BNP Paribas economists argue Europe is under pressure from China’s industrial surge but is leveraging investment cycles in defence, electrification and artificial intelligence to adapt. They highlight that Europe is redirecting exports, retaining strengths in high value-added services and advanced manufacturing, while pursuing the ‘One Europe, One Market’ agenda to deepen the internal market and secure supply chains over the coming years.

Europe leans on new growth hubs

"China’s rise is undermining major sectors of European industry. However, as the German economy illustrates most clearly, Europe is shifting, driven by investment cycles in defence, electrification and artificial intelligence. It is redirecting its exports and managing to maintain strong positions, particularly in high value-added services, where exports to China are trending upwards."

"While a recalibration of competition rules is needed in relation to China, the challenge for Europe is not to engage in a tariff war that would backfire on its own exporters and drive up the cost of its imports of critical inputs. The challenge is to accelerate the transformation of its industrial base."

"For this purpose, Europe can rely on new growth hubs, as Spain, Portugal and some Central European economies are currently benefiting from lower production costs. It can draw on a lower-carbon electricity mix (renewables and nuclear accounted for 71% of electricity generation in 2025). The challenge now is to harness these assets in a coherent and structured manner."

"By capitalising on ongoing structural cycles – defence, artificial intelligence and energy transition – Europe is cushioning part of the ‘Chinese shock’, whilst remaining heavily dependent on industrial inputs from China. Europe’s resilience strategy will be based on three complementary pillars: shifting industrial focus towards the most promising sectors, strengthening the internal market and harmonising policies, and securing supply chains."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)