken their toll on the global economy hitting supply chains particularly hard. Suddenly, businesses in Europe are faced with a new political reality and a much riskier marketplace.
The good news is that help may be out there.
Even before the war, companies such as IKEA reported a drop in full-year profits due to higher transport and raw material costs which in turn led to higher prices. Other sectors have not been spared either. Siemens Gamesa, the windmill manufacturing powerhouse, have seen their value cut in half in 2021 as the supply chain disruptions affected its profit on a year-on-year decline of 20.3%. To make matter worse, the political risk of global trade is at its highest. For example, Lithuania is facing retaliatory measures from China over strengthening its bilateral ties with Taiwan. As a result, semi-conductors scarcity led to a shortage of essential economic goods for European industries.
This has led the European Commission to table measures increasing the EU’s strategic autonomy and lowering political risk along supply chains for businesses operating in Europe. The measures help large corporations as well as small and medium enterprises. In order to navigate the realities of a much riskier marketplace it is important now more than ever to understand how to access help and engage with the new tools that businesses have at their disposal. And at the heart of these measures sits one concept: strategic autonomy.
The idea of EU strategic autonomy has been floating around Brussels for quite some time. It initially defined the EU’s defence industry policy in 2013. According to the Council conclusions of 2016 strategic autonomy is “the capacity to act autonomously when and where necessary and with partners wherever possible.” Since then, the evolving geopolitical context has forced the EU to apply strategic autonomy to other areas such as sustainability, trade, industry and business. But how exactly will this concept impact supply chains?
A stronger voice on the world stage
First of all, the concept of strategic autonomy will mean more dialogue between Brussels and stakeholders across Europe. For example, in February 2022, the Federation of German Industries (BDI) published an op-ed on the need to defend current international technology standards. In response, the Commission recognized technology standards as a vital EU interest and released its global standardisation strategy. It also opened an EU-wide consultation to identify those exact technology patents essential to international standards setting. This example illustrates the Commission’s strategy to inclusively define EU interests and defend them on the global stage. The Commission also launched its supply chain resilience platform helping small and medium enterprises navigate the new political risks inherent in global supply chains. If this trend continues, EU business will gain a stronger voice in key international bodies and a responsive partner at home.
Looking for friends
Second of all, strategic autonomy will mean that the EU will focus on creating global strategic and trusted partnerships. For example, the European Commission showcased its Global Gateway strategy in December 2021, the European “Belt and Road Initiative.” The Global Gateway aims to invest EUR 300 billion in global infrastructure projects with the aim of “boosting the competitiveness and security of global supply chains.” This strategy will not only present opportunities for those who will build the infrastructure in the near term but will also stabilize sectors in the EU market with a high dependency on global supply chains. The same can be said for the EU’s Indo-Pacific strategy which will increase the EU’s engagement in the region in key areas such as maritime affairs, trade and investment. However, it can be reasonably expected that priority over the long term will be given to those partners who share the same values, much like the US’ own strategy for the Indo-Pacific. Understanding the emerging political map will help locate future opportunities.
Finally, strategic autonomy will mean that Brussels will take the lead in establishing key industry ecosystems. The European Chips Act is just such an example. Internal Market Commissioner Thierry Breton stated that the Chips Act will not solve the semiconductors crisis in Europe overnight. Instead, it will provide the sustained economic incentives necessary for key market actors to establish a sustainable ecosystem to produce semiconductors in Europe. The Commission’s goal is for Europe to produce 20% of the world’s semiconductors. The EU will also take the lead in emergency situations. For example, the Commission will implement a collective oil and gas buying mechanism, thus leveraging the collective purchasing power of its Member States.
High Representative Josep Borrell once called the idea of strategic autonomy the Sinatra doctrine: Brussels doing things its own way, independently. While that may have sounded like risky business in the past, nowadays it looks more and more like Brussels is in a unique position to lend those back home some help and shape global trade and politics. Stable and durable supply chains are a good place to start.