cogitatio

Volume 12
2024

Open Access Journal

ISSN: 2183-2463
Politics and Governance, 2024, Volume 12
The Geoeconomic Turn in International Trade, Investment, and Technology

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Academic Editors
Milan Babić (Roskilde University)
Nana de Graaff (Vrije Universiteit Amsterdam)
Lukas Linsi (Rijksuniversiteit Groningen)
Clara Weinhardt (Maastricht University)

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 Table of Contents

The Geoeconomic Turn in International Trade, Investment, and Technology

Milan Babić, Nana de Graaff, Lukas Linsi, and Clara Weinhardt

The Myth of Deglobalization: Multinational Corporations in an Era of Growing

Geopolitical Rivalries
Lukas Linsi and Ellie Gristwood

Chinese Multinationals and Europe’s Geoeconomic Turn: The De‐Globalization of the Chinese
ICT and Automotive Industry?
Philipp Köncke and Nana de Graaff

A Chip War Made in Germany? US Techno‐Dependencies, China Chokepoints, and the German
Semiconductor Industry
Julian Germann, Steve Rolf, Joseph Baines, and Sean Kenji Starrs

The New EU Industrial Policy: Opening Up New Frontiers for Financial Capital
Angela Wigger

A Regulatory‐Developmental Turn Within EU Industrial Policy? The Case of the Battery IPCEIs
Helena Gräf

Drivers and Limits of the Geoeconomic Turn in EU Infrastructure Policy

Joscha Abels and Hans‐Jürgen Bieling

US Critical Mineral Policies and Alliance Strategies in an Age of Geopolitical Rivalry

Anastasia Ufimtseva, Jing Li, and Daniel M. Shapiro

The EU De‐Risking of Energy Dependencies: Towards a New Clean Energy Geopolitical Order?
Tomasz Jerzyniak

Industrial Alliances for the Energy Transition: Harnessing Business Power in the Era
of Geoeconomics
Riccardo Bosticco and Anna Herranz‐Surrallés

Latin American Involvement in the 21st Century Geoeconomic Turn: A Qualitative

Comparative Analysis
Julieta Zelicovich

The Geoeconomic Turn in EU Trade and Investment Policy: Implications for

Developing Countries
Clara Weinhardt and Ferdi De Ville
Politics and Governance
2024 • Volume 12 • Editorial 9031
https://doi.org/10.17645/pag.9031

EDITORIAL Open Access Journal

The Geoeconomic Turn in International Trade, Investment,

and Technology
Milan Babić 1 , Nana de Graaff 2 , Lukas Linsi 3 , and Clara Weinhardt 4
1
Department of Social Sciences and Business, Roskilde University, Denmark
2
Department of Political Science and Public Administration, Vrije Universiteit Amsterdam, The Netherlands
3
Department of International Relations and International Organization, Rijksuniversiteit Groningen, The Netherlands
4
Department of Political Science, Maastricht University, The Netherlands

Correspondence: Lukas Linsi ([email protected])

Submitted: 24 July 2024 Published: 19 September 2024

Issue: This editorial is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
This thematic issue brings together a set of articles that empirically map the state of the ongoing
geoeconomic turn in the global political economy from an international political economy (IPE) perspective.
Changes in the modus operandi of the global political economy urge the development of new conceptual
and theoretical tools to grasp the new geoeconomic reality of world affairs. At the same time, the
contemporary study of geoeconomics remains theory‐centred and focused on its security dimension,
thereby underplaying the empirical nuances and variegated aspects of these developments. We therefore
make the case for an empirically grounded study of concrete cases and instances of the geoeconomic turn,
which can then deliver insights for further theory‐building. Likewise, many aspects of the geoeconomic turn
cannot be explained by security logics only, but have political economy roots that need to be brought to the
foreground. Our thematic issue excavates these dynamics across four key challenges for the global economy:
the role of states and firms in a geoeconomic world; global technological competition; the green transition;
and implications of the geoeconomic turn for the non‐Western world. Collectively, the contributions
demonstrate that the geoeconomic turn is only starting to concretely (and partially) materialize and that
these transformations, in many cases, tend to replicate existing power structures that prioritize capital(ist)
interests related to profit‐maximisation over societal interests, ecological sustainability, or social equity.
We close by delineating prospects for further IPE research into the ongoing geoeconomic turn in the global
political economy.

Keywords
geoeconomics; geopolitics; global economy; international political economy; investment; technology; trade

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

The geoeconomic turn in the global political economy amounts by now to an established research program
in the fields of international relations, international political economy (IPE), European studies, and economic
geography (Babic et al., 2022; Herranz‐Surrallés et al., in press; Poon, 2024; Rosén & Meunier, 2023). Following
a period of rapid expansion in the 1990s and 2000s, the global economy experienced declining cross‐border
capital flows as well as slowing trade and investment growth in the aftermath of the global financial crisis of
2008 (James, 2018). This movement towards “slowbalization” (Linsi, 2021) coincided with the economic and
political rise of China and other (re‐)emerging powers, which chose to selectively integrate into world markets
while at the same time rolling out alternative paths and rulesets to global governance, thereby challenging
the notion of a universal liberal world order (de Graaff & van Apeldoorn, 2018). The global rise of economic
nationalism and the coming to power of figures such as Trump and Bolsonaro, or the success of the Brexit
campaign, further undermined teleological understandings of globalization. By the mid‐2010s, these political
tendencies had become increasingly pronounced: The US and China engaged in a trade and technology “war,”
leveraging tools of economic statecraft against each other (Germann et al., 2024); many European countries
introduced inward investment screening mechanisms (Bauerle Danzman & Meunier, 2023); and state‐directed
industrial policy was resurging as a central element of economic policy‐making in the OECD and beyond (Abels
& Bieling, 2024; Bulfone, 2023; Gräf, 2024; Wigger, 2024). Compared to the preceding phase of neoliberal
globalization, these aspects amount to a geoeconomic “turn” in the global political economy (Herranz‐Surrallés
et al., in press; Rosén & Meunier, 2023). In this thematic issue, we propose to unpack the contours of this turn
in empirical terms and from an IPE perspective. We seek to bring to the forefront the global political economy
dynamics that underpin and shape geoeconomic competition and hence drive much of the more security‐ and
state‐centred dynamics observed by other contributions.

Academic work on various aspects of this geoeconomic turn is proliferating but has traditionally centred on
conceptual, theoretical, and historical work. Early contributions like Blackwill and Harris (2016), following the
Luttwakian tradition, understood geoeconomics as a variation of economic statecraft, a re‐articulation of the
projection of state power across borders in a globalized economy. However, the political economy of
geoeconomics is hardly reducible to great power competition. It involves a variety of actors other than states,
including firms, social groups, and international institutions (Babic et al., 2022). More recent contributions
have shifted focus on the regulatory aspects of the geoeconomic turn (Herranz‐Surrallés et al., in press;
Rosén & Meunier, 2023), in which state actors, however, remain central. They have introduced political and
governance‐related changes that potentially slow down or even reverse the logic of decades of economic
integration. Yet, geoeconomic attempts at decoupling or derisking often clash with the realities of globalized
economies, e.g., intertwined supply chains, complex corporate structures across multiple jurisdictions, or
arcane financial networks reducing the effectiveness of tools of economic statecraft (see also Linsi &
Gristwood, 2024). To more comprehensively understand the geoeconomic turn, it is thus necessary to
complement a focus on the policy‐regulatory level with the analysis of global economic structures. Such a
re‐thinking and broadening of the rubric of geoeconomics opens up a variety of new research avenues.

Our thematic issue picks this thread up and seeks to advance scholarship on the geoeconomic turn through an
empirically focused IPE angle. In doing so, we endorse a diverse range of perspectives that allow us to assess
the turn in light of the interplay between political and economic actors and changes (or the lack thereof) in the
global economy. What does it mean when we say that firms, international institutions, and other non‐state

Politics and Governance • 2024 • Volume 12 • Editorial 9031 2

actors become more central to global geoeconomic competition? In which way do we see value and supply
chains transformed and what does this transformation bring about for various actors, regions and countries,
also beyond the US–China–EU triad? How exactly are economic policy instruments and related strategies
being adjusted and with what implications? If security is not the only driver and objective of renewed global
rivalries, what are the sources and consequences of concrete geoeconomic engagement? In which sectors and
segments of the global political economy do we see historical continuities and where can we detect change
as a consequence of these developments? By focusing on concrete cases and instances of the geoeconomic
turn, the articles in this thematic issue can help to answer these questions in an empirically substantiated way.
Thematically, the collection foregrounds four contemporary challenges related to the geoeconomic turn: the
role of states and firms in a geoeconomic world; global technological competition; the global green transition;
and implications of the geoeconomic turn for the non‐Western world.

Taken together, the empirical IPE lens adopted in this thematic issue delivers two main results: First, we
observe that, in contrast to the preceding phase of neoliberal globalization, the geoeconomic turn at the
policy‐regulatory level indeed signals a potential sea change in the modus operandi of the global economy.
Yet, the political changes and material effects (e.g., regarding corporate re‐organization) are still in the
process of being realized. They are subject not only to institutional inertia and path dependencies but also to
political agency and contestation by various involved actors. The “regulatory phase” of the geoeconomic
turn thus does not translate smoothly into, or correspond to changes in, economic structures. Instead, we
observe uneven and partly contradictory outcomes. Second, we observe that the geoeconomic turn tends
to replicate existing power structures that lend more weight to capital(ist) interests related to
profit‐maximisation as compared to societal interests. Moreover, confrontational state relations and the rise
of security concerns make it even more difficult to orient the world economy towards societal interests such
as ecological sustainability or (social) equity in international relations.

2. Four Challenges of the Geoeconomic Turn and This Thematic Issue’s Contributions

2.1. States and Firms in a Geoeconomic World

The role of (multinational) corporations and their relationship to nation‐states is a topic at the heart of the
field of IPE (Strange, 1991). The rise of (mostly American) large corporations as core actors in global politics
at the end of the 1960s was consolidated in the post‐Cold War world of neoliberal globalization, where
multinationals became powerful global actors, sometimes on par with the financial might of nation‐states
(Babic et al., 2017). At least since the outbreak of the Covid‐19 pandemic in early 2020, themes such as
“nearshoring,” “reshoring,” “decoupling,” or “derisking” have dominated debates around corporate
restructuring in a geoeconomic world (Linsi, 2021). In contrast to what proponents of economic nationalism
sometimes suggest, however, our contributions show that the geoeconomic turn does not necessitate that
corporations lose power to nation‐states. Corporate and state power transform slowly in specific segments
of world politics and a geoeconomic lens helps us trace these changes empirically.

The article by Linsi and Gristwood (2024) asks how far the anti‐globalization backlash is reflected in actual
corporate re‐organization. They look at cross‐border investment data, collected from different sources and at
various levels from firm‐level ownership information to FDI statistics. The article focuses empirically on the
evolution of US FDI positions in China, which the authors identify as the most likely case of contemporary

Politics and Governance • 2024 • Volume 12 • Editorial 9031 3

deglobalization. Pushing back against conventional wisdom in news headlines and public debates, Linsi and
Gristwood do not find compelling evidence for deglobalization or dwindling economic integration. Rather,
their results reflect continuity and stability in this important economic relationship. Corporate actors seem
to rethink and rewire their cross‐border investments but create arguably “new forms of internationalization
rather than the end of globalization” (Linsi & Gristwood, 2024, p. 1).

The contribution by Köncke and de Graaff (2024) complements this analysis by focusing on the China‐EU
investment relationship. The authors specifically focus on the Chinese ICT and automotive industries since
2000 and how their FDI and other collaborative ties with European firms developed under increasing
geoeconomic competition. They draw on corporate data from Thomson Reuters and the Global China
Investment Tracker and combine this firm‐level data with a novel measure for the degree of party‐state
permeation of Chinese firms. Similar to Linsi and Gristwood, the authors find that the Chinese expansion
into Europe is continuing, albeit in modified ways. More specifically, they find that the extent of adaptation
is moderated by the degree of involvement by the Chinese Communist Party: Firms with high levels of
state‐permeation experience the geoeconomic turn much more directly than those with lower levels. These
results again challenge simplistic narratives about deglobalization or decoupling between China and the
rest of the world, and urge us to better understand empirical realities when it comes to studying the
geoeconomic turn.

Germann et al. (2024) then bring together the geoeconomic “triad” of the EU, China, and the US by zooming
in on a core case of contemporary technological competition, namely the German attempt to reconcile its
“techno‐dependency” on the US with its export‐dependency on China. Drawing on firm‐level ownership
data, the article maps the German semiconductor network and finds strong ties to its domestic automotive
industry—which is in turn highly dependent on the Chinese export market. This connection, the authors
propose, helps to explain the reluctance of German policy‐makers to comply with the US tech decoupling
policies and illustrates the emerging complexity of global geoeconomic competition. The authors also
empirically demonstrate the key role firms play as geoeconomic actors and how they wield power in
variegated and cross‐sectoral ways.

All these three articles deliver important empirical and firm‐level insights on the state of the geoeconomic
turn. Their findings suggest that the geoeconomic turn is a “work in progress,” but also raise doubts about
whether it will anytime soon fully materialize on the corporate level: scenarios such as deglobalization (Linsi &
Gristwood, 2024), EU–China decoupling (Köncke & de Graaff, 2024), or derisking (Germann et al., 2024) are
in reality fraught with tensions, contradictions, and complexities that render the feasibility of such political
attempts questionable.

2.2. EU Industrial Policy in the Context of Global Tech Competition

The return of industrial policy in Europe and elsewhere constitutes one of the most visible signifiers of the
geoeconomic turn. Existing literature has identified a notable shift away from the neoliberal market‐making
role of the state in policymaking (van Apeldoorn & de Graaff, 2022). Three contributions in the thematic issue
deal specifically with this shift (Abels & Bieling, 2024; Gräf, 2024; Wigger, 2024), focusing on different—yet
interrelated—aspects of the return of industrial policy in an EU struggling to position itself in the US–China
tech rivalry (see also Germann et al., 2024; Weinhardt et al., 2022).

Politics and Governance • 2024 • Volume 12 • Editorial 9031 4

The contribution by Wigger (2024) points to the importance of the underexplored financing strategies
underpinning the EU’s (new) industrial policy. Offering a critical IPE analysis, Wigger places the financing of
the EU’s industrial policy in a broader historical perspective. The article emphasizes the role and interests of
powerful financial and industrial capital and shows that the debt‐financing strategies in contemporary EU
industrial policy primarily benefit the interests of fractions of industrial capital in technology‐intensive value
chains and financial capital. In contrast, organized labor and wider society are largely excluded from these
(re)investment decisions, which, Wigger concludes, does not bode well for the long‐term ecological,
economic, and social sustainability of the EU’s new industrial policy.

The article by Gräf (2024) offers a complementary analysis which zooms into one of the new governance
instruments in the toolkit of EU industrial policy: the so‐called Important Projects of Common European
Interest (IPCEI)—cross‐country industrial policy projects in which firms from multiple member states
collaborate on strategic key technologies and their value chains. Gräf interprets these IPCEI as novel vertical
governance tools, representing a gradual and partial “regulatory‐developmental turn” within EU industrial
policy. Focusing on two Battery IPCEIs, the article unravels the complex interplay of public and private
actors, funding, and governance instruments involved. The findings show how IPCEI can be seen as a novel
type of state aid, yet also demonstrate fragmented and conflicting state activity across Europe. Moreover,
the article illustrates how these novel governance tools can replicate asymmetric corporate power dynamics,
benefitting lead firms in the automotive production networks while lacking strong social and environmental
conditions due to their prioritization of technological and economic goals.

Abels and Bieling (2024) focus on strategic infrastructure policies in the EU. Highlighting their historical link
to industrial policy, they argue that the new triad competition between the US, China, and the EU over
strategic infrastructure has led the EU to adopt a more state‐interventionist approach that aims to assert
greater control over transnational value chains and related spaces, including land, oceans, airspace, outer
space, and cyberspace. Using critical geography and IPE concepts, Abels and Bieling analyze how four logics
(geoeconomic, capitalist, ecological, and social‐integrative) influence EU infrastructure policies and examine
the political alliances of state and business actors involved. Based on a comparative case study of two major
infrastructural projects—Gaia X, a federated data infrastructure project, and the Hydrogen Strategy—they
find that although a geoeconomic design logic has been primarily driving these projects, it has been both
supported and hampered by a capitalist logic. Especially in the case of Gaia‐X, the article concludes,
European and non‐European transnational capital(ists) have been able to shape the geoeconomic turn in
their favor, while the ecological and social‐integrative design logics in both of these infrastructure projects
were largely sidelined and subordinated.

Highlighting multiple dimensions of contemporary EU industrial policy, these three articles provide crucial
empirical insights into the regulatory advancement of the geoeconomic turn, with a focus on how this plays
out in Europe. A common thread is their attention to how (public) policy‐making is grounded in structures of
capitalist production and finance and how these interplay with state agency. While the EU’s revival of industrial
policy in the context of the geoeconomic turn signifies potentially crucial policy shifts, it also replicates and
reinforces existing uneven and exploitative power structures that tend to prioritize capital(ist) over societal
interests, and economic growth and profit over long‐term ecological sustainability and social equity.

Politics and Governance • 2024 • Volume 12 • Editorial 9031 5

2.3. Green Transition

The climate crisis results from deeper causes that clearly precede the historical period analyzed in this
thematic issue (Paterson, 2021). Yet, a greater sense of urgency on behalf of states and societies to avert a
potentially catastrophic climate collapse temporally coincides and intersects with the geoeconomic turn.
For one, the escalation of geopolitical tensions in the wake of Russia’s full‐scale military attack on Ukraine in
February 2022 has reshaped the geography of fossil energy markets. But also state‐led efforts to accelerate
the energy transition through investments in green technologies are tainted with geoeconomic thinking,
frequently emphasizing national competitiveness, and global rivalries more than the common good they are
supposedly designed to achieve. Together, as several contributions to this thematic issue highlight, these
developments at the nexus of geopolitics, energy, and technology have contributed to reshaping states’
internal (domestic) and external (alliance‐building) strategies in a global economy.

Adopting a realist perspective, the contribution by Ufimtseva et al. (2024) focuses on the strategies adopted
by the US, as an incumbent hegemon, to push for the green energy transition without becoming too
dependent on its main challenger, China, which dominates processing capacities for several critical minerals
(e.g., lithium, cobalt, graphite, and rare earth metals). As the authors show, the US state has adopted both
internal (e.g., investment screening mechanisms) and external strategies (e.g., the strengthening of the Five
Eyes partnership) to undermine and counterbalance China’s dominant position. While the intention at the
policy‐regulatory level seems clear, it remains to be seen whether these strategies will also be effective.

The contribution by Jerzyniak (2024) shifts attention from the US back to the EU. Analyzing EU strategies to
reorient their global positioning in markets for natural gas, critical minerals, and hydrogen in the wake of the
Ukraine war, the article argues that energy derisking may trigger important transformations in EU foreign
policy. Since the lack of sufficient local energy resources does not allow the EU to derisk through turning
inwards (e.g., by adopting protectionist tools), Jerzyniak demonstrates EU officials’ deliberate strategy to
rebuild and manage its (“clean”) energy relationships in a way that avoids overt dependence on any one
supplier. At the same time, EU clean energy derisking still expresses desirability and intentionality rather
than tangible results (Jerzyniak, 2024). Furthermore, as the article also empirically shows, the targeted new
energy partners include various authoritarian regimes and states with close relations to China, potentially
fomenting new tensions between the EU’s energy needs and political ideals.

In addition to reorienting its energy suppliers network, the EU has also adopted policy instruments aimed at
supporting European businesses in their quest to become global green tech leaders. One key effort is the
setting up of so‐called Industrial Alliances designed to strengthen public‐private collaboration, which is
analyzed in the contribution by Bosticco and Herranz‐Surrallés (2024). Drawing from theories of governed
interdependence, the authors compare this novel type of EU industrial policy in the batteries, raw materials,
hydrogen, and photovoltaic sectors. Their findings indicate that the initiatives have had some success
(to varying extents across sectors) in facilitating coordination and information sharing among partners.
At the same time, they emphasize how the multilevel character of the EU poses significant obstacles to their
implementation and identify tensions between the EU’s geostrategic narratives and commercial realities.

Together, these three articles demonstrate how policymakers on both sides of the Atlantic pursue domestic
and foreign policies with the ambition to derisk their energy relations and give their companies an advantage in

Politics and Governance • 2024 • Volume 12 • Editorial 9031 6

shaping the clean energy technologies of the future. At the same time, they also emphasize the challenges that
these strategies entail and how geostrategic narratives can clash with economic realities in globally intertwined
economies. The vagaries of complex interdependence mean that attempts at derisking can, inadvertently,
generate new risks. At the same time, the lead of China in critical minerals processing and green technology
is currently so significant that attempts at decoupling may simultaneously hinder the West’s ability to meet
its climate goals (see also Hameiri & Jones, 2023).

2.4. Implications of the Geoeconomic Turn for the Non‐Western World

Scholarly engagement with the concept of the geoeconomic turn has partly emerged from the observation
that great powers increasingly use the policy‐regulatory level to shape their power position vis‐a‐vis perceived
rivals. However, we still know relatively little about how the geoeconomic turn plays out in regions of the world
other than the US and EU. To uncover the global contours of the geoeconomic turn, scholarship also needs to
become less Western‐centric. The contributions of this thematic issue that focus on the Global South indicate
that if we look beyond the West, political and governance‐related changes and their impacts vary across
regions and countries.

The contribution by Zelicovich (2024) points out that, in contrast to the assumption that only great powers
can play active roles in geoeconomic trends, Latin American countries also make active use of economic
statecraft. They use economic statecraft to promote values such as democracy and human rights, apply
extra‐regional sanctions, and resort to coercive strategies to exert pressure on third actors’ policies that are
perceived to contradict the strategic interests of the region. Precautionary defensive strategies are also
emerging, as evidenced by Bolivia’s president’s call for a joint Latin American lithium policy in 2023.
In contrast to the Asia Pacific, however, Latin America remains less involved in derisking and managing
security externalities (see Breslin & Nesadurai, 2023).

Finally, the contribution by Weinhardt and De Ville (2024) reminds us that to assess the implications of the
political and governance‐related changes that take place in Europe, we need to look beyond great power
relations. Many of the new defensive trade and investment instruments of the EU potentially impact trade
relations with the developing world. Their analysis shows that sustainability‐related defensive trade
instruments such as the deforestation regulation or the carbon border adjustment mechanism are likely to
be particularly detrimental for producers in (selected) developing countries. Yet, in their design, these
instruments hardly include differential treatment provisions that could mitigate or offset negative effects on
developing country exports to Europe. Reconciling different foreign policy objectives under this shifted
geoeconomic paradigm has thus become more complicated, as new trade‐offs between different goals
may arise.

Overall, these contributions show that, at the policy‐regulatory level, the geoeconomic turn is manifesting
itself far beyond the West. Latin American countries have been using tools of economic statecraft and are
beginning to enter the game of “defensive” geoeconomic strategies (e.g., in the case of lithium extraction).
Moreover, the implications of the geoeconomic turn in policies of major trading powers, such as the EU, are
likely to have consequences that—depending on the instrument at stake—may become costly, particularly for
export‐oriented firms in developing countries. Going beyond these insights, more empirical research is sorely
needed to uncover the patterns of how the geoeconomic turn manifests itself beyond the West.

Politics and Governance • 2024 • Volume 12 • Editorial 9031 7

3. Conclusions: The State of the Geoeconomic Turn

As the contributions to this thematic issue collectively attest, the geoconomic turn is reflected in changes at
the level of policy and regulation that seek to slow down and at times reverse the logic of decades of
economic integration. Ultimately, however, the substantive importance of the geoeconomic turn is also
contingent on the extent to which transformations in policies reshape material realities, and hence
structures of the global economy. Here, the contributions paint a nuanced and more complex picture. While
some sectors (e.g., semiconductors) are subject to ringfencing efforts, global levels of trade and investment
overall remain at historical highs. Whereas industrial policy tools have been revived, their use and effects
reflect as many continuities as changes.

The geoeconomic turn hence signals what we refer to as a potential sea change in the modus operandi of
the global economy, whose political effects and material changes are in the process of being realized, yet are
in this process subject not only to institutional inertia and path dependencies but also to political agency and
contestation. As many of the contributions indicate, it will be the outcome of those power struggles and
conflicting interests and values—not only between states but also with and between non‐state actors such
as firms and civil society organisations (e.g., labour)—at the global, regional, national, and subnational level
that will shape the concrete outcomes of the geoeconomic turn in investment, trade, and technology.
We hope to inspire a research agenda that unpacks these outcomes in a geoeconomic global economy
empirically, including how they affect and possibly reinforce existing (unequal) power relations and the
interplay between political and corporate actors, capitalist and societal interests, but also between states
that are in structurally different positions within the global economy.

Acknowledgments
We would like to sincerely thank all contributors and reviewers involved in the project, as well as the Politics
and Governance editorial office for the outstanding support that they have provided throughout the process.

Conflict of Interests
The authors declare no conflict of interests.

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About the Authors

Milan Babić is an assistant professor in global political economy at Roskilde University

and PI of the DECARB project. From September 2024 he will be an associate professor
in political economy at the Political Science Department at the University of Amsterdam.
His work deals with the transformations of the global political economy towards a
geoeconomic global order, the political economy of decarbonization, and state‐led
investment. His latest book is The Rise of State Capital (Agenda 2023).

Nana de Graaff is an associate professor in international relations at the Department of

Political Science and Public Administration, VU Amsterdam. She is chair of the China in
Europe Research Network (CHERN) and is the principal investigator of a Vidi research
project on The Geopolitics of Europe‐China Tech Decoupling.

Lukas Linsi is an assistant professor in international political economy at the Department

of International Relations and International Organization, University of Groningen. His
research focuses on corporate power, the politics of (re)globalization, and economic
measurement.

Clara Weinhardt is an assistant professor in international relations at Maastricht University

and a non‐resident fellow at the Global Public Policy Institute. Her research focuses
on global trade governance and North–South relations in light of global power shifts.
Her work has been published in International Studies Quarterly, International Affairs, Review
of International Political Economy, Journal of Common Market Studies, and others, and she
has (co‐)authored books on EU–West Africa trade negotiations (Routledge) and differential
treatment of developing countries (Edward Elgar).

Politics and Governance • 2024 • Volume 12 • Editorial 9031 10

Politics and Governance
2024 • Volume 12 • Article 8092
https://doi.org/10.17645/pag.8092

ARTICLE Open Access Journal

The Myth of Deglobalization: Multinational Corporations in an

Era of Growing Geopolitical Rivalries
Lukas Linsi 1 and Ellie Gristwood 2
1
Center for International Relations Research, Rijksuniversiteit Groningen, The Netherlands
2
Energy and Sustainability Research Institute, Rijksuniversiteit Groningen, The Netherlands

Correspondence: Lukas Linsi ([email protected])

Submitted: 22 January 2024 Accepted: 4 April 2024 Published: 19 September 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
Globalization is past its peak, we are told. The rise of populist anti‐globalization movements and the return
of geopolitical rivalries among great powers in the 2010s has put an end to free‐wheeling corporate global
capitalism. Or has it? This article summons available data on cross‐border corporate investments at the level of
countries (balance of payments), firms (subsidiaries and affiliates), and corporate managers (industry surveys).
It pays special attention to the period between 2015 and 2021, which spans the election of President Trump
and the outbreak of the Covid‐19 pandemic that have unsettled global politics. We analyze global patterns in
foreign direct investment positions and in particular the evolution of investments by US corporations in China,
arguably a “most likely case” for deglobalization. Our analyses find no evidence that economic cross‐border
integration is in decline. The global allocation of corporate investments across the world’s major economic
regions has remained stable. US corporations have not notably reduced their global activities. If anything, their
aggregate investment position in China has increased during the Trump administration’s trade war. Overall, the
results cast empirical doubts on prominent narratives about the state of the global economy. Geoeconomic
transformations in world economic infrastructures may well be underway, but they are better understood as
new and adapted forms of internationalization rather than the end of globalization.

Keywords
decoupling; deglobalization; derisking; foreign direct investment; geoeconomics; multinational corporations

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

Political forces critical of economic globalization have been on the rise over the past decade (Bisbee et al.,
2020; Milner, 2021; Walter, 2021). Inward‐looking economic strategies are spreading rapidly (Bauerle
Danzman & Meunier, 2023; Meunier & Nicolaidis, 2019), and the American‐led liberal international order is
said to be in crisis (Lake et al., 2021; Trubowitz & Burgoon, 2020). Accordingly, many analysts have
suggested that we have entered a period of “deglobalization” in which multinational corporations (MNCs)
are in retreat as states reassert their control and production networks are being reshored. While there has
been a lot of talk about supposed deglobalizing trends in the world economy, there is a lack of conceptual
clarity of what deglobalization actually means, as well as a dearth of empirical analyses evaluating the extent
to which related dynamics are materializing (cf. Drezner, 2023; Grosse et al., 2022).

Against this backdrop, this study combines statistical analysis of foreign direct investments (FDI) and
corporate ownership networks data with insights from surveys of corporate managers to contribute to a
better understanding of the material impact of the geoeconomic turn examined in this thematic issue, and its
implications for the possible future trajectory of the global economy in an age of renewed inter‐state
rivalries. The study analyses the evolution of the territorial organization of global production networks
through a systematic examination of global FDI patterns and the subsidiary structures of several thousand
US corporations during the 2015–2021 period. We pay particular attention to the FDI relations between the
US and China, which arguably constitute a “most likely case” of deglobalization.

At odds with prevailing discourses, it appears that Western MNCs have further increased their presence in
China during this first stage of the US–China trade “war.” We also find no evidence that US corporations
have significantly re‐shored corporate structures. Our findings from the case of FDI align with existing
studies analyzing international trade flows over the same period, which also indicate stable or further
increasing cross‐border economic exchanges rather than a decline (Bown, 2023; Fajgelbaum et al., 2021;
Goldberg & Reed, 2023). Together, the assembled data points suggest a notable gap between what states
say and what firms actually do on the ground. Of course, it remains possible that Western decoupling from
China will still happen in the future. But decoupling is distinct from deglobalization and could be a long and
possibly more complicated process than imagined by many policymakers and geopolitical consultants in
Western capitals. At the same time, the findings also raise bigger questions about states’ actual grasp over
corporate globalization and their capacity to steer it in their desired direction.

2. What Do We Talk About When We Talk About Deglobalization?

2.1. Discourses of (Hyper‐)Globalization

The collapse of the world economy in the inter‐war period was followed by a rapid rebound and deepening
of international economic integration after the end of the Second Cold War. The expansion of MNCs lies at
the heart of these developments (Baldwin, 2016; Frieden, 2020). The roots of MNCs go back centuries, but
their most significant expansion occurred in the 1950s–1980s (Jones, 2005)—a period of profound
geopolitical conflict in the form of the Cold War. In this sense, geopolitics stood central to MNCs’ rise to
global power (Gilpin, 1975). The consolidation and deepening of global production networks in the
1990s–2000s (Baldwin, 2016; Rodrik, 2011), in contrast, played out in a context in which governments’

Politics and Governance • 2024 • Volume 12 • Article 8092 2

economic concerns had, at least discursively, become largely detached from their security considerations.
Political commitment to the principles of international cooperation and open economies was largely taken
for granted (Trubowitz & Burgoon, 2020).

The expansion of the world economy in the 1990s and 2000s, in retrospect, was frequently described as
an era of hyper‐globalization (Rodrik, 2011), underpinned by material as well as discursive developments.
Although the importance of international trade and investment as a share of global economic output grew
rapidly during this period, they remained more constrained than globalization discourses prominent in the
1990s and 2000s could have made one believe (Cameron & Palan, 2004; Linsi, 2020). To an important extent,
descriptions of MNCs as “globally footloose” organizations and of the world economy as “one global market”
(e.g., Ohmae, 1990; Reich, 1992; Stopford et al., 1991) remained economic imaginaries rather than accurate
descriptions of material realities (Cameron & Palan, 2004; Linsi, 2022). Even though MNCs undeniably did
expand their transnational networks and operations, their organization remained tied to a regional (instead
of truly global) spatial logic (Doremus et al., 1999; Rugman, 2005). Rather than imposing themselves upon
the state (as many globalization narratives claimed), their expansion occurred in co‐evolution with the state
(van Apeldoorn, 2002; van Apeldoorn et al., 2012).

Paradoxically, now that the neoliberal pro‐globalization consensus of the 1990s and 2000s seems to be
unravelling, the disconnect between discursive and material developments in the world economy may be
moving to the other extreme. Over the past years, growing tensions between the US and China, in particular,
have led to a gradual (re‐)securitization of economic policy discourses, as narratives about the need to
“decouple” or “derisk” the world’s largest two economies have taken a hold in global economic policy circles
(Babic, 2021; Bauerle Danzman & Meunier, 2024; Gertz, 2021; Meunier & Nicolaidis, 2019). While the
strategies proposed by different actors vary, they share a renewed emphasis on geoeconomics, understood
as an increased “securitization of economic policy and economization of strategic policy” (Wesley, 2016,
p. 4). French President Emmanuel Macron has called to “take back control of our supply chains” (Macron,
2023); US President Joe Biden vowed to “rebuild domestic manufacturing capacity” (Biden, 2021); and the
Chinese Communist Party’s dual circulation strategy emphasizes the need for greater economic
self‐sufficiency (The People’s Government of Fujian Province, 2020). In response, there has been an uptake
of alarmist accounts in public commentary and financial news of the apparently imminent “collapse” (Zeihan,
2022), “end” (Posen, 2022), or “death” (Manners‐Bell, 2023) of globalization.

2.2. Scenarios of De‐ and Re‐Globalization

Against this backdrop, this article forwards three arguments: Firstly, discourses about the supposed end of
globalization lack conceptual clarity. Concepts such as “deglobalization,” “decoupling,” or “derisking” are
often used interchangeably, but in fact refer to rather different scenarios, some of which are more
compatible with continued globalization than others. To the extent that deglobalization represents the
counter‐movement to globalization, we propose to operationalize it as net decreases in volumes of
cross‐border trade and investments as a share of world GDP. It thus only occurs when the relative
importance of cross‐border activities in the global economy as a whole declines. Decoupling, in contrast,
captures decreases in trade and investment between certain economic blocs, most importantly the “West”
(predominantly the US and Europe) and China. To the extent that it is happening, a growing (re‐)bifurcation
of the world economy may lead to less economic exchanges between, but also a deepening of exchanges

Politics and Governance • 2024 • Volume 12 • Article 8092 3

within the emerging blocs (Linsi, 2021). In that sense, decoupling is theoretically not incompatible with more
globalization in the aggregate (cf. Smith, 2023). Derisking, finally, refers to attempts to reconfigure
productive and financial networks to make them more resilient to geopolitical or environmental shocks
(Fajgelbaum et al., 2021; Jerzyniak, 2024). To the extent that it revolves around greater geographical
diversification—or the duplication of supply chains in parallel regions—to avoid over‐reliance on suppliers in
any one potential bottleneck zone, derisking should in principle entail more rather than less globalization
overall. In other words, the global economy can adapt to growing geopolitical pressures in a variety of ways
and they do not necessarily imply decreases in cross‐border activities at the aggregate level.

Secondly, the article argues and empirically shows that deglobalization proper has so far not
materialized—and that we should be wary of “false necessities” (Herrigel, 2020) promoted by deglobalization
narratives. Historically speaking, the collapse of the first “golden” era of globalization in the early
20th century surely serves as a useful reminder that deglobalization is a possibility (Frieden, 2020). At the
same time, webs of cross‐border economic interdependence today are deeper and more complex than they
were 100 years ago. As the “opportunity costs of closure” (Frieden & Rogowski, 1996) have grown, political
willingness to prevent the collapse of the world economy may be stronger too. Although a major direct
military confrontation between the world’s great powers is not unthinkable, there are also reasons to be
hopeful that it can still be avoided (Christensen et al., 2022). Barring the realization of such catastrophic
scenarios, corporate globalization may very well continue to flourish in the years to come.

Thirdly, although deglobalization is a misleading description of the current state of the global economy, this
is not to deny that important transformations in the world economy may be underway. Persisting changes in
widely shared intersubjective beliefs normally do have consequences, not least because they can be partly
self‐fulfilling (Cameron & Palan, 2004; Drezner, 2023). Yet, the material implications of ideational shifts are
oftentimes more nuanced and complex than the discourses themselves suggest (Oatley, 2019). This general
observation also appears to apply to this case. As we will show, MNCs are in the process of adapting their
strategies to a context in which geopolitical dynamics are again becoming more central to their operations.
The nature of these responses, however, is multi‐layered, strategic, and sophisticated (cf. Butollo et al.,
2024). Re‐globalization rather than de‐globalization, we suggest, is therefore a more meaningful and accurate
description of the dynamics currently transforming the global political economy.

2.3. Objectives

At the time of writing, a bit more than seven years have passed since the election of President Trump and the
Brexit referendum in 2016; five years since the escalation of the US–China trade “war” in 2018; and close
to four years since the outbreak of the Covid pandemic. Although it is still too early to study the long‐term
consequences of these upheavals, enough data is gradually becoming available to evaluate the shorter‐term
implications of these shifts. Analyses of these early trends are paramount, not least because they are bound
to lay the foundations for how geoeconomic rivalries are going to play out in the decades ahead.

The study’s focus is on the evolution of FDI positions and the underlying structure of MNCs’ networks of
subsidiaries and affiliates. For that purpose, the project collects and analyses data from the IMF’s Coordinated
Direct Investment Survey, the US Bureau of Economic Analysis, Bureau van Dijk’s Orbis database, as well as
surveys conducted by the American Chamber of Commerce. The main objective of the research is to assess

Politics and Governance • 2024 • Volume 12 • Article 8092 4

key trends in the territorial organization of global production during the growing backlash against globalization
in the 2015–2021 time window.

Along with international trade, portfolio capital, technology, and migration flows, FDIs constitute only one
dimension of economic globalization. Yet at the same time, the structures of MNCs are a central factor
underpinning many of these other aspects of globalization. They also remain relatively understudied
compared to international trade where deglobalization claims have already been effectively challenged in
existing empirical work (e.g., Bown, 2023; Fajgelbaum et al., 2021; Goldberg & Reed, 2023).

In the first step, our empirical analyses focus on global patterns (Sub‐section 3.1). Subsequently, we zoom
in on US direct investments in China (Sub‐section 3.2). Together, the US and China account for over 40% of
the global nominal GDP (World Bank, 2024). Their bilateral relationship lies at the heart of global economic
tensions, and thus arguably the level of analysis at which deglobalization would be most readily visible, if it is
materializing. Moreover, it has been argued (Smith, 2023) that FDIs, more so than trade, are also the aspect
of the global economy in which deglobalization dynamics should become detectable first. In these regards,
the analysis of US–China FDI can also be seen as a “most likely case” of deglobalization. In other words, if
deglobalization is not happening (yet) in this particular case, it is also unlikely to have materialized in most
other parts of the world economy.

3. FDI Data

We start our analysis with an examination of global patterns in FDI data. The measurement of FDI faces many
challenges, not least the difficulty in distinguishing between “real” and “financial” FDI (Beugelsdijk et al., 2010;
Casella et al., 2023; Damgaard et al., 2019; Kerner, 2014; Linsi, 2018). On the other hand, unlike firm‐level
data, they are designed to estimate the entire universe of investment positions between countries and their
compilation is based on detailed transparent methodologies. Although FDI point estimates should not be taken
at face value, they can serve as useful indicators of broad trends in the world economy.

3.1. Global Allocation of FDI

To map the global picture of FDI, we rely on data from the IMF’s Coordinated Direct Investment Survey.
The dataset provides all available estimates of country‐by‐country direct investment positions. At the time
of conducting the analysis (July 2023), country‐by‐country Coordinated Direct Investment Survey data is
available for the years 2009–2021. We focus in particular on the years 2015–2021. Unless noted otherwise,
we work with period‐median values of estimated FDI. We first examine the relative allocation of FDI in the
economic regions accounting for the largest shares of global FDI flows.

Our analysis of the big picture of the global distribution of FDI, summarized in Appendix A of the
Supplementary File, shows that the US, Europe, China, and Japan are the main senders and receivers of FDI
in the global economy. To evaluate whether there have been important changes in the global structure of
FDI during the 2016–2020 Trump Presidency, we compare the relative allocation of FDI positions in 2015
and 2021 across six economic areas: the US, Europe (excluding tax havens/special‐purpose entity [SPE]
conduits), Japan, China (including Hong Kong), tax havens/SPE conduits (as defined in Appendix A of the
Supplementary File), and the “rest of the world.” For each of these regions (in rows in Table 1) we then

Politics and Governance • 2024 • Volume 12 • Article 8092 5

calculate the relative size of its investment position in each of the other five regions (in columns in Table 1)
as a share of the (row) region’s total outward FDI position (inferred from inward FDI mirror data), in 2015
and 2021.

The analysis yields several interesting insights. Firstly, it corroborates that a large share of global FDIs are
formally owned by legal entities in tax haven jurisdictions. The practice appears to be particularly
widespread among US corporations, for which more than half of all registered foreign investments are
channelled through SPE conduits. Secondly, the analysis indicates that, in the bigger picture, the global
market for FDI is still strongly dominated by North‐Atlantic relationships. The US and Europe remain the
most important senders and receivers of FDI in the early 21st century. In comparison, China is still a
relatively small player in global markets for FDI. Thirdly, Japanese companies’ foreign investments are
concentrated more in the US than in Europe, while Chinese companies are somewhat more strongly
invested in Europe than the US (assuming that there are no systematic differences in flows channelled
through SPEs). At the same time, the corporate structures of Chinese companies appear to be geographically
more diversified than those of the triad US–Europe–Japan, for which the residual category “rest of the
world” accounts for a significantly smaller share than it does for Chinese companies. Lastly, and most
importantly for our analysis, the cross‐tabulation does not indicate that the US–China trade war had a major
impact on the geographic structures of MNCs. In relative terms, the allocation of Chinese investments
in Europe and the US is fairly stable over the 2015–2021 period. US investments in China have
marginally decreased in relative terms (from 0.028 to 0.024)—yet increased in absolute volumes (see
Sub‐section 3.2)—while they have grown notably for European companies in China.

The remainder of this article digs deeper into this apparent lack of response on behalf of Western MNCs
to deglobalization pressures. Given their centrality to this debate, our analysis pays special attention to US
corporations and their investment positions in China.

3.2. US–China FDI Relations

To analyze patterns in direct investments by US MNCs we work with data made available by the US Bureau of
Economic Analysis. In addition to conventional FDI figures, the US Bureau of Economic Analysis also produces

Table 1. Relative shares of investment positions in the global economy.

US Europe Japan China Tax havens Rest of
(excluding (including the world
tax havens) Hong Kong)
Year 2015 2021 2015 2021 2015 2021 2015 2021 2015 2021 2015 2021
US 0.15 0.19 0.01 0.01 0.03 0.02 0.57 0.54 0.23 0.23
Europe (excluding 0.25 0.24 0.01 0.01 0.03 0.06 0.47 0.45 0.24 0.24
tax havens)
Japan 0.33 0.36 0.10 0.11 0.15 0.13 0.15 0.15 0.27 0.24
China (including 0.06 0.07 0.10 0.09 0.02 0.03 0.42 0.41 0.40 0.41
Hong Kong)
Notes: Positions held by row region in column region; Ratios indicate shares as a percentage of row region’s total positions
in the world; Based on inward FDI stock data (mirror); Rows sum to 1, excluding rounding errors. Source: Own calculations,
based on Coordinated Direct Investment Survey (International Monetary Fund, 2023).

Politics and Governance • 2024 • Volume 12 • Article 8092 6

bilateral FDI estimates on a sectoral level that separates out SPE FDI. We downloaded the data in July 2023
when official estimates up to 2021 were available (2022 figures are provisional).

3.2.1. Aggregate US Outward FDI

Before delving deeper into the China–US relationship, we analyze the evolution of the aggregate outward
FDI position of all US companies over the past two decades. To the extent that the deglobalization scenario is
accurate, we would expect the aggregate outward FDI position held by US companies to have decreased over
the 2015–2021 period. The statistics, plotted in Figure 1, indicate that there was indeed a slight fall in total
outward FDI after 2017. However, this decline seems to be driven primarily by a fall in SPE FDI, which is likely
related to the controversial tax inversion deal implemented by the Trump administration in 2017. If we zoom in
on the outward FDI stock excluding SPE FDI (purple bars in Figure 1), it has steadily increased throughout the
period at roughly the same pace as US GDP. In absolute terms, the non‐SPE FDI stock held by US corporations
grew from $2.6 trillion in 2015 to $3.0 trillion in 2021 and $3.1 trillion in 2022 (total FDI from $5.3 to $6.1
and $6.4 trillion). In relative terms, the non‐SPE outward FDI stock is fairly stable, hovering around 14% of
the US GDP since 2008. US corporations thus do not appear to have notably reduced their holdings overseas
over the past years. While there is some indication of stabilization or saturation (“slowbalization”) in total US
outward FDI, contrary to deglobalization scenarios, we observe no evident decline.

7 35

6 30

As percentage of US GDP
5 25
Trillion USD

4 20

3 15

2 10

1 5

0 0
3

2
0

2
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

Non-SPE FDI SPE FDI % GDP Non-SPE FDI % GDP All FDI

Figure 1. Evolution of aggregate outward FDI position held by US corporations. Notes: Investment position at
estimated historical cost; Figures for 2022 are provisional estimates. Source: Own calculations based on data
from the US Bureau of Economic Analysis (2023).

Politics and Governance • 2024 • Volume 12 • Article 8092 7

3.2.2. US–China FDI

Next, we zoom into the US–China FDI positions. The left panel in Figure 2 shows the evolution of the US
FDI stock in China (including Hong Kong) in absolute levels; the right panel indicates the evolution of
sectoral shares in relative terms. At odds with decoupling narratives, the US Bureau of Economic Analysis’s
data indicates that, at historical cost, the total US direct investment position in China and Hong Kong grew
by about $47 billion between 2015 and 2021—from $162 to $208 billion. In terms of sectoral shares, there
appears to be a contraction of US FDI in the Chinese information sector (including media, film and music,
telecommunications, and IT services industries; see US Bureau of Economic Analysis, 2022). Otherwise,
sectoral patterns are fairly stable over the period presented.

Somewhat surprisingly against the background of rapidly growing geoeconomic tensions in government
discourses during the Trump Presidency, the analyses presented so far indicate that (a) corporate
investments across the major regions have remained fairly stable, (b) US corporations have not notably
re‐shored production to their home market, and (c) have, in absolute terms, further increased their exposure
to China. In contrast, as detailed in Appendix B of the Supplementary File, Chinese investments in the US are
still small in comparison to US investments in China and have stagnated over the past few years. In the
sections that follow we shift the level of analysis from countries (balance of payments) to the firms who are
behind the FDI data presented so far. Firm‐level data is valuable because it sheds light on the actors actually
“doing” FDI, as well as circumventing some of the measurement problems with tax haven FDI (Linsi, 2018;
Linsi & Mügge, 2019). Our focus remains on the activities of US MNCs in China.

4. Firm‐Level Ownership Data

Our analysis of firm‐level ownership positions relies on data made available in Bureau van Dijk’s Orbis database.
We initially collected the data for a list of more than 7,000 large multinational enterprises, which have been
estimated to control more than 50% of global GDP (ter Burg et al., 2022) in 2015 and 2021. The dataset,
which includes 2,484 US‐based multinationals, was downloaded in December 2021.

US investment posi!on in China Sectoral shares

250 100%
Other industries
90%
Holding companies
Billion USD (historical cost)

200 80%
Professional, scien!fic,
70% and technical services
150 60% Finance and insurance
50%
Depository Ins!tu!ons
100 40%
Informa!on
30%
Wholesale trade
50 20%
Manufacturing
10%
Mining
0 0%
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021

Figure 2. US FDI position in China (including Hong Kong) 2015–2021. Source: Own calculations, based on
data from the US Bureau of Economic Analysis (2023).

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Based on the information in Orbis, we created a dataset that codes, for each multinational company in the
dataset, the number of (a) subsidiaries (ownership stake of at least 50%), (b) affiliates (ownership stake between
10% and 50%), and (c) minority stakes (ownership stake less than 10%) it holds in a country.

The data has important limitations, which are further described in Appendix C of the Supplementary File.
At the same time, it provides rich and fine‐grained information about the structure of individual companies,
which makes it possible to analyze the transnational corporate structures that underlie and drive more abstract
aggregate levels of FDI.

4.1. US Corporations’ Investments in China

In a first step, to examine the implications of potential deglobalization at the level of US firms, we plot the
share of recorded subsidiaries and affiliates as well as minority stakes owned by these companies in the US and
abroad. The analyses, summarized in Appendix D of the Supplementary File, show no evidence of significant
reshoring or near‐shoring. On the contrary, the share of recorded subsidiaries held outside of the US relative
to domestic ones appears to have increased from 2015 to 2021 among firms in our sample.

Next, we turn to ownership stakes of US firms in China. We start by plotting the relative share of US
corporations’ ownership positions in China as a share of all their recorded ownership positions held outside
of the US. As shown in Figure D3 of the Supplementary File, for a majority of companies in the sample the
share of China‐based positions (both minority stakes and subsidiaries and affiliates) account for less than
20% of their non‐US holdings. Overall, the share tends to be higher for subsidiaries and affiliates than
minority stakes. Some outliers with a high concentration of minority stakes in China are YUM China
Holdings, Assembly Biosciences, Booking Holdings, Casi Pharmeuticals, Erin Energy, and Fluent.

Table 2 lists a subset of US companies in the Orbis sample by their relative exposure to China: their number
of subsidiaries and affiliates located in China or Hong Kong as a share of their total number of recorded
subsidiaries and affiliates. We further divide them into companies whose overall network structure is primarily
domestically oriented (holding a majority of subsidiaries and affiliates in the US) and those that show a more
clearly global orientation. We limit the sample to firms with at least one hundred recorded subsidiaries or
affiliates, and at least one recorded entity in China.

The resulting two‐by‐two matrix illustrates a variety of cases: in the top left we observe some large US
multinationals such as Hamilton Lane, United Health Group, or Berkshire Hathaway who own many
subsidiaries and affiliates in the US and few in China. The bottom left lists some companies with many
subsidiaries and affiliates outside of the US, but only a few in China. The top right shows companies that
have a strong presence in the domestic economy, but also have a strong exposure to China (e.g., Tesla).
The bottom right shows a group of companies with a global network structure that is fairly strongly
concentrated in China (e.g., Equitable Holdings or Intel). Again, these are estimates derived from subsidiaries
and affiliates recorded in the database and we cannot be sure if they cover the entirety of firm networks,
which can be further obscured by complex legal structures (cf. Robé, 2020). Nonetheless, the tabulation
showcases the variety of actors underlying aggregate FDI figures. Many large US corporations are
domestically oriented, while others pursue transnational business models. Among the latter, some are
strongly exposed to China, while others with significant investments outside of the US are barely present in

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Table 2. Cross‐tabulation of US corporations’ exposure to China and Hong Kong.
Weak presence in China and Hong Kong Strong presence in China and Hong Kong
Name Subsidiaries and Subsidiaries Ratio Name Subsidiaries and Subsidiaries Ratio
affiliates in China and affiliates affiliates in China and affiliates
Domestically Hamilton Lane Inc 3 717 0,4% Tesla 23 129 17,8%
oriented (bottom United Health Group 4 918 0,4% SVB Financial Group 55 338 16,2%
25th percentile
with more than Berkshire Hathaway 4 788 0,5% Leggett & Platt Inc 23 178 12,9%
41% of subsidiaries Fifth Third Bancorp 3 591 0,5% American Express 66 537 12,2%
in the US) Blackstone Group 6 1095 0,5% MGM Resorts 21 181 11,6%
International
Newmark Group 1 147 0,7% Raymond James Financial 12 108 11,1%
Fluor Corp 4 544 0,7% Global Payments Inc 9 101 8,9%
Hertz Global Holdings 1 118 0,8% Campbell Soup Co 10 121 8,3%
Heico 1 117 0.9% Ascena Retail Group 10 132 7,5%
Ezcorp 1 112 0.9% Graham Holdings 25 333 7,5%
Nelnet 1 100 1,0% Textron Inc 11 160 6,9%
Viacom CBS 11 945 1,2% Ametek Inc 16 240 6,6%
Goldman Sachs Group 11 850 1,3% Broadcom Inc 17 258 6,6%
Quest Diagnostics Inc 2 152 1,3% Gamco Investors 10 153 6,5%
Iheart Media 4 291 1,4% Charles Schwab 14 219 6,4%

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Table 2. (Cont.) Cross‐tabulation of US corporations’ exposure to China and Hong Kong.
Weak presence in China and Hong Kong Strong presence in China and Hong Kong
Name Subsidiaries and Subsidiaries Ratio Name Subsidiaries and Subsidiaries Ratio
affiliates in China and affiliates affiliates in China and affiliates
Globally oriented McKesson Corporation 1 444 0,2% Equitable Holdings 157 179 87,7%
(top 25th percentile Stifel Financial 4 564 0,7% Walgreens Boots Alliance 242 278 87,0%
with more than
86% of subsidiaries Moelis & Company 5 655 0,8% Federated Hermes 395 550 71,8%
outside of the US) Resideo Technologies 1 125 0,8% Intel 228 361 63,1%
Principal Financial 3 291 1,0% Booking Holdings 389 657 59,2%
Philip Morris 3 271 1,1% Mosaic Company 152 398 38,2%
Digitalbridge Group 6 499 1,2% Eastman Kodak 38 121 31,4%
Walmart Inc 6 430 1,4% Air Products & Chemicals 100 385 26,0%
Delta Air Lines 6 407 1,5% Qualcomm 79 318 24,8%
Interpublic Group 6 396 1,5% Diodes 33 153 21,6%
Uber Technologies 5 306 1,6% Autoliv 23 111 20,7%
Sculptor Capital 4 242 1,7% Altria Group 58 313 18,5%
CBRE Group 9 502 1,8% Amgen Incorporated 20 108 18,8%
SEI Investments 9 497 1,8% Hyster‐Yale Materials 16 100 16,0%
Genuine Parts 3 160 1,9% Minerals Technologies 21 138 15,2%
Notes: Sample restricted to firms with at least 100 recorded subsidiaries in total and at least 1 in China. Source: Own calculations, based on Orbis data from 2021.

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China. To better understand the transnational politics of geoeconomics, these apparent heterogeneities in
firm network structures—and how they affect firms’ perceptions of geopolitical risks—offer a productive
avenue for future research (cf. Germann et al., 2024; Koencke & de Graaff, 2024).

5. What Explains the Resilience of US Investments in China Despite Political Pressures

to Leave?

What may explain the divergence between growing calls by politicians in Western capitals to retreat from
China, and growing corporate investments on the ground? At least four different explanations are possible.
Firstly, corporate leaders may simply be ignoring these demands. Western businesses may be naively
prioritizing profit growth and shareholder returns without considering the geopolitical risks accumulating on
their balance sheets. Businesses are focused on profitability, and if it is financially attractive to invest in the
economy of rival powers they will do so, independently of their home country’s government’s geoeconomic
strategy. This is what we call the geopolitical naïveté hypothesis. Secondly, they may want to disinvest from
China, but it is very difficult to do so in practice. Whereas low‐cost labor can be sourced in many countries,
the sophisticated ecosystem of suppliers in China, as well as its growing consumer market, currently cannot
be matched by any other country (Hejazi & Blum, 2023). This is what we call the TINA (there is no
alternative) hypothesis. Thirdly, there may simply be a time‐lag. Maybe US firms are responding to political
demands to retreat from China and they have already started to disinvest, but it takes time to unwind
existing operations. US companies may thus already be leaving China; it just does not show up in the data
yet. Finally, it is possible that US firms are taking geopolitical tensions into account, but that they adopt more
complex responses than simply exiting China. Rather than winding down their Chinese operations, they may
be in the process of insulating them (what some commentators label the “China for China” strategy, see Yang
& Nilsson, 2023). Or they may maintain their operations in China, but simultaneously be in the process of
duplicating their China operations in third countries to make their supply chains more resilient (sometimes
called the “China plus one” strategy).

Dominant modes of response may of course differ, both across and within firms, in line with patterns
detected in Table 2. It is plausible that the four hypotheses overlap at times. There may also be political
conflict within firms about how to best respond to geopolitical uncertainty. The task of tracing down the
complex mechanisms behind corporate investment decisions—and how geopolitical considerations feed into
these processes—must be left to future research. Nonetheless, to at least probe these mechanisms, the
remainder of this section delves deeper into the results of opinion surveys of managers of US firms
operating in China, published annually by AmCham China, the American Chamber of Commerce in the
People’s Republic of China.

5.1. Insights From Industry Surveys

AmCham China is a non‐governmental organization representing the interests of more than 1,000 American
member companies with operations in China (AmCham China, n.d.). Every year the organization surveys its
members with the results being summarized in its annual China Business Climate Survey Report. We review all
the reports published between 2015 and 2023.

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The results from the surveys do not support the geopolitical naïveté hypothesis. From 2019 onwards,
geopolitical tensions consistently rank among the top three challenges managers identify. From 2021
onwards it is even ranked as the primary challenge (followed by “rising labor costs” and “inconsistent
regulatory interpretation”) encountered when operating in China (AmCham China, 2023, p. 4). Managers
also indicate that American companies in China face “increased pressure.” Yet, interestingly, twice as many
respondents identified the Chinese, rather than the US, government as the primary source of hostility
(66% vs. 32% in 2021; 57% vs. 26% in 2022; see AmCham China, 2023, p. 65).

At the same time, although a majority of respondents seem to agree that it has become more difficult for US
companies to operate in China, surprisingly few of them are considering leaving the country. As the summary
in the 2023 report puts it: “The majority of our members are not considering relocating their supply chain.
Many of our member companies have been in China for decades and the majority of them continue to have
a long‐term commitment to the China market” (AmCham China, 2023, p. 2).

While the proportion of respondents indicating that their company is “considering, or has already begun the
process of relocating manufacturing or sourcing outside of China” (AmCham China, 2022, p. 67) has increased
marginally over the years, they remain a minority. In the latest survey, only 12% of respondents indicated to
have started relocation outside of China (up from 7% in 2020 and 2021, but lower than 15% and 14% recorded
in 2015 and 2014, respectively; see AmCham China, 2015, 2021, 2022, 2023), with another 12% saying to be
considering it but not having undertaken any active steps (AmCham China, 2023, p. 55). 74% of respondents
said that they are not considering the option to leave. The commitment to stay appears somewhat weaker in
the technology sector (where 70% are planning to stay), while it is strongest in the consumer goods industry
(where 82% are indicating to stay; AmCham China, 2023, p. 55).

The reasons given are mostly economic. Companies indicate that it is difficult to find alternatives to China
(“input costs”) and that they want to secure access to the growing consumer market, with the “growth in
domestic consumption/rise of an increasingly sizable and affluent middle class” being highlighted as the
most important attractions of the Chinese market to US businesses (AmCham China, 2023, p. 39). The most
frequent reasons given by the minority of companies who are considering leaving are “risk management,”
“rising costs, including labor,” and “COVID‐19 prevention measures.” Less than half of those considering
exiting mention “US‐China trade tensions” or “geopolitical tensions rising” as a factor (AmCham China, 2023,
p. 56). In other words, the companies who are considering exiting appear to be pushed (by conditions in the
Chinese market) rather than pulled (by the US government) out.

Asked “how are tariffs and US‐China trade tensions impacting your business strategy,” less than 3% responded
“considering exiting the China market” or “relocating to the US,” as opposed to 7% who said by “increasing
China investments.” The most frequent answers were “no impact” (44%), “delay investment decisions” (13%),
and “adjusting supply chain by seeking to source components and/or assembly outside the US [China]” (11%
and 10% each, 21% together; AmCham China, 2021, p. 95).

Overall, while the marginal increases over time in respondents considering relocation may indicate the
existence of a time‐lag, the phenomenon appears to be limited and, barring a direct military confrontation or
other sharp escalation of US–China tensions, unlikely to increase dramatically in the years to come. Both
the TINA (in terms of supplier ecosystem and growing consumer market) and the complex response

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hypotheses appear relevant to explain the growing gap between political rhetoric and corporate actions.
Perhaps most intriguingly, firms’ apparent preference to insulate or duplicate their Chinese operations
(rather than abandoning or reshoring them to the US), may imply that, somewhat counterintuitively,
growing geoeconomic tensions among great powers may also end up fostering more, rather than less,
corporate globalization.

6. Conclusions

This study analyses the distribution of measured global FDI and the number of recorded subsidiaries and
affiliates owned by large US MNCs between 2015 (before the election of President Trump) and 2021
(aftermath of the first Trump Presidency). Data on corporate cross‐border investments faces many
measurement challenges and neither FDI statistics nor corporate ownership information is problem‐free.
Yet to the extent that we can rely on these estimates, they suggest several interesting patterns that add
nuance to the current buzz about deglobalization.

Firstly, Western companies from the US and Europe still dominate global markets for FDI. Earlier research has
questioned the “persistent myth of lost hegemony” (Starrs, 2013; Strange, 1987; Winecoff, 2020). Our findings
corroborate that also by the early 2020s, at least in markets for FDIs, shifts in global economic power over
the past decades may have been less consequential than widespread accounts of the economic decline of
the West suggest. Secondly, contrary to alarmist narratives about China’s penetration of the US economy,
the statistics suggest that the Chinese FDI position in the US is still small (comparable in size to that held by
companies from Sweden) and stagnating. In contrast, the US FDI position in China is about four times as large
as the Chinese position in the US (and continues growing). Thirdly, we find no clear indications of significant
decoupling or deglobalization during the political upheaval against economic globalization brought about by
the 2016–2020 Trump Presidency. While investments by Chinese companies in the US remained stable, US
companies’ stakes in China appear to have increased throughout the period.

Together, these data points suggest a notable gap between what states say and what firms do on the ground.
Of course, it remains possible that Western decoupling from China will still happen in the future, but the
findings indicate that it would be a long and arguably more complicated process than it is sometimes
imagined to be. At the same time, it is equally possible that, through supply chain insulation and duplication
strategies, geoeconomic tensions will end up fostering more, rather than less, transborder corporate
investments. In either case, the findings highlight that corporations’ reactions (or the absence thereof) to
governments’ shifting geopolitical strategies deserve more attention in International Political Economy. After
all, in many cases, governments themselves cannot directly impose economic policies. They ultimately must
be implemented by firms. It is therefore not sufficient to study the geoeconomic strategies of either states
or firms in isolation. It is the interaction between them that are key to improve our understanding of the
current state, and possible future(s), of the global political economy.

Acknowledgments
Earlier versions of the article were presented at the 2023 APSA conference in Los Angeles and the workshop
New Conflicts on the Horizon? The Geoeconomic Turn in Global Trade, Investment, and Technology, organized
as part of the 2023 EWIS workshops in Amsterdam. Detailed comments by Jonas Gamso, Julian Germann, Lee
Jones, David Karas, two anonymous reviewers, and the editors have much improved the article. Conversations

Politics and Governance • 2024 • Volume 12 • Article 8092 14

with Nana de Graaff inspired us to adopt the “reglobalization” moniker. Boralba Kapllani and Stevan Wilts
provided research assistance. All errors remain our own.

Funding
Generous financial support from Globalisation Studies Groningen is gratefully acknowledged.

Conflict of Interests
The authors declare no conflict of interests.

Data Availability
The underlying data is made available on Harvard Dataverse (shareability restrictions apply to firm ownership
data from Bureau van Dijk’s Orbis database, which were used under license): https://doi.org/10.7910/DVN/
CXZWMA

Supplementary Material
Supplementary material for this article is available online in the format provided by the authors (unedited).

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About the Authors

Lukas Linsi is an assistant professor of international political economy at the Department

of International Relations and International Organization, University of Groningen (the
Netherlands). His research focuses on MNCs and the politics of economic measurement.
Profile page: https://www.rug.nl/staff/l.a.linsi

Politics and Governance • 2024 • Volume 12 • Article 8092 18

 Ellie Gristwood is currently working as a graduate consultant in sustainability and climate
change at WSP in the UK, where she is working predominantly on carbon management
within the infrastructure sector. Ellie has an MA degree in energy and environmental science
and a BA degree in mathematics with a keen interest in complex systems.

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Politics and Governance
2024 • Volume 12 • Article 8195
https://doi.org/10.17645/pag.8195

ARTICLE Open Access Journal

Chinese Multinationals and Europe’s Geoeconomic Turn:

The De‐Globalization of the Chinese ICT and
Automotive Industry?
Philipp Köncke 1 and Nana de Graaff 2
1
Faculty of Economics, Law, and Social Sciences, University of Erfurt, Germany
2
Faculty of Social Sciences, Political Science, and Public Administration, Vrije Universiteit Amsterdam, The Netherlands

Correspondence: Philipp Köncke (philipp.koencke@uni‐erfurt.de)

Submitted: 31 January 2024 Accepted: 27 May 2024 Published: 5 September 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
Amid increasing geopolitical tensions between Western powers and China over the alleged state‐capitalist
nature of Chinese corporate internationalization, European governments have introduced a set of political
measures tightening their trade and investment regimes on grounds of national security and economic
competitiveness. This article analyzes how this “geoeconomic turn” in Europe affected the
internationalization of (state‐backed) Chinese firms into Europe and hence the establishment of
Sino‐European corporate relations. With a focus on the Chinese ICT and automotive industries, we zoom in
on corporate internationalization by distinguishing two modes: (a) outward foreign direct investments
(greenfield investments and mergers and acquisitions) and (b) the formation of collaborative ties (strategic
alliances and joint ventures) with European companies—a hitherto underexplored form of Sino‐European
corporate relations. Our analysis is predicated on a comprehensive dataset consolidating information on
both modes of internationalization for the period 2000–2023. We show that, in relation to investment
numbers, Chinese companies continue to expand into Europe, even if values are decreasing. We also find
that the formation of collaborative ties (strategic alliances and joint ventures) has not halted but increased in
the wake of Europe’s geoeconomic turn, indicating a further intensification of Sino‐European corporate
relations, though under the radar of tightening investment policies and mechanisms. When unpacking the
variegated impact of the geoeconomic turn on Chinese companies’ internationalization strategies in Europe,
our study also finds, however, that its ramifications vary substantively—not only per sector but also among
companies exposed to varying degrees of party‐state permeation. Applying a novel fine‐grained measure to
party‐state permeation, the article shows that the geoeconomic turn seems to have affected predominantly
those leading Chinese firms with a high party‐state exposure.

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
Keywords
China; corporate networks; European Union; geoeconomic turn; geopoliticization; joint ventures; OFDI; state
capitalism; strategic alliances

1. Introduction

China’s hybrid (party‐)state capitalism has become highly globalized since the 1990s, and Chinese
multinational companies—both private and state‐owned—maintain extensive international corporate
networks today. This has generated a wealth of studies in both international political economy and business
literature (Fitzgerald & Rowley, 2016; Lee, 2018; Meunier, 2019) on the nature of Chinese (party‐)state
capitalism (Jungbluth, 2018; Lee, 2018) and how this mediates the particularities of Chinese corporations
and their globalization strategies and trajectories (de Graaff, 2020; de Graaff & Valeeva, 2021; Leutert &
Eaton, 2021; Liu & Dixon, 2021). More recently, geopolitical and geoeconomic dynamics seem to intersect
with the evolution and expansion of Chinese capitalism and its partial integration into the global political
economy. Indeed, economic relations (in trade, investment, R&D) have become increasingly securitized and
(geo)politicized, mostly driven by the interplay of American rivalry in response to China’s strategic shift
towards a much more assertive foreign policy (“striving for achievement”; Yan, 2014) and its rapidly growing
global economic and political footprint. This dynamic has also spilled over into Sino‐European relations and
China’s economic engagements with Europe.

Indeed, the empirical patterns and phases of Chinese investment in Europe have changed significantly over
time: Chinese investment in Europe soared after the euro crisis in 2008 and peaked in 2016, with a massive
amount of 47.4 billion EUR of Chinese capital pouring into Europe. After that, however, it decreased to an
eight‐year low of 7.9 billion EUR in 2022 (Kratz et al., 2023a, p. 5). An increasingly large proportion of these
were mergers and acquisitions (M&As), often in technologically advanced sectors. This trend has sparked
concerns about a sell‐out of European high‐tech companies to Chinese (state‐backed) investors (Jungbluth,
2018) and a growing perception of Chinese investments as a potential threat to national security, given their
(alleged) state‐driven nature (Babić & Dixon, 2022). In addition, many European businesses and policymakers
complained about market‐distorting state subsidies for Chinese companies and the “unlevel playing field”
between Chinese and EU companies (European Commission, 2019). All of these can be seen as manifestations
of what this thematic issue refers to as the “geoeconomic turn” in Europe (Babić et al., 2022; Matthijs &
Meunier, 2023).

Against this turbulent background, our article analyzes different modes of Chinese companies’
internationalization into Europe and the potentially variegated way in which these may be impacted by the
geoeconomic turn. While studies abound on Chinese outward foreign direct investment (OFDIs) and
economic engagement in Europe (for an overview, see Henderson & de Graaff, 2021; and for the data and
trends, see e.g., Kratz et al., 2023a), insufficient attention is still being paid to the variation in strategy, in
particular as related to the level of (party‐)state permeation of Chinese firms. In addition, no academic study
investigating the impact of the geoeconomic turn on Chinese economic investments and corporate relations
with(in) Europe exists yet. Are we witnessing a de‐globalization of Chinese (party‐)state capitalism unfolding
in Europe? In terms of investment value, the decrease in Chinese OFDIs seems to suggest this, but we argue
that such a reading overlooks a much more counterintuitive reality, at least for certain companies and

Politics and Governance • 2024 • Volume 12 • Article 8195 2

industries. To analyze this, we (a) employ a nuanced and novel categorization of degrees of (party‐)state
permeation in Chinese firms (Köncke et al., 2022) to explore how the geoeconomic turn has affected the
investments of Chinese companies with different levels of exposure to the Chinese party‐state; and
(b) propose to investigate modes of Sino‐European corporate relations that have so far been overlooked in
the literature. First of all, we show that a very different trend emerges for certain companies and industries
when we look at the number of investment ties rather than the value of the investment, the latter which has
been the approach in the literature so far. Looking solely at the investment value yields an incomplete
picture since, for many Chinese investments in Europe, the value of the transaction remains undisclosed.
This means that the range of activity in terms of Chinese OFDIs might be (much) larger than is indicated by
the investment values. Second, beyond M&As and greenfield investments, a whole subfield of
intercorporate cross‐border relations is unfolding, through joint ventures (JVs) and strategic alliances (SAs),
that have so far flown under the radar of both policy and academic debates regarding China’s presence in
Europe. The latter forms of cross‐border corporate relations also evade investment screening mechanisms
and have not (yet) been subject to securitization and politicization the way investments from China have
(Rogelja & Tsimonis, 2020). Nonetheless, such Sino‐European corporate partnerships provide firms with
opportunities to pool resources, reduce costs, combine expertise, and enter foreign markets and distribution
networks. Focusing on these underexposed modes of corporate relations between Chinese firms and
European partners thus reveals a nuanced and comprehensive picture of the state of the Chinese economic
presence in Europe and how this has been mitigated by the geoeconomic turn. This article is structured as
follows. In Section 2, we review the literature on Europe’s geoeconomic turn and Chinese
(party‐)state‐capital relations before discussing our research design in Section 3. Sections 4 and 5 present
our key findings on the (variegated) impact of Europe’s geoeconomic turn on Chinese companies’
globalization via OFDIs and JVs and SAs. Section 6 summarizes and reflects on our findings.

2. The Geoeconomic Turn and the Globalization of Chinese (Party‐)State‐Capitalism

Debates about a geoeconomic turn in global capitalism have long been dominated by the intensifying
US–China conflict (e.g., de Graaff et al., 2020; McNally, 2020). In recent years, however, analyzing the role
of Europe and its so‐called “geoeconomic turn” has gained traction (Abels & Bieling, 2023; Babić et al., 2022;
Matthijs & Meunier, 2023). Scholars argue that the emergence of Europe’s geoeconomic turn is closely
connected to major material shifts in global capitalism since the beginning of the millennium, specifically to
the rise and internationalization of Chinese state capitalism and the emergence of a “new triad competition”
(Abels & Bieling, 2023, p. 517). The political responses by the EU and many of its member states to the rising
(systemic) competitor China are multifaceted, including a securitization of foreign, trade, and investment
policy (Meunier & Nicolaidis, 2019; Mügge, 2023); most notably, the implementation of EU investment
screening mechanisms and instruments of vertical industrial policy (Gräf & Schmalz, 2023); and a
corresponding techno‐nationalism (Starrs & Germann, 2021). Various scholars in the field of international
political economy have highlighted the globalization process of Chinese (state‐owned and private)
companies and, in particular, the role of Chinese (state‐backed) OFDIs in Europe as a crucial dynamic
instigating Europe’s geoeconomic turn (Babić & Dixon, 2022; Gräf & Schmalz, 2023; Meunier, 2019). On an
ideational and discursive level, European elites called for a (geoeconomic) turn to “open strategic autonomy”
(Schmitz & Seidl, 2023)—especially by China. At the same time, the European Commission also established a
policy of “de‐risking” by reducing its economic dependencies vis‐à‐vis China (European Commission, 2023a),
driven by a (perceived) threat that the Chinese party‐state could make use of strong economic ties and

Politics and Governance • 2024 • Volume 12 • Article 8195 3

dependencies for exploiting opportunities of “weaponized interdependence” (Farrell & Newman, 2019). This
“selective fortification” (Lavery, 2023) of European capitalism(s) is therefore inextricably linked to the rise of
the Chinese (party‐)state capitalist model and unfolds in the context of intensifying competition between
European, Chinese, and American companies, in particular in strategic high‐tech sectors (Hung, 2022;
Pearson et al., 2022). Given the preceding era of growing economic engagement between Europe and China
(Henderson & de Graaff, 2021), including record levels of Chinese investments on the continent (Kratz et al.,
2023a), the question arises what the implications of this European “geoeconomic turn” are for Chinese
economic enterprises.

As indicated, it is the state‐capitalist nature of China’s growing geoeconomic power in particular that is
inciting a European geoeconomic response (or “turn”; Babić & Dixon, 2022; Gräf & Schmalz, 2023; Meunier,
2019; Starrs & Germann, 2021). Due to the strong (party‐)state–business ties in Chinese capitalism, high
geoeconomic power resources are attributed to China because the Chinese government can make use of its
domestic (state‐owned and private) companies to advance its geoeconomic interests abroad (Blackwill &
Harris, 2016; Ferchen & Mattlin, 2023; Gertz & Evers, 2020). At present, however, we now have a rich
strand of studies (e.g., de Graaff, 2020; Jones & Zou, 2017; ten Brink, 2019; J. Zhang & Peck, 2016)
indicating it would be misleading to conceive of Chinese state–capital relations as monolithic. State
capacities exhibit a high degree of fragmentation and decentralization. The interests of the party‐state can
diverge and even clash across different bureaucratic divisions, administrative tiers, and regulatory bodies.
As a result, studies indicate that there is quite some variation in the degree to which different economic
sectors, and companies within the same sector are permeated by the Chinese party‐state via ownership ties
or party control and possess very different degrees of autonomy (Köncke et al., 2022; Weber & Qi, 2022).
Given this fragmented (party‐)state authority and complex entanglement of (party‐)state–capital relations, a
question that has not been sufficiently addressed in the literature is how and to what extent variation exists
in the globalization strategies of Chinese firms and investments in Europe related to their level of
(party‐)state permeation. The subsequent question, in light of the geoeconomic turn, is whether and how
the latter impacts the globalization strategies of Chinese firms and investments in Europe in different ways.

The few existing studies that have systematically measured how Europe’s geoeconomic turn affected
Chinese investment in Europe and how this impact varies among Chinese companies with different degrees
of party‐state permeation have been produced by think tanks (Kratz et al., 2023a, and also other work from
previous years), demonstrating an overall massive decline in Chinese investments since 2016 that
culminated in an eight‐year low of 7.9 billion EUR in 2022 (Kratz et al., 2023a, p. 5). These studies, however,
focus solely on the value of investments. To the best of our knowledge, there is yet no study shedding light
on the variegated development of Chinese OFDIs in Europe based on the number of investments. This is
significant because, for many Chinese investments, the value of the transaction remains undisclosed, which
implies that the scale and scope of Chinese OFDIs might be (much) larger than suggested by those
investment values. Focusing merely on the value of investment might hence provide an incomplete picture
of the impact of Europe’s geoeconomic turn on Chinese investments. In addition, with the focus of existing
literature being primarily on the role of Chinese investments, what has been less analyzed so far is the
establishment of other forms of corporate relations such as international SAs or JVs. These corporate
relations are formed for purposes such as pooling resources for R&D activities, technology exchange,
coproduction, the provision of marketing and sales services, or gaining access to foreign markets
(cf. Y. Zhang et al., 2012, pp. 105–108). The establishment of SAs and JVs with European firms may provide

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Chinese companies (and vice versa) an opportunity to enter new markets and acquire technology, (strategic)
knowledge, or sensitive assets. Both organizational forms can thus be used to achieve the goals typically
associated with M&A deals or greenfield investments. Although JVs are generally regarded as a special type
of OFDI in the international business and political economy literature (e.g., Duarte & García‐Canal, 2004;
ten Brink, 2015), in this article we intentionally differentiate between investments (brownfield and
greenfield) and collaborative corporate ties (JVs and SAs).

The creation of SAs and JVs does not usually involve the acquisition of an equity stake in an existing
company. It is therefore an important distinctive characteristic of those organizational forms that the
collaborating companies keep managerial autonomy. Consequently, the establishment of SAs with a
third‐country party is not covered by EU member states’ investment screening regulations; neither are JVs
covered by the scope of many national investment screening regulations (cf. OECD, 2022, pp. 55–56).
JVs and SAs can thus be used as instruments to achieve similar goals as investments while bypassing
national investment screening mechanisms. It is widely known that Western companies, especially those in
the automotive sector, initiated JVs with domestic companies in China to gain access to the Chinese market,
spurring concerns about the potential risk of technology transfer that could undermine European efforts to
achieve “strategic autonomy” (Korteweg et al., 2022). Several studies in international business literature
have shown that Chinese companies also used outward SAs and JVs for their international expansion to
acquire technologies and enter new markets (Duysters et al., 2007; Wu & Callahan, 2005; Y. Zhang et al.,
2012). But the potential impact the geoeconomic turn may have on this particular type of Sino‐European
intercorporate relations in Europe still has to be investigated.

In this article, we aim to fill this gap by analyzing the variegated impact of Europe’s geoeconomic turn on
Chinese corporate internationalization and the formation of Sino‐European corporate relations via (a) the
number of OFDI (M&As and greenfield) ties and (b) SAs and JVs in the period from 2000 to 2023.
As described above, these modes of internationalization are expected to be affected differently by the
regulatory measures introduced in the course of Europe’s geoeconomic turn. Comparing the evolution of
both forms thus provides a comprehensive picture of how the geoeconomic turn affected the formation of
Sino‐European corporate relations. To account for differences in terms of the ownership and state–business
relations of Chinese globalizing firms, our study also includes variation in terms of the degree of what we call
“party‐state permeation” (Köncke et al., 2022). This allows us to give a granular assessment of whether
Chinese companies’ close ties to the party‐state actually have an impact on the evolution of Sino‐European
corporate ties amid the geoeconomic turn. Given that European investment screening instruments are
designed to filter out “market‐distorting” state‐capitalist influences in Chinese OFDIs (Gräf & Schmalz,
2023), we expect the activities of highly party‐state permeated companies to be particularly impacted.
In this article, we assess the variegated impact of Europe’s geoeconomic turn on Chinese companies with
varying degrees of party‐state permeation in two economic sectors that are key to Europe’s economic
competitiveness and national security: the automotive sector and the ICT sector. We will elaborate upon
this in the next section.

3. Research Design and Case Selection

Employing network visualization techniques and descriptive quantitative and qualitative analysis, this study
will compare the (variegated) impact of Europe’s geoeconomic turn on the internationalization trajectories

Politics and Governance • 2024 • Volume 12 • Article 8195 5

into Europe of the largest Chinese firms in the ICT and automotive industries, as ranked in the Chinese Top
500 list (published by the China Enterprise Confederation). Recent research has shown that Chinese
investment in Europe is concentrated in the hands of a small number of companies (cf. Kratz et al., 2023a),
which predominantly belong to the Chinese Top 500 list. It should be noted, however, that while our sample
includes China’s largest globalizers, it excludes the investments and corporate activities of numerous small
and medium‐sized Chinese companies.

The choice for the ICT and automotive sectors is motivated by the following considerations:

• The “going out” of these industries was intensively promoted by the Chinese government with
industrial policy measures (Jungbluth, 2018), which is why Chinese ICT companies—in particular
telecommunication giants such as Huawei and ZTE—are strongly globalized. Meanwhile, automotive
companies not only expanded into Europe (e.g., Geely acquiring Volvo, BYD moving significant
production and sales to Europe) but also formed JVs with major European companies such as
Volkswagen and BMW—in both China and Europe.
• For Europe, these are two key sectors in terms of its economic competitiveness vis‐à‐vis China and—in
particular with regard to the ICT sector—also for national security concerns. Whereas the ICT sector, in
particular Huawei, has become severely politicized and securitized within Europe (Calcara, 2023; Friis &
Lysne, 2021; Mügge, 2023), the automotive industry has just recently been caught up in the crossfire of
Sino‐European economic competition. In particular, the latter happened in the context of the transition
to electric vehicles, as evidenced by the ongoing anti‐subsidy investigations of the European Commission
against Chinese electric vehicle producers (European Commission, 2023b).
• Both sectors are comprised of large companies that demonstrate different degrees of party‐state
permeation (see Table 1).

Focusing on these sectors and companies thus provides insight into the extent to which Europe’s geoeconomic
turn affects Chinese companies’ internationalization strategies, and how this impact varies according to sector
and between companies with different degrees of autonomy from the party‐state.

Our analysis is based on two sample selections: We first selected all relevant firms in the Top 500 list—which
consists of China’s largest “globalizers”—in the respective sectors with corporate ties in Europe, which
generated 29 cases (13 automotive companies; 16 ICT companies; see Table 1). From this “full sample,” we
subsequently selected four cases per sector, one for each level of party‐state permeation, constituting our
“small sample” (see Table 2). This “small sample” includes the geoeconomically most salient Chinese
companies. Since geoeconomic salience is determined both by the level at which firms are perceived as an
economic competitive challenge as well as a (national) security threat, we selected the companies for this
“small sample” based on three criteria: (a) their technological dominance in business fields key to the
economic competitiveness of European core countries; (b) the risk these companies (might) pose to national
security and critical infrastructure, as perceived by European policymakers and reflected in political
discourse and concrete policy measures amid the geoeconomic turn; and (c) their level of economic activity
in Europe as indicated by Thomson Reuters’ SDC database (Thomson Reuters, 2023). These factors have
been prominent in the ideational shift of European policymakers towards a more restrictive approach to
Chinese investment in Europe, and thus affected the “geoeconomic turn.” Alongside companies with fairly
high levels of corporate activity in Europe (China Unicom, BAIC Motor, Geely, Tencent) which engaged in

Politics and Governance • 2024 • Volume 12 • Article 8195 6

strategic acquisitions that attracted public attention (e.g., Geely’s and BAIC’s acquisition of stakes in
Daimler), the small sample comprises the geoeconomically most sensitive Chinese high‐tech companies that
are commonly seen as the primary drivers behind Europe’s geoeconomic turn. This includes high‐profile ICT
companies such as Huawei and ZTE whose international activities have become securitized in the US and
Europe (Calcara, 2023; Friis & Lysne, 2021; Starrs & Germann, 2021), and automotive companies such as
BYD or CATL whose activities are becoming increasingly “geopoliticized” (Kratz et al., 2023b; Meunier &
Nicolaidis, 2019) due to their technological dominance in business fields key to Europe’s economic
competitiveness (New Energy Vehicles and batteries). While the full sample facilitates a comprehensive
analysis of aggregate dynamics and sectoral comparisons, the small sample goes beyond that sectoral level
by allowing for more in‐depth insight into how Europe’s geoeconomic turn has affected the evolution of
Sino‐European corporate relations.

Table 1. Full company sample.

Company Sector Degree of party‐state permeation
BAIC Motor Automotive High
BYD Automotive Medium
CATL Automotive Low
China FAW Automotive High
Dongfeng Motor Automotive High
Geely Automotive Low
Great Wall Motor Automotive Medium
JAC Motors Automotive Medium
Jianglin Motors Automotive High
Ningbo Joyson Electronics Automotive Low
SAIC Motor Automotive High
Weichai Power Automotive High
Wanxiang Automotive Medium
Alibaba ICT Low
Baidu ICT Low
China Electronics Technology ICT High
China Mobile ICT High
China Telecom ICT High
China Unicom ICT High
GoerTek ICT Low
Hengtong ICT Medium
Huawei ICT Low
Luxshare ICT Low
NetEase ICT Low
Skyworth ICT Medium
Tencent ICT Low
Wingtech ICT Medium
Xiaomi ICT Low
ZTE ICT Medium

Politics and Governance • 2024 • Volume 12 • Article 8195 7

Table 2. Small company sample.
ICT Automotive Degree of party‐state permeation
China Unicom BAIC High
ZTE BYD Medium
Huawei Geely Low: high ownership concentration
Tencent CATL Low: dispersed ownership structure

Another main research aim of this study is to unpack the differentiated impact of the geoeconomic turn on
companies with varying degrees of party‐state permeation. Building upon previous research, we determined
the degree of party‐state permeation for each company using two variables: (a) ownership type, based on
the share of state‐controlled capital in companies’ equity, and (b) party control as measured by a “party
influence index” which determines the degree to which the Communist Party of China is institutionalized at
the corporate level (see the Supplementary File for details on how we operationalized and measured
ownership type and party control, drawing upon Köncke et al., 2022). Using these two variables, we
classified each company’s degree of party‐state permeation as high, medium, or low, with state ownership
and party control given equal weight. Our classification overcomes the limitation of many studies on
Chinese companies determining their exposure to the party‐state based solely on the ownership type and
thus overlooking the various ways the Communist Party of China is institutionalized even within private
companies (Milhaupt & Zheng, 2015; Pearson et al., 2023). Though we found that state ownership and party
control were correlated, there are several notable instances where party control extends into the private
sector (Köncke et al., 2022). For example, BYD is often classified as a private company, suggesting a high
degree of autonomy from the Chinese party‐state. Based on our operationalization of party control,
however, BYD is subject to a high degree of party control and thus exhibits a medium degree of party‐state
permeation (ownership type: private; party control: high).

We retrieved the data on M&As and JVs/SAs from Thomson Reuters’ SDC database (Thomson Reuters, 2023)
and data on greenfield investments (valued at least 100 million USD) from the China Global Investment Tracker
published by the American Enterprise Institute (2023), in both cases for the period 2000–2023. From the
SDC database, we retrieved M&A data that includes not only the European investments made by Chinese
parent companies but also those made by their foreign subsidiaries. For M&As where no transaction value
was provided in the SDC database, we supplemented the data with values from the companies’ press releases
if available. It should be noted, however, that for a third of all European investments by the companies in our
full sample, no transaction value has been disclosed in the SDC database, the companies’ press releases, or
media reports. We stopped collecting data in June 2023.

4. Impact of Europe’s Geoeconomic Turn on Chinese ICT and Automotive Investment

For our analysis, we locate Europe’s geoeconomic turn in what in Germany has been called the
“Kuka‐Moment,” which led to amendments in 2017 to the German Foreign Trade and Payments Act,
tightening cross‐sectoral investment control (Gräf & Schmalz, 2023). In 2017, Germany, France, and Italy
also launched an initiative to establish investment screening in Europe, which later resulted in the EU
Regulation 2019/452 (Chan & Meunier, 2022, pp. 525–535). We structure our analysis along two sets of
results: (a) the impact of Europe’s geoeconomic turn on the aggregate investment of the Top 500 Chinese

Politics and Governance • 2024 • Volume 12 • Article 8195 8

ICT and automotive companies investing in Europe, and (b) its variegated impact on the two sectors and
along varying degrees of the firms’ party‐state permeation (see Section 3).

4.1. Impact on Aggregate Investment of ICT and Automotive Companies

Figure 1 shows that the aggregate value of investment (M&As and greenfield) by Chinese ICT and automotive
companies peaked at 19.6 billion USD in 2018. This peak occurred as European governments began shifting
their stance on Chinese investment. In the following years, the investment steadily declined, dropping to less
than 4 billion USD in 2021 before experiencing a slight recovery in 2022. This recent surge in investment,
however, is due primarily to a single significant investment: CATL’s 7.6 billion USD investment in a battery
plant in Hungary, which produces batteries for companies such as Volkswagen, BMW, and Mercedes. Overall,
the data on investment value indicate that Europe’s geoeconomic turn has curtailed aggregate Chinese ICT
and automotive investment.

Interestingly, a different picture emerges for the number of investments per year: Here, perhaps
counterintuitively, OFDIs of the largest Chinese automotive firms, and notably also ICT companies, in fact
increased in the wake of Europe’s geoeconomic turn. This divergence between the value and the number of
investments is first and foremost a consequence of the fact that—as mentioned in Section 3—a transaction
value has not been disclosed for a third of all investments made by the companies in our full sample. Our
data on investment numbers reveal that China’s largest ICT companies such as Tencent, Alibaba, and
NetEase, and automotive giants such as Geely, Weichai, and Great Wall Motor have continued to invest
heavily in Europe even after the geoeconomic turn. The transaction parties did not, however, disclose
financial information on the investment deals. Analyses based solely on the values of investments thus seem
to present an incomplete picture, whereas looking at the investment number illustrates that—rather
unexpectedly—Chinese ICT and automotive investments in Europe remained highly dynamic.

It is also interesting to note that, at an aggregate level across the full sample, we did not find the
geoeconomic turn to have produced any major shifts in either the geographical orientation or size (value) of
Chinese investment projects in Europe. While some companies, notably Tencent, Alibaba, and to a lesser
extent CATL, which had diversified their European investments geographically during the 2010s, increased

Value (in billion USD) Number (count)

25 20

20
15
15
10
10
5
5

0 0
20 9
20 0
20 1
20 2
20 3
20 4
15

20 6
20 7
20 8
20 9
20 0
20 1
22

20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
22
0
1
1
1
1
1

1
1
1
1
2
2

0
1
1
1
1
1
1
1
1
1
1
2
2
20

20

20

Figure 1. Development of OFDIs by Chinese ICT and automotive companies in Europe, value and number
compared (value in billion USD). Source: Authors’ calculations based on the SDC database (Thomson Reuters,
2023) and the American Enterprise Institute (2023).

Politics and Governance • 2024 • Volume 12 • Article 8195 9

their investments in Eastern Europe following the geoeconomic turn; others, such as Geely (Scandinavia, UK,
Western Europe), Ningbo Joyson Electronics (Germany, Austria, Norway), and GoerTek (Denmark), have
historically focused their investments on specific European countries and regions and reinforced this
geographical concentration by further investing in these regions in recent years. Overall, we thus found no
evidence of a general tendency for Chinese investments to relocate to certain European regions. Looking at
the aggregated data across the full sample also indicates that there are no signs of a substantial change in
the size (value) per investment projects: Single companies such as China Unicom (Spain), Dongfeng Motor
(France), or Geely (Sweden, UK) invested large sums in individual European investment projects immediately
after the euro crisis, but have stopped investing in Europe ever since (China Unicom, Dongfeng Motor), and
in the case of Geely, values for the investments have been increasingly undisclosed. Instead, high‐tech
companies such as the partly state‐owned semiconductor producer Wingtech (full takeover of the Dutch
firm Nexperia in 2020; 4.5 billion USD in total) or CATL (large greenfield investments in Germany and
Hungary), increasingly entered the European stage with large‐scale investments. We thus note that although
there have been substantive shifts in the investment patterns of individual firms, this has not resulted in an
overall shift at the aggregate level.

Due to the divergence between investment value and number, the following analysis focuses solely on the
investment number.

Focusing on the investment number of our smaller sample (Figure 2), we find that Chinese investment in the
ICT and automotive sectors is heavily concentrated in a few firms.

Geely and Tencent, in particular, continue to invest in European companies. Tencent targets predominantly
software and gaming firms all over Europe, whereas Geely invests in European car suppliers and dealer
networks, as well as luxury car brands such as Aston Martin, with a regional focus on the UK and
Scandinavia. Likewise, the automotive firms CATL, BAIC, as well as—notably—Huawei, continue to establish
investment ties.

70

60
Huawei
50 China Unicom
ZTE
40
Tencent
BAIC
30
Geely
20 BYD
CATL
10

0
2000–2008 2009–2016 2017–2023

Figure 2. Periodization of OFDI number by selected companies (small sample). Source: Authors’ calculations
based on the SDC database (Thomson Reuters, 2023) and the American Enterprise Institute (2023).

Politics and Governance • 2024 • Volume 12 • Article 8195 10

Huawei is particularly noteworthy in this regard as it was subject to the fierce geopoliticization of the market
for 5G networks and the rising efforts by, among others, the French and UK governments, to phase Huawei
out of its 5G network market (Calcara, 2023, pp. 446–447; see also Friis & Lysne, 2021). Nonetheless, Huawei
is currently setting up a French factory to produce mobile network equipment serving the European market,
thus further intensifying the corporate ties between Huawei and its European customers, and has for example,
made further greenfield investments in Ireland and Italy. Overall, our data reveal that the geoeconomic turn
so far has neither diminished the aggregate number of OFDIs by top Chinese ICT and automotive companies
nor halted investment by highly geopoliticized companies such as Huawei.

4.2. Sectoral Variation and Degree of Party‐State Permeation

Investigating the sectorally variegated impact of Europe’s geoeconomic turn based on the investment number
across the full sample, our analysis indicates that investments in the highly geopoliticized ICT sector have
maintained an upward trajectory (Figures 2 and 3). This contrasts sharply with the results by Kratz et al. (2023a,
p. 23) who detected a shrinking share in ICT investments based on the investment value. In fact, as Figure 3
shows, the number of ICT investments for the companies in our sample has risen steadily since 2014 and
peaked in 2021, whereas it declined in 2022 but remained at a high level.

Geographically, ICT investments are focused mainly on France, the UK, the Netherlands, Sweden, and Finland.
Tencent, Huawei, and Alibaba, as well as NetEase and Wingtech, are among the largest Chinese ICT investors
in Europe. For the automotive sector, which only recently started to become geopoliticized, the picture is
mixed. Investments exhibited a downward trend since 2017, but have shown signs of recovery in 2022. Apart
from the significant greenfield investment by CATL in Hungary, 2022 witnessed a surge in investments driven
notably by M&A activities from Geely (UK, Sweden, Western Europe) and Weichai (Austria, Italy).

Throwing light on the differentiated impact of Europe’s geoeconomic turn on companies with varying degrees
of party‐state permeation, we clearly observe that investments by companies with a high degree of party‐state
permeation have dropped, whereas investments by companies with a low degree of party‐state permeation
have soared (Figure 4).

20
18
16
14
12
ICT
10
Auto
8
6
4
2
0
9
10
11
12
13
14
15
16
17
18
19
20
21
22
0
20
20
20
20
20
20
20
20
20
20
20
20
20
20

Figure 3. Sectoral comparison of the number of OFDIs (full sample). Source: Authors’ calculations based on
the SDC database (Thomson Reuters, 2023) and the American Enterprise Institute (2023).

Politics and Governance • 2024 • Volume 12 • Article 8195 11

 100
90
80
70
60 High
50 Medium
40 Low

30
20
10
0
2000–2008 2009–2016 2017–2023

Figure 4. Periodization of OFDIs (number) based on degree of party‐state permeation (full sample). Source:
Authors’ calculations based on the SDC database (Thomson Reuters, 2023) and the American Enterprise
Institute (2023).

Because European investment screening policies are designed not only to specifically target investments in
strategic industries but also to mitigate “market‐distorting” state‐capitalist influences (Gräf & Schmalz, 2023),
this result is rather unsurprising and aligns with previous empirical analyses of Chinese investments in Europe
(Kratz et al., 2023a). The geoeconomic turn in that sense clearly impacts Chinese firms with a high degree
of party‐state permeation, which made only a handful of investments after 2019—China Unicom in Germany
(2021), Weichai in Austria (2020), and Italy (2022, 2023). In contrast, investments by companies with a low
degree of party‐state permeation—and, to a lesser extent, companies with a medium degree of party‐state
permeation—remain highly dynamic and thus seem much less affected by the geoeconomic turn.

5. Entering a New Period of Partnering? The Rise of Sino‐European Collaborative Ties

We have argued that, beyond the realm of investment, an ecosystem of cooperative forms of cross‐border
corporate relations between Chinese and European companies exists, which has hitherto remained largely
overlooked in the analyses of Sino‐European corporate relations. JVs and SAs constitute two such modes of
cross‐border intercorporate relations that firms establish for the purpose of pooling resources for R&D
activities, technology exchange, coproduction, the provision of marketing and sales services, and gaining
access to foreign markets (cf. Y. Zhang et al., 2012, pp. 105–108). Moreover, such cooperative
intercorporate relations often precede the establishment of more extensive investment relations, as we will
discuss below. As Figure 5 indicates, establishing JVs and SAs with European partners has indeed been a
considerable part of the globalization strategy of the Chinese Top 500 automotive and ICT firms in our
sample (Table 1).

These forms of cooperative relations between Chinese companies and their European partners not only
continue to be established after the geoeconomic turn but actually more than doubled in the period
2017–2023; a development similar to the surge in OFDI ties during this period. This increase in the
formation of cooperative relations notably occurred prominently in the ICT sector which was already subject

Politics and Governance • 2024 • Volume 12 • Article 8195 12

 160
140
120
100
ICT
80
Auto
60
40
20
0
2000–2008 2009–2016 2017–2023

Figure 5. Sino‐European JVs and SAs in ICT and automotive (full sample) before and after the geoeconomic
turn. Source: Authors’ calculations based on the SDC database (Thomson Reuters, 2023).

to heavy geopoliticization during that period (Calcara, 2023; Friis & Lysne, 2021; Starrs & Germann, 2021).
Another sectoral variation we find is that Chinese ICT firms generally establish more collaborative ties with
European firms than Chinese automotive firms do.

Assessing the variation depending on the degree of party‐state permeation (Figure 6), we observe a
substantial shift over time. While highly party‐state permeated companies accounted for the majority of all
JVs and SAs in the periods before the geoeconomic turn, they established significantly fewer of these links
after the geoeconomic turn. In contrast, we see a substantive increase in the formation of JVs/SAs by low
party‐state permeated companies.

The intentions behind the establishment of such alliances can be manifold, as indicated by the literature on
JVs and SAs (see Section 2). We therefore conducted an explorative qualitative analysis of the descriptions
provided in the SDC database on each of these JVs and SAs. This explorative analysis indicates that many
of these deals are R&D partnerships and agreements on the provision of products from Chinese companies

160
140
120
100 High
80 Medium
60 Low

40
20
0
2000–2008 2009–2016 2017–2023

Figure 6. Sino‐European JVs and SAs by party‐state permeation (full sample) before and after the geoeconomic
turn. Source: Authors’ calculations based on the SDC database (Thomson Reuters, 2023).

Politics and Governance • 2024 • Volume 12 • Article 8195 13

to their European partners, which the latter utilize on both the European and Chinese markets. For example,
many of these cooperative agreements with Alibaba or Huawei are about providing IT services to European
car producers. The increase for low party‐state permeated companies is thus a reflection of the wider ascent
of private companies in the Chinese ICT and automotive sectors which have strengthened their competitive
position in global markets (Hung, 2022).

We zoom in below to analyze the configuration of these ties and the corporate interfirm networks of our
smaller sample (Table 2) to get a more granular assessment of: (a) their development over time, (b) their
geographical spread, and (c) the variation across sectors and degree of party‐state permeation. Figure 7
depicts a pattern in line with our full sample, illustrating the growing number of JVs and SAs over time, and a
tripling of those ties in the period after the geoeconomic turn (2017–2023).

This figure also shows that the companies in our smaller sample that are most active in establishing these
cooperative corporate relations are Huawei, Tencent, and Geely. Again, Huawei is a particularly interesting
case in this regard since it seems that, despite the highly politicized and securitized debates about blocking
Huawei from European 5G infrastructure networks (Calcara, 2023, pp. 446–447), it has managed to
continue its globalization strategy out of the spotlight and has established a sprawling network of SAs in
Europe during and after the geoeconomic turn (see also Figure 8). This includes many cross‐sector alliances
with, for example, Europe‐based car manufacturers such as Volkswagen, Audi, and Volvo (owned by Geely),
involving, e.g., collaboration in R&D and the provision of IT services. Also noteworthy is the close
interrelation between collaborative ties and investments. For example, CATL and Mercedes‐Benz initiated
an SA in 2020 to supply Mercedes‐Benz with CATL’s battery cell modules, which served as a catalyst for
CATL’s subsequent decision to make a large‐scale greenfield investment in Germany and Hungary
(Section 4). Another notable example is the enduring collaboration between BAIC Motor and Daimler that

100

90

80

70 BAIC
BYD
60 Geely
CATL
50
China Unicorn
40 ZTE
Huawei
30 Tencent
20

10

0
# JV’s / Alliances # JV’s / Alliances # JV’s / Alliances
2000–2008 2009–2016 2017–2023

Figure 7. Sino‐European JVs and SAs in the ICT and automotive sectors (small sample) before and after the
geoeconomic turn. Source: Authors’ calculations based on the SDC database (Thomson Reuters, 2023).

Politics and Governance • 2024 • Volume 12 • Article 8195 14

 Denmark

Belgium

Russian Fed
Austria

Finland
Portugal
Tencent Italy
Netherlands Private (disp)
France
ZTE
UK Luxembourg
Bulgaria Hybrid
BYD
Jersey
Huawei Sweden Hybrid
Monaco Private

China Unicom
Norway Germany State-owned
Geely
Ireland Switzerland Private

BAIC
CATL State-owned
Private (disp)

Belarus
Bulgaria

Figure 8. Geographical configuration of Sino‐European JVs and SAs, 2000–2023. Notes: blue nodes = country
of participant firms; green nodes = 100% private firms; yellow nodes = private firms with dispersed ownership;
orange nodes = hybrid firms; red nodes = 100% state‐owned firms; tie strength represents number of alliances
with a firm in that country, and node size represents degree centrality (i.e., number of incoming ties). Source:
Authors’ calculations based on the SDC database (Thomson Reuters, 2023).

culminated in the establishment of a JV in the early 2000s known as Beijing Benz Automotive, producing
Mercedes‐Benz cars in China. This partnership set the stage for BAIC’s acquisition of a 10% stake in Daimler
in 2019, exemplifying the interconnectedness between the establishment of JVs/SAs and investments.

Mapping out the geographical networks for the eight Chinese firms in our small sample, Figure 8 shows that
German firms are the most frequent partners for their JVs and SAs, closely followed by the UK, Sweden,
and France. Besides Tencent, all the firms in our small sample partner with German firms. This two‐mode
network also illustrates that ICT firms have much more extensive geographical networks. Again, Huawei is
the most widely and extensively connected. Chinese automotive firms only establish such relations with a few
countries; in particular—and unsurprisingly—with Germany. Again, we find some variation based on the degree
of party‐state permeation, as the low and medium party‐state permeated firms (green, yellow, and orange
nodes) have much more extensive networks than the highly party‐state permeated firms (red nodes) have.

6. Conclusion

This article has engaged with the ongoing international relations and international political economy debates
about Europe’s geoeconomic turn and contributed to these debates by analyzing its implications for the
internationalization of Chinese firms into Europe. In contrast to prevailing studies and expectations, our data

Politics and Governance • 2024 • Volume 12 • Article 8195 15

reveal that the geoeconomic turn so far has not affected the aggregate number of OFDI ties by Top 500
Chinese ICT and automotive companies. Moreover, while it may have altered the investment activities of
highly geopoliticized companies, it has—as the case of Huawei shows—not halted them.

Europe’s geoeconomic turn, however, has had a differentiated impact on companies related to their degree
of party‐state permeation. We have shown that investments by highly party‐state permeated Chinese
companies have dropped markedly. By comparison, investments by companies with a low degree of
party‐state permeation—and, to a lesser extent, companies with a medium degree of party‐state
permeation—remain highly dynamic. Our results thus indicate that, while the “selective fortification” (Lavery,
2023) of European capitalism(s) coincided with a slowdown in the momentum of OFDIs by highly party‐state
permeated Chinese companies, investments by companies with a low party‐state permeation (in many cases
operating in high‐tech fields such as ICT and electric vehicles) actually increased after the geoeconomic turn.

This article also reveals the existence of an extensive ecosystem of cooperative forms of cross‐border
corporate relations between Chinese and European companies that has so far been largely overlooked in the
analyses of Sino‐European corporate relations. As we show, Chinese ICT firms, and—to a lesser
extent—automotive companies, engage intensively with Western companies by establishing collaborative
ties (JVs and SAs) to pool resources for R&D activities, technology exchange, coproduction, the provision of
marketing and sales services, or preparing their entry into foreign markets. Notably, this dynamic has also
intensified in the wake of the geoeconomic turn. Here, however, it is again the companies with a low degree
of party‐state permeation that have entered into cooperation with Western companies after the
geoeconomic turn, while the involvement of Chinese companies with a high degree of party‐state
permeation has declined sharply. Uncovering this extensive network of Sino‐European collaborative ties, our
findings point to the need to conduct further in‐depth qualitative investigations into what these ties imply
for Chinese corporate globalization. Moreover, it is interesting to note that, given the interrelatedness
between the establishment of JVs and SAs and investment activities, the surge in these collaborative
corporate ties could serve as a precursor to heightened investment endeavors in the future.

In general, our results stress the importance of including cooperative corporate relationships in the analysis
of Chinese companies’ internationalization strategies and the benefit of a more encompassing assessment
of OFDI, including not only value but also the number of investment ties. We have suggested that JV/SA
formation can be a strategy for avoiding regulatory prohibitive measures and screening; more research into
the motives and drivers on the part of both Chinese and European partners for these modes of collaboration
would be one fruitful research avenue. We found indications of JV/SA partnerships leading to more intensive
and expansive investment relations, but whether this is indeed a robust pattern needs to be established more
systematically. Moreover, the present study focused on two key sectors in the geoeconomic competition
between Europe and China; future research would need to confirm whether the patterns we found in these
sectors also apply to other sectors such as finance, infrastructure, and energy.

Another key takeaway from our study is that, despite the blurring boundaries between state‐owned and
private Chinese firms and the complex entanglement of state‐capital relations in Chinese capitalism,
geopolitical and geoeconomic dynamics do have a substantive differentiated effect on Chinese firms’
internationalization strategies related to their degree of party‐state permeation. Our study has not analyzed
the mechanisms of this influence and the party‐state business ties within firms (but see Köncke et al., 2022),

Politics and Governance • 2024 • Volume 12 • Article 8195 16

nor has it investigated how these are perceived by their corporate partners abroad, both of which would
constitute fascinating follow‐up studies. Our findings make clear that continued attention in both academic
and policy assessments of Sino‐European economic relations to the distinctive and complex nature of
Chinese party‐state capitalism is called for—while keeping Western‐centric blinders in mind.

Finally, this study suggests that European governments’ efforts to “de‐risk” their economic relations with
China and the call for “open strategic autonomy” vis‐à‐vis China have, so far, been accompanied by an
intensification of Sino‐European business relations with respect to both investment ties and collaborative
ties of China’s largest ICT and automotive companies, be it more “under the radar.” This seems to indicate
that firms and cross‐border corporate relations are more resilient to the growing geopolitical and
geoeconomic rivalry and the adjacent tightening of policies than the headlines might lead us to expect. For
the wider Sino‐European relations and the potential unfolding of de‐globalization—or even decoupling—our
findings indicate that this is certainly not a unilinear or one‐dimensional development. De‐globalization, or
an unraveling of Sino‐European relations, does not seem to be impending, at least not within the wider realm
of corporate cross‐border interactions, though it could happen selectively, in certain industry segments and
specific cases (e.g., semiconductors, 5G). National security concerns and economic imperatives seem to
interact in contradictory ways, and it appears to be a rocky road from political strategic decisions to
corporate behavior.

Acknowledgments
We would like to express our gratitude to three anonymous reviewers for their valuable feedback and
comments. We are also grateful for the comments of the participants at the EWIS workshop New Conflicts
on the Horizon? The Geoeconomic Turn in Global Trade, Investment, and Technology (2023, Amsterdam), the
panel China and the Global Political Economy at the SASE Conference (2023, Rio de Janeiro), and the annual
conference of the Political Economy Section of the German Political Science Association (University of
Witten/Herdecke, 2023).

Funding
This work was funded by the German Research Foundation DFG under grant number SFB TRR
294/1‐424638267 and supported by Open Access funds of the University of Erfurt.

Conflict of Interests
The authors declare no conflict of interests.

Supplementary Material
Supplementary material for this article is available online in the format provided by the authors (unedited).

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About the Authors

Philipp Köncke is a PhD candidate at the Faculty of Economics, Law, and Social Sciences at
the University of Erfurt. His primary research interests lie at the intersection of comparative
and international political economy, with a focus on state–capital relations in Chinese
capitalism, the internationalization process of Chinese companies, and the resulting new
forms of geoeconomic conflicts within the capitalist world‐system.

Nana de Graaff is associate professor in international relations at the Department of

Political Science and Public Administration, VU Amsterdam. She is chair of the China in
Europe Research Network (CHERN) and is principal investigator of a Vidi research project
on The Geopolitics of Europe‐China Tech Decoupling.

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Politics and Governance
2024 • Volume 12 • Article 8265
https://doi.org/10.17645/pag.8265

ARTICLE Open Access Journal

A Chip War Made in Germany? US Techno‐Dependencies, China

Chokepoints, and the German Semiconductor Industry
Julian Germann 1 , Steve Rolf 2 , Joseph Baines 3 , and Sean Kenji Starrs 4
1
Department of International Relations, University of Sussex, UK
2
Business School, University of Sussex, UK
3
Department of European and International Studies, King’s College London, UK
4
Department of International Development, King’s College London, UK

Correspondence: Julian Germann ([email protected])

Submitted: 13 February 2024 Accepted: 16 May 2024 Published: 8 July 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
As geo‐economic and geopolitical rivalries intensify, the US is weaponizing its power in global
semiconductor supply chains to restrict Chinese technological development. To win this chip war against
China, the US must compel key foreign firms in Asia and Europe not to supply its adversary with the
materials, tools, and know‐how needed to make advanced semiconductors. But will these firms agree to
follow the US chip embargo and avoid the lucrative Chinese market? This article examines Germany’s “China
chokepoint” firms, whose identity and behavior remain critically understudied. Drawing on novel data sets
and annual company reports, we show that German firms across three case studies are highly
“techno‐dependent” on the US. Despite this techno‐dependence, German firms have so far sought to
circumnavigate US export controls. This constitutes a puzzle because Germany’s semiconductor firms are no
more involved in the Chinese market than are firms in Japan and South Korea—which have frequently
signaled voluntary compliance or even withdrawn from China in anticipation of harsher US sanctions.
To resolve this puzzle, we map out Germany’s semiconductor network and demonstrate that it is tightly
articulated with Germany’s auto industry—which is in turn heavily exposed to Chinese markets. We propose
that this secondary exposure, through firms’ embeddedness in Germany’s “national production regime,”
encourages them to resist the US chip embargo. In this way, we contribute empirical and conceptual insights
to international political economy scholarship on firms as geo‐economic actors, actively engaged in a
protracted and contentious policy process with US authorities.

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
Keywords
China; geopolitics; Germany; international political economy; sanctions; semiconductors; supply‐chain
analysis; techno‐dependency; weaponized interdependence; United States

1. Introduction

Our contribution to this thematic issue starts with the proposition that the decisive “geo‐economic turn” away
from the neoliberal project of free trade and free markets—though not from globalization as such—has come
from the US. This turn is epitomized by the unprecedented measures the Trump and Biden administrations
have taken to sabotage China’s development of advanced semiconductors. Waging this “chip war” involves
incising deep cuts into an interconnected web of highly specialized suppliers in a globe‐spanning industry
estimated to grow to US$1 trillion in revenue by 2030 (KPMG & GSA, 2024). Winning this chip war depends in
large part on whether the US can compel not only its own but also foreign firms to stop selling chipmaking tools
and related materials, components, and services to China—the world’s largest consumer of semiconductors
(Araya, 2024).

Most important to these efforts are so‐called “China chokepoint” firms based in a handful of US‐allied
countries, which occupy critical nodes in advanced semiconductor production networks where China has
little to no domestic capacities (Khan et al., 2021). To curb Chinese access to these technologies, the US has
pressured allies to impose export controls on chokepoint firms under their national jurisdiction. In parallel,
the US has also given its own restrictions extraterritorial force, which legally oblige compliance from users of
US technology and thus weaponize these non‐US firms directly. This mix of bilateral talks and unilateral
sanctions worked in the case of the Netherlands and Japan, with both states and national semiconductor
giants ASML and Tokyo Electron agreeing to follow US sanctions in law and in spirit (Starrs et al., 2024;
Haeck & Moens, 2023). Talks with other US allies—such as South Korea, Taiwan, and Germany (Baazil et al.,
2024; “Germany plays down report,” 2023; Nienaber et al., 2023)—have not yet yielded formal deals, and
one recent study finds that there are still “gaps in compliance between U.S. companies and those of allies”
(Shivakumar et al., 2024, p. 1). Nevertheless, firms from countries without such agreements yet in place
(such as South Korea and Taiwan) appear to be practicing strategies of “anticipatory compliance” by drawing
down China investments and partnerships in favor of alternate locations (Lim, 2024; Nussey et al., 2024).
This raises vexing questions about the nature, extent, and limits of US power, particularly in relation to the
capacity of foreign transnational corporations (TNCs) to resist or evade US weaponization against China
(e.g., Malkin & He, 2024; Moraes & Wigell, 2022; Shukla, 2022).

This article examines Germany as a counter‐intuitive but high‐stakes case study for addressing this research
problem. That the US should seek to engage Germany in export control negotiations is understandable,
given that Germany holds considerable influence within the EU and China is its most significant trading
partner. Getting German firms to follow US export sanctions would therefore be a big win for US attempts
to multilateralize its chip war. But the German case is also puzzling. To start, Germany is not generally known
to have a world‐leading semiconductor industry and it has very few well‐known companies in the sector.
It is also not well understood how exposed its chip firms are to Chinese markets. This has meant that
Germany’s involvement in the chip war has remained critically underexplored, and the identities of
Germany’s potential “China chokepoint” firms remain unclear. To our knowledge, there has been no attempt

Politics and Governance • 2024 • Volume 12 • Article 8265 2

to systematically identify these firms, nor to determine whether they are already adhering to existing US
export controls, waiting to see whether the German government will yield to US pressure, or actively
avoiding US sanctions.

Our article seeks to contribute to ongoing attempts to more thoroughly explain and theorize firm behavior in
the new geo‐economic era. To do so, we identify who the key German firms are that the US needs to enlist in
its chip embargo, and we assess the specific leverage the US has over them. We then ask our central research
question: To what extent do these firms choose to follow or evade US export controls, and what explains
these outcomes in firm decision‐making? This article sets out and develops our answer to this question in
four steps.

The next section locates our work within the recent international political economy literature on TNCs as
geo‐economic actors. We argue that firm behavior needs to be examined in relation to “techno‐dependency”
on the US, weighed against their embeddedness in “national production regimes” (Koddenbrock & Mertens,
2022). Section 3 analyzes the German firms that matter to the US chip war on China. Building on industry
and media reports, we show that there are just shy of a dozen German semiconductor firms that, alongside a
handful of foreign firms, occupy different chokepoints across the length of the semiconductor supply chain—
from design and materials to equipment and testing.

The remainder of Section 3 zooms in on an illustrative subset of these “China chokepoint” firms from across
the chain—Siemens, Merck, and SÜSS MicroTec—on the basis not only of their strategic importance but also
their specific attributes and varied visibility to US regulators. Drawing on Bloomberg Professional and S&P
Capital IQ Pro datasets, we demonstrate that all three firms are techno‐dependent on the US in terms of the
facilities, subsidiaries, and affiliates they have located in the US, supply chains with suppliers or customers
in the US, and the technologies that they use which are derived from US sources. We show that the three
firms have nevertheless delayed compliance by either dragging their feet until directly ordered by US officials
or by shifting their operations to minimize their potential legal liabilities. This is not, at least in two of our
three cases, due to direct exposure to the Chinese sales market, which represents a modest proportion of
overall revenues.

Instead, Section 4 maps the supply‐chain linkages within and between Germany’s semiconductor industry
and other sectors of the German economy. We reveal how Germany’s chipmakers are embedded in a
“national production regime” (Koddenbrock & Mertens, 2022) which deeply integrates them with the
German automotive industry. This integration is pivotal because the automotive sector maintains substantial
investments in and commitments to the Chinese market, rendering it particularly susceptible to potential
retaliatory actions. Consequently, firms will likely demur from any measures which might imperil Germany’s
auto sector. German chipmakers’ “secondary exposure” to the Chinese market therefore renders them
hostile to US chip sanctions.

We conclude that attention to both the embeddedness of TNCs within national production regimes and their
techno‐dependencies on the US is needed to move towards a fuller understanding of how they navigate the
geo‐economic turn. This turn, we insist, is not simply dictated by states any more than it is shaped solely by
the commercial decisions of firms. Rather, it involves a complex and contentious policy process in which the
US can target foreign firms directly, while these firms have some leeway to resist US “weaponization” in favor

Politics and Governance • 2024 • Volume 12 • Article 8265 3

of pursuing their own commercial interests, shaped in part by the broader national production regime to which
they belong.

2. US Power and Corporate Agency in the Geo‐Economic Turn

As the networks of globalization become arenas of great power contestation, a new body of international
political economy scholarship has emerged that recognizes TNCs as actors navigating the geo‐economic turn
(Abels & Bieling, 2023; Malkin & He, 2024, p. 694; Moraes & Wigell, 2022; Rolf & Schindler, 2023). This
literature eschews a realist‐inspired and security‐establishment‐adjacent worldview in which companies are
mere instruments through which state power is projected or received (Babić et al., 2022a, pp. 4–6). But it also
dispels the liberal myth that TNCs are globally footloose and can simply evade national policies that do not
suit their interests. Instead, these scholars are interested in the structural constraints and strategic choices
faced by TNCs as states seek to redraw global supply chains in the name of national security. The principal
question that animates this scholarship is how far and under what conditions companies are bound to follow
or able to resist such “supply‐chain statecraft” (Babić et al., 2022b, p. 191; Baines et al., 2024). Scholars have
developed typologies of firm behavior linked to the profiles and profitability of firms, the political systems to
which they are tied, or varieties of state‐firm relations (Calcara, 2022; Geertz & Evers, 2020, pp. 124–127;
Moraes & Wigell, 2022, pp. 44–45; Rolf & Schindler, 2023).

Our article contributes to this budding research agenda in three ways. First, we propose that the US chip war
against China, as the pivot of the geo‐economic turn, holds unique insights into the changing dynamics
between states and firms. Concretely, the US wishes to dictate with whom foreign TNCs can and cannot do
business—which directly impinges on their established business models, investment, and locational
strategies. Therefore, the US chip war on China offers, as Malkin and He (2024, p. 677) aptly put it,
“something approaching a natural experiment that tests the extent to which the US as a state actor can
exercise its preferences.”

Second and related, to fully understand corporate responses, we need to situate them in the context of US
power. The ability of the US to weaponize foreign firms in its chip war against China has been attributed to
the prominence of US companies, capital, and technology in global semiconductor production (Beaumier &
Cartwright, 2024, pp. 14, 16; “Chains of control,” 2023, p. 36; Farrell & Newman, 2023, pp. 200–201; Malkin
& He, 2024, p. 687). But the principal focus of this literature has, understandably, rested on the ultimate
target of US weaponization, i.e., the Chinese state and its firms. The secondary power dynamic between the
chip sanctions of the US and the commercial decisions of allied firms has yet to be extensively explored. This
requires that we operationalize, and measure in concrete cases, the specific extraterritorial leverage that the
US has over third‐country firms. To do so, we introduce the concept of “techno‐dependency,” by which we
mean the significance of the US as a base of operations, site of strategic investments, and source of
know‐how and products for individual companies. Techno‐dependency is what enables the US to craft
regulations, including with extraterritorial legal force, to ensure compliant behavior.

However, as our third contribution spells out and our empirical findings underline, it would be wrong to see
firm compliance as a fait accompli, even where techno‐dependencies on the US are very high. Corporate
decisions, we contend, are complexly determined and shaped in important ways by a firm’s place within a
specific “national production regime” (Koddenbrock & Mertens, 2022)—that is, the network of connections

Politics and Governance • 2024 • Volume 12 • Article 8265 4

to domestic customers and suppliers within and beyond a given sector. Understanding the likely outcomes
of particular geo‐economic conflicts, then, requires undertaking detailed mappings of these supply chains in
both their domestic and global configurations. By empirically mapping these networks in the case of Germany’s
semiconductor industry, we are better positioned to analyze the strategies of key firms and the limitations of
“weaponization” in the context of growing Sino–American competition.

3. The German Semiconductor Network and Its China Chokepoints

This article zooms in on the relationship between the US and German firms whose cooperation is needed
to close loopholes in the US chip embargo against China. The US has two avenues to pursue compliance.
First, the US can ask German regulators to mirror US export controls so that they apply to German firms.
And indeed, media reports confirm that talks between the US and Germany have been ongoing since at least
2023 (Baazil et al., 2024; “Germany plays down report,” 2023; Nienaber et al., 2023). Second, in addition to
inter‐state bargaining, the US can also proceed unilaterally and mobilize its export control regime so that it
prohibits German firms that use US products or know‐how from selling specified items to China and/or doing
business with blacklisted Chinese firms.

Since Trump came into office, the US has placed dozens of Chinese tech firms on the Entity List. Under
Biden, the US also added advanced chips and numerous tools and technologies to manufacture
semiconductors and supercomputers to the Commerce Control List. Both lists are maintained by the Bureau
of Industry and Security (BIS) with the Department of Commerce. The latter catalogs dual‐use items that
cannot be exported without a license if they are destined for specific countries, specific end uses, or specific
end users that are considered to be of concern. The former specifies the foreign entities, including now over
600 Chinese companies, that may not be supplied with these items.

Crucially, the Foreign Direct Product Rule (FDPR) applies these export controls to certain items made
anywhere in the world if they meet a specified threshold of US‐origin content or use US‐origin technologies
or equipment. Thus, the BIS has effectively banned all worldwide shipments of leading‐edge graphics
processing units to China because they cannot be made without US software or equipment. It has also
banned sales of foreign‐made items made with US inputs to China if they can be used to produce
supercomputers or if they are destined for certain Entity List firms, i.e., those with a so‐called “footnote 4”
designation (Rasser & Wolf, 2022). The FDPR has been extended to other countries of concern outside
China (Dohmen & Feldgoise, 2023; Reinsch et al., 2023), along with expanded export licensing requirements,
to keep them from re‐selling certain items to China (Dohmen & Feldgoise, 2023). And, in a spectacular
expansion of extraterritoriality, the BIS in October 2023 specified a type of lithography equipment to which
the FDPR rule applies even if it does not contain any US inputs (Goujon & Kleinhans, 2023).

How far these regulations already legally oblige German suppliers, let alone induce compliance, depends on
the specific firms in question. Germany is not generally known as a home to key players in the global
semiconductor industry. While Infineon is often cited as a leading manufacturer of automotive and power
semiconductors, it does not belong to the same class of cutting‐edge chip firms as TSMC or Samsung.
Smaller German companies—like Zeiss or Trumpf—have made the news. But they are usually discussed as
suppliers to ASML (ASML, n.d.; Hofer, 2023; Höltschi, 2023; Rudzio, 2023) whose coveted extreme
ultraviolet and deep ultraviolet lithography machines have already been hit by US and Dutch export

Politics and Governance • 2024 • Volume 12 • Article 8265 5

controls (Starrs et al., 2024). The future role of these and other suppliers in the US‐led chip war is
therefore unclear.

To fill in this picture, we build on a landmark study by the Center for Security and Emerging Technology
(Khan et al., 2021) that systematically surveys the global semiconductor supply chain to identify areas where
Chinese firms currently have little to no capacities. These segments of advanced semiconductor
manufacturing constitute potential “China chokepoints,” insofar as the dominant firms, usually from a
handful of countries, can be convinced not to sell to China.

Figure 1 shows the 11 German “China chokepoint” firms listed in the Center for Security and Emerging
Technology report. As we can see, they primarily cluster around semiconductor manufacturing equipment
but are also present at other steps in the supply chain. Siemens, for instance, is one of four firms globally
that own over 95% of chip design software. Siltronic ranks fourth in the world in the production of silicon
“wafers,” including advanced 300 mm diameter wafers from which virtually any chip below 45 nm is made
(Khan et al., 2021, pp. 55, 57, 92). Furthermore, Zeiss is not only ASML’s largest known supplier, accounting
for over 25% of the company’s costs (Bloomberg, 2024); it is also among the few firms worldwide that make
the tools China relies on to inspect these wafers and the transparent plates (“photomasks”) used to transfer
circuit patterns onto them (Khan et al., 2021, p. 44).

Figure 1 also shows a concentration of German chokepoint firms in chipmaking tools. All but one of these
firms make alternative lithography equipment that does not use ultraviolet light but ion‐beam,

Merck
Materials
Siltronic

Back-End:
Front-End: Assembly, Bruker
Design
Fabrica!on Packaging, Zeiss
and Tes!ng

FOCUS
Heidelberg Instruments
PVA TePla
Manufacturing
EDA So ware Siemens EDA Raith
Equipment
SÜSS MicroTec
Vistec
Zeiss

Figure 1. Germany’s “China chokepoint” firms in the semiconductor supply chain. Source: Authors’ work based
on Khan et al. (2021) and Varas et al. (2021).

Politics and Governance • 2024 • Volume 12 • Article 8265 6

electron‐beam, laser, or imprint technology to draw circuits onto chips (Khan et al., 2021, p. 34). This type of
equipment presents a potential, though not yet fully developed, substitute for the sanctioned extreme
ultraviolet and deep ultraviolet machines (e.g., Shivakumar, et al., 2024, p. 5). Vistec, for instance, has an
over 90% global market share in electron‐beam lithography for chipmaking (Khan et al., 2021, p. 30). Japan
added this technology to its export control list in 2023, but at least one other German company (Raith) has
so far continued to sell it to China (Wettach, 2024, p. 30). To sum up, though less critical than Dutch,
Japanese, Taiwanese, and South Korean firms, German firms do matter for the US’s ability to curtail China’s
access to critical supplies, hamper its production, and prevent technical workarounds and future innovations.

Unlike those in other US‐aligned countries, Germany’s chip firms have not been widely reported to be
withdrawing from China. In fact, as we demonstrate below, they have pursued business strategies
predicated on deepening their China dependencies and systematically worked to evade the spirit of US
decoupling initiatives. As Table 1 indicates, this is not because German chip firms are more directly exposed
to China than those in other countries. Germany and Japan each send about a quarter of their exports of
semiconductor manufacturing equipment to China. That is more than the Netherlands, but significantly
below the percentage of exports that Taiwan and South Korea send to China. Measured in US$ values,
moreover, Germany ranks last. Japan exports nearly 10 times as much equipment to China as Germany, and
even the Netherlands exports nearly three times as much.

To better understand the role and strategies of German firms in the US–China chip war, the remainder of
this section examines three of these “China chokehold” firms—Merck, Siemens, and SÜSS
MicroTec—selected for pragmatic and strategic reasons. First, all three companies are publicly listed and
large enough for sufficient supply‐chain and facilities data to be available on Bloomberg Professional and
S&P Capital IQ Pro. Second, they occupy distinct yet critical roles across the semiconductor supply chain,
which gives scope to our analysis. Merck is a world‐leading producer of specialty gases and high‐quality
materials needed for semiconductor manufacturing. Siemens is an industrial conglomerate that has become
one of four firms globally that own over 95% of chip design software. SÜSS MicroTec is a manufacturer of
chipmaking tools developing the most promising alternative to US‐sanctioned photolithography equipment.
Third, the three firms offer helpful contrasts because they are of vastly different sizes. With a market
capitalization of €142 billion, Siemens is an industrial giant more than twice as large as Merck (€65 billion),
while SÜSS MicroTec, valued at €891 million, is a significantly smaller, self‐styled “hidden champion” (SÜSS
MicroTec, 2023a). Such variation allows us to explore whether size has an impact on firm responses. Lastly,

Table 1. Exports of semiconductor manufacturing equipment to China (2022).

US$ China % of total exports
Germany 926,454,000 25.8
Netherlands 2,450,173,380 14.7
Japan 8,927,690,000 28.7
South Korea 1,601,329,000 51.3
Taiwan 2,192,458,200 34.4
Notes: Aggregated trade data for products classified under Harmonized System codes 381800, 848610, 848620,
848640, 903082, and 903141; we follow Beaumier and Cartwright’s (2024, p. 6) aggregation for “semiconductor
manufacturing equipment” but also add “machines and apparatus of a kind used solely or principally for the manufacture
of semiconductor devices or of electronic integrated circuits.” Source: Authors’ calculations based on Observatory of
Economic Complexity (2024).

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the three companies have received different types of scrutiny by US authorities. Siemens has had numerous
Chinese customers put on the US Entity List, and in one prominent case, was singled out and virtually
directly ordered by US regulators to review its business ties (Heide & Murphy, 2023). Merck is rumored to
be the subject of US–German trade talks (Nienaber et al., 2023). SÜSS MicroTec, finally, has seen export
licenses delayed by German regulators, which suggests indirect pressure by the US (Finkenzeller, 2023).
Thus, in so far as we find that all firms responded similarly in resisting US decoupling initiatives, the reasons
for this common behavior need to be sought elsewhere.

3.1. Merck

The importance of Germany for the US tech embargo first became apparent in April 2023 when news broke
that the German government was in talks to restrict the export of “chip chemicals” to China (Nienaber et al.,
2023). The two companies potentially affected are BASF and Merck, the latter occupying a China
chokepoint (“Germany plays down report,” 2023; Nienaber et al., 2023). A science and technology company
with a dedicated and newly expanded electronics division (Merck, 2021), Merck offers a range of materials
and material solutions for the semiconductor industry. It is one of the world market leaders in the
production of electronic gases (Khan et al., 2021, p. 56) and supplies chemicals for polishing wafers
(Wettach, 2023). In addition, Merck builds supply systems for the chemicals and gases used in
semiconductor manufacturing (Hofer, 2023). The company prides itself on the fact that “almost every chip in
the world uses one of our products or services” (Merck, n.d.) and counts YMTC and SMIC among its
customers, leading Chinese firms that are both on the US Entity List (Bloomberg, 2024). As a result, Merck
has become engulfed in the tech war between China and the US, noting as early as 2020 that the conflict
touches on every aspect of its business (Ziesemer & Steinmann, 2020).

When the possibility of Germany aligning its export controls with the US was first reported, one chemical
industry expert objected that extending the German dual‐use list to chip chemicals would make little sense
because “the majority of the semiconductor chemical value chains of Merck and BASF did not involve Germany
or Europe geographically” (“Germany plays down report,” 2023). Contrary to this criticism, this is not because
production has been fully localized in China. Rather, our analysis suggests that Merck’s production network
runs through the US. Some 29% of Merck’s facilities are located there, compared to just 8% of its facilities
in Germany (Bloomberg, 2024). Moreover, whereas just 12% of its long‐term assets are based in Germany,
64% are based in the US (Bloomberg, 2024). The long‐term assets Merck has in the US include two of its
four facilities producing specialty gases (with the other two located in South Korea; Bloomberg, 2024) and
several facilities of its high‐tech materials business in North America. In 2019, Merck acquired two US‐based
firms: Versum Materials, which makes slurries used for flattening wafers (Wettach, 2023), and Intermolecular
Inc., which provides technology platforms for high‐tech materials research and development (Merck, 2019).
Indeed, Merck has confirmed that its US subsidiaries and affiliates are already subject to US export controls
(Wettach, 2023).

Given these significant techno‐dependencies and the relatively modest contribution of the Chinese market
to its total revenue (13% of its total revenue in 2023; Merck, 2024, p. 251), it is surprising that the company
is going to great lengths to defend its China operations. To continue to sell to China, Merck has embraced
“a strong local presence” and is investing in a new site for advanced semiconductor solutions in Zhangjiagang
(Merck, 2024, pp. 60, 82). It also plans to reduce its reliance on raw materials from outside of China, especially

Politics and Governance • 2024 • Volume 12 • Article 8265 8

from the US (Yang & Nilsson, 2023). Increasing investment in and sourcing from China is the opposite of
what the US wants. With Merck, then, we have our first case of a German “China chokepoint” firm that is
circumventing rather than following the US chip embargo.

3.2. Siemens

The second and most prominent example is Siemens. It is the world’s fifth‐largest industrial conglomerate by
market value and a leading supplier of manufacturing software including semiconductor production (Statista,
2024). With its acquisition of Mentor Graphics in 2017, it became one of only four companies worldwide
that possess the software to design next‐generation semiconductors (Hägler, 2023). This oligopoly position
in EDA puts Siemens at the center of the US chip embargo, and its diversified product portfolio extends to
other advanced technologies and military applications where the US seeks to curtail China’s access,
including aerospace, battery manufacturing, and biotechnology (“Chains of control,” 2023, p. 36; Hayashi &
McKinnon, 2023).

While Siemens has no less than 43% of its long‐term assets in the US, it has been present in China since the
late 19th century, where it generates 12% of its total revenue (Siemens, 2024, p. 14) and where 17% of its
known customers are domiciled (Baines et al., 2024). What, if any, resources does the US possess to compel
this industrial behemoth to follow its sanctions? And what, if any, evidence is there to suggest that Siemens
has complied?

The most compelling source of US legal authority over Siemens is that Mentor Graphics, which the firm
acquired as “Siemens EDA” in 2021, is domiciled in the US. This establishes a direct obligation for its US
subsidiary to abide by US export controls, which the Commerce Department extended to EDA software in
August 2022. Moreover, under the revised FDPR in October 2022, any foreign item made using EDA
software or any foreign item made by a facility (or major component of a facility) linked to EDA software is
subject to the same restrictions. Any company that uses, let alone owns and develops, Siemens’ EDA
software must comply with US export restrictions—no matter where in the world it is located.

It is therefore noteworthy that Siemens became engulfed in a scandal following media reports in 2022 that
some of its non‐EDA engineering software had been resold by Chinese distributors—Transemic and Zhongke
Beijing Hope—to two universities with ties to the Chinese military (Cadell & Nakashima, 2022; Heide &
Murphy, 2023). At least some of the software in question came from a subsidiary registered under a
business address previously shared with Siemens EDA (Cadell & Nakashima, 2022; Standard & Poors, 2024).
Siemens had also moved to acquire Arizona‐based Zona Technology, which was reported to have sold its
aerodynamics simulation software to a research institute involved in China’s hypersonic missile program
(Cadell & Nakashima, 2022).

Despite the revelations, Siemens took the position that the specific software had not been sanctioned either
by the US or EU and that it had no knowledge of the military ties of its distributors (Heide & Murphy, 2023).
However, a BIS official clarified that under its missile “catch‐all” provisions, no US‐made item whatsoever—
not even a pencil—may be shipped to a missile end user and that companies cannot plead ignorance (Cadell &
Nakashima, 2022). This turned the attempted Zona acquisition toxic. To date, the deal has not been completed.

Politics and Governance • 2024 • Volume 12 • Article 8265 9

Nevertheless, Siemens held on to its Chinese distributors until the US finally put them on the Entity List in
June 2023 and made it clear that Transemic’s ties to the military “included the development of hypersonic
weapons” (Heide & Murphy, 2023; “Siemens kappt Verbindung,” 2023). This episode demonstrates that the
US has the power to compel even a non‐US TNC with over a century of business links with China to abide by
its sanctions. But it also shows that the company dragged its feet and had to be publicly called out and legally
compelled to cease commercial dealings even when they aided China’s military development—ostensibly the
target of the US chip embargo. This, then, constitutes the second case of a German “China chokepoint” firm
that has sought to resist the US chip war.

3.3. SÜSS MicroTec

Our last case is SÜSS MicroTec, which presents itself as the only provider of photomask cleaners “so far
qualified for the 3nm technology node” (SÜSS MicroTec, 2024, p. 29) and thus, an indispensable supplier for
ASML and its customers (Finkenzeller, 2023). SÜSS MicroTec also holds an 85% market share in mask
aligners (Khan et al., 2021, p. 30), which Chinese companies do not make. Mask aligners are said to “lack
strategic importance” (Khan et al., 2021, p. 34) because they are less precise than scanners and steppers as
they physically attach the photomask to the wafer. And yet, in 2024, the Asia Times reported that SÜSS
MicroTec’s mask aligners had been used to make a new Chinese quantum chip (Pao, 2024). This may not
technically violate the restrictions the US has taken so far to prevent Chinese advances in quantum
computing (Klyman, 2023; Pao, 2024), but it certainly puts SÜSS MicroTec in the limelight.

SÜSS MicroTec also matters because it is one of five companies worldwide—alongside EV Group (Austria),
Canon (Japan), Obducat (Sweden), and Nanonex (US)—that is developing nanoimprint lithography.
Nanoimprint lithography uses a similar template to photomasks to print patterns onto wafers at the
nanoscale frontier and with throughput comparable to photolithography (Foster, 2023; Khan et al., 2021,
p. 34; Yamamoto et al., 2022). It is, therefore, the most commercially viable rival to extreme ultraviolet
machines and constitutes a workaround for China which cannot purchase EUV equipment from ASML due
to US restrictions. EV Group currently dominates the nanoimprint lithography market, and Canon plans to
sell equipment from 2025 capable of stamping circuit patterns of 2 nm (Mochizuki & Furukawa, 2023). SÜSS
MicroTec’s nanimprint machines can also be used to produce advanced semiconductors (SÜSS MicroTec,
n.d.‐a, p. 9). And while Canon’s CEO already concedes that “I don’t think we’ll be able to sell” (Mochizuki &
Furukawa, 2023) the technology to China (even though it is not on Japan’s export control list), SÜSS
MicroTec, by contrast, has made no such statement.

SÜSS MicroTec currently has manufacturing facilities in Garching and Sternenfels in Germany, in Eindhoven
in the Netherlands, and in Hsinchu in Taiwan (SÜSS MicroTec, 2020, p. 80). In 2020, the company shut down
its production site in Corona, California (SÜSS MicroTec, 2021, pp. 29). Its remaining US locations are sales
centers (Standard & Poors, 2024). Overall, SÜSS MicroTec is the most embedded in Germany: 73% of its
invested capital is in Germany, compared to just 15% in the US (SÜSS MicroTec, 2024, p. 151). Whereas 73%
of its purchasing volume originates from suppliers in Europe, only 6% of its purchasing volume comes from
suppliers in North America (SÜSS MicroTec, 2024, p. 73).

But even though it no longer has a manufacturing footprint in the US, SÜSS MicroTec continues to rely on
US technology. In 2001, SÜSS MicroTec first established itself as a supplier of precision photomasks when

Politics and Governance • 2024 • Volume 12 • Article 8265 10

it acquired Image Technology Inc., based in Palo Alto (Pao, 2024). In 2010, it consolidated this position with
the purchase of HamaTech APE, which specializes in photomask cleaning equipment (SÜSS MicroTec, n.d.‐b).
In 2012, SÜSS MicroTec added projection lithography to its portfolio by buying up Tamarack Scientific Co.
(based in Corona, California; Holton, 2012). In 2019, it signed a five‐year cooperation agreement with a US
customer, allowing its lithography and bonder divisions (the latter used to join wafers) to use its partner’s
facilities and machines for research and development (SÜSS MicroTec, 2024, p. 164). This right‐of‐use, and
reliance on US technology more broadly, expose SÜSS MicroTec to FDPR provisions that the US could use to
strong‐arm the firm.

German authorities, for one, started to more strictly screen the export of equipment including mask aligners to
China. This led to significant delays in deliveries in 2023 even though, as SÜSS MicroTec complained, “the legal
basis for shipments of SÜSS MicroTec equipment to China has not fundamentally changed in recent months”
(SÜSS MicroTec, 2023b).

How, then, has SÜSS MicroTec responded? In 2020, it already moved the production of ultra‐violet
projection scanners from California to Taiwan, citing “the current market situation and low investment
demand from potential customers” (SÜSS MicroTec, 2020, p. 4). More recently, SÜSS MicroTec decided to
expand its facility in Taiwan to supply the Asia–Pacific region, which accounts for 66% of its total sales
(SÜSS MicroTec, 2024, p. 44). According to the company, this investment is to respond to record demand for
its products driven by the boom in artificial intelligence (SÜSS MicroTec, 2023c). But this move also has the
added advantage of solving the German export licensing issue. Beyond these investment decisions, SÜSS
MicroTec is also reconfiguring its supplier base. In its latest annual report, the company acknowledged that
using US‐based components puts it at risk of being cut off from its Chinese customers by US restrictions and
states that it “tries to avoid this risk by qualifying alternative suppliers for the previous US suppliers” (SÜSS
MicroTec, 2024, p. 106). The decision to expand operations in China’s near abroad and substitute non‐US
suppliers for US suppliers points to SÜSS MicroTec’s intent to respond to US pressures in ways that mitigate
any potential loss of access to the lucrative Chinese market, which is said to account for a third of SÜSS
MicroTec’s sales (Finkenzeller, 2023). SÜSS MicroTec—like Merck and Siemens—is following the letter of US
exterritorial law while, in some crucial respects, actively circumventing its spirit. How to explain this
behavior in the face of US power is the subject of Section 4.

4. Secondary Exposure and National Production Regimes

The previous section has identified how three German companies relevant to the US chip embargo are
equally techno‐dependent on the US and yet trying to circumnavigate US efforts to restrict flows of
technology to China. Merck (2024, p. 106) plans to localize production and source raw materials from within
China, noting that “many relevant components of US origin were replaced by alternative suppliers.” Despite
media revelations that two of its Chinese distributors had supplied software to blacklisted Chinese firms,
Siemens cut ties only after these distributors were themselves added to the Entity List, notwithstanding
negative publicity and clear signaling from US regulators. For its part, SÜSS MicroTec is expanding
production in Taiwan and switching to non‐US suppliers to remain in the Chinese market after German
authorities (possibly at the behest of the US) stalled the issuing of export licenses.

Politics and Governance • 2024 • Volume 12 • Article 8265 11

It is clear from these cases that corporate compliance cannot be extrapolated from techno‐dependency. To be
sure, our analysis of the three companies does indicate that the US can force their hands if regulators decide
to expand the scope of the FDPR rule and prosecute violations or strike a multilateral agreement with the
German government. In a clear indication of its willingness to do the former, the BIS in October 2023 reduced
the percentage of US content required to trigger the FDPR to zero for some advanced lithography equipment.
This unprecedented expansion of the extraterritoriality of US tech sanctions is so far confined to a small range
of goods, targeting one of ASML’s machines that is not (yet) on the Dutch export list (Goujon & Kleinhans,
2023). Still, one could easily foresee this rule being extended to nanoimprint lithography if it were to rival
photolithography in precision and output. If SÜSS MicroTec or any other company were to really advance in
these or other areas, the US seems prepared to intervene—multilaterally if possible, but unilaterally if need be.

Our point then is not to deny that the US possesses this go‐it‐alone power, but to insist that we cannot treat
firms’ anticipatory compliance as a prefigured outcome. To do so is to miss out on what our case study suggests
is better understood as a politicized, negotiated, and protracted policy process. To understand the reservations
and resistance of the three German firms, we need to take a closer look at how Germany’s semiconductor
industry ties into other sectors of the German economy—its “national production regime” (Koddenbrock &
Mertens, 2022).

Figure 2 presents the position of the three companies within Germany’s broader semiconductor production
network. This network diagram shows both their first‐tier customers and suppliers headquartered in
Germany and those German‐headquartered second‐tier customers and suppliers that are connected to the
three focal firms via other semiconductor and semiconductor equipment companies. This mapping of supply
chain connections reveals that all three focal firms have Infineon as their customer, which is the hub of
Germany’s semiconductor production network. As the world’s leading automotive chip company, Infineon is
geared towards the Chinese car market, which is the largest in the world by output and sales, and, in 2024,
became the largest by export (Kawakami et al., 2024). As of 2023, 32% of Infineon’s revenue came from
China, whereas the US and Germany each account for 12% of its revenue (Bloomberg, 2024).

The company is tightly articulated with the German automotive industry. Three of Infineon’s top five highest
spending customers for which we have data are major auto‐suppliers (ZF Friedrichshafen, Robert Bosch, and
Denso Corp; Bloomberg, 2024), and Infineon’s automotive segment itself accounts for 51% of the company’s
overall revenue (Infineon, 2024, p. 2).

The fact that automotive companies—both lead firms such as Volkswagen and major auto suppliers such as
Continental—feature so prominently in Germany’s semiconductor network offers strong suggestions as to
why Germany’s chip firms have so far hesitated to align themselves with the US chip war. Germany’s auto
industry is deeply embedded in China and highly vulnerable to potential Chinese countermeasures (Baines
et al., 2024). Most important here are China’s recent anti‐foreign sanction regulations that threaten to curtail
the operations or even seize the assets of companies that support discriminating restrictions against China
(Reich, 2021, pp. 32–33). To prevent this worst‐case scenario, German companies are advised to show that
their hand is being forced by US regulators (Industrie‐ und Handelskammer Region Stuttgart, n.d.). Given
their close integration with the German automotive sector, German chip firms must take their secondary
exposure to the Chinese market into account and are therefore unlikely to take actions that could trigger
Chinese retaliation, despite techno‐dependencies on the US.

Politics and Governance • 2024 • Volume 12 • Article 8265 12

 Solon Energy
Asola Solarpower
Solarwa"
Crystal Growing Systems
IBC Solar
SolarWorld Robert Bosch Siemens AG NanoWorld
Linde Nippon Wacker Chemie
SEA Gmbh
PVA TePla MST.factory
Siltronic N" Data Business
OSRAM Licht SÜSS MicroTec
Philips Technologie Grundfos
SGL Carbon SAP SE
Rohwedder Aixtron
Mercedes-Benz
Scho" Solar Solarpraxis Azzurro Semiconductors
Qimonda
Global PVQ Voith
Meyer Burger (Germany) Advanced Mask Technology Gerresheimer
Manz Arnold & Richter Plan Op!k
ams -OSRAM BASF
MSC Vertriebs MetaDesign AG Merck
Intron
Jenop!k Infineon Wonik Vitesco
Temic Automo!ve USU So ware BioNTech
Intel Deutschland
First Sensor
X-
FAB Dresden IDS Scheer Audi
Carl Zeiss SMT T-Com
Smartrac
Haraeus SHS Viveon KACO
Con!nental
Avaya Giesecke+Devrient Leopold Kostal
Eberspächer ZF
Alstom Transporta!on Deutsche Telekom
Trumpf Hella Nordex
Kontron EBV Elektronik
Ge Medical Systems Fitbit Germany
AVM Computersysteme
Heidelberger Druckmaschinen
Preh GmbH
Leica Biosystems IDEMIA Germany
SMA Solar
General Dynamics Europe
BMW
Rutronik Raytrix
Concept Engineering
Cinemo
Siemens EDA
Lu hansa
Steinberg Media
Leoni

Pro Design Electronic

Volkswagen
Fujitsu Semiconductor Europe
OTRS

Focal firm Other semiconductor firm So ware firm Solar firm

Chemical firm Industrial engineering firm Automo!ve firm Other

Figure 2. The German semiconductor network. Note: Node size is proportional to annual revenues for the
latest available year. Source: Authors’ work based on Bloomberg (2024), Standard & Poors (2024), and SÜSS
MicroTec (2019).

Politics and Governance • 2024 • Volume 12 • Article 8265 13

5. Conclusion

As growing US–China tensions drive deeper fissures through the global economy, attention has shifted to
how the US has increasingly sought to “weaponize interdependence” (Farrell & Newman, 2023). Our research
into Germany’s semiconductor industry has empirically demonstrated the centrality of the US as a base of
operations, target of strategic investments, and source of know‐how and products for foreign semiconductor
firms. This gives US regulators significant extraterritorial reach and the ability to set the parameters within
which these firms ultimately operate. But our case has also highlighted the complexities involved with US
efforts to mobilize allied firms as weapons in a battle over future technologies. This adds new insights to an
emerging research agenda on TNCs as geo‐economic actors whose interests and behavior can converge or
collide with governments’ supply‐chain statecraft (Babić et al., 2022b; Geertz & Evers, 2020; Moraes & Wigell,
2022; Rolf & Schindler, 2023).

This article has offered a deep dive into three “China chokepoint” firms that—though similarly
techno‐dependent on the US—have sought to circumvent the US chip embargo to continue to sell to China.
That German chip firms would take extraordinary measures to try to evade the long arm of the US—even in
cases when China is not a vital sales market—poses a puzzle. A potential solution, we argue, is provided by
their extensive links (largely via Infineon) to the German automotive industry, which is in turn deeply
embedded in China and most vulnerable to Chinese countermeasures. Given the significance of the auto
sector to the broader German economy, its chipmakers are likely to be highly conscious of the potential
implications and risks of any decoupling from sales in China. Our data highlights the stark limitations of both
bilateral trade statistics and firm‐level geographical revenue data for adjudicating dependency on particular
country exports.

The US–China chip war is of course not only made in Germany, but non‐compliance of certain nodal German
firms could significantly complicate and delay US efforts to constrain China’s technological ambitions. If the
US were to extend its China sanctions to other sectors such as advanced battery manufacturing or
biotechnology, more German companies would move into its crosshairs. Furthermore, if German firms were
to shift the battlefield of production from Germany to Taiwan or other countries to keep trading with China,
the US would be forced to act more aggressively towards them to enforce its export controls. The outcome
of the geo‐economic turn remains inconclusive, then. Empirically mapping out these dynamic production
networks, state‐firm relations, and firm strategies will be of ongoing importance in adjudicating the efficacy
of US supply‐chain statecraft in the coming years.

Acknowledgments
We thank our discussants, Imogen Liu and Sara Van Hoeymissen, and the workshop organizers and
participants at the 10th European Workshop in International Studies in Amsterdam, for their invaluable
feedback on an early draft. We are also grateful to the two anonymous reviewers of this article for their
constructive comments and helpful guidance.

Funding
Steve Rolf would like to gratefully acknowledge that, as part of the Digital Futures at Work Research Centre
(Digit), this work was supported by the UK Economic and Social Research Council (Grant No. ES/S012532/1).

Politics and Governance • 2024 • Volume 12 • Article 8265 14

Conflict of Interests
The authors declare no conflict of interests.

Data Availability
The data that support these findings are derived from sources in the public domain (The Observatory of
Economic Complexity, http://oec.world/en) or available from Bloomberg Professional and S&P Capital Pro
IQ, subject to commercial restrictions. The authors’ calculations are available within the article and/or upon
request for non‐commercial academic purposes.

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About the Authors

Julian Germann is a senior lecturer in international relations at the University of Sussex.

He researches European and German policy responses to Sino–American competition. He is
the author of Unwitting Architect: German Primacy and the Origins of Neoliberalism (Stanford
University Press) and has published in Review of International Political Economy, International
Studies Quarterly, and European Journal of International Relations, among others.

Steve Rolf is an ESRC research fellow at the University of Sussex Business School.
He is a political economist researching the emergence, dynamics, and implications of
Sino–American competition in the field of digital technologies. His current research focuses
on the economic and power dynamics of digitalization, including the intersection of state
capitalism and digital platforms.

Joseph Baines is a senior lecturer of international political economy at King’s College

London. His research interests include global value chains, corporate power, and the
Sino–American trade conflict. He has published in Review of International Political Economy,
New Political Economy, and Competition & Change, among others.

Sean Kenji Starrs is a lecturer of international development at King’s College London.

He researches the nature of American power globalized, the capitalist rise of China, and
world order. He has published in Development & Change (with Julian Germann), International
Studies Quarterly, New Left Review, and Journal of Contemporary Asia, among others. His book
manuscript is currently under review with Oxford University Press (New York).

Politics and Governance • 2024 • Volume 12 • Article 8265 19

Politics and Governance
2024 • Volume 12 • Article 8192
https://doi.org/10.17645/pag.8192

ARTICLE Open Access Journal

The New EU Industrial Policy: Opening Up New Frontiers for

Financial Capital
Angela Wigger

Institute for Management Research, Radboud University, The Netherlands

Correspondence: Angela Wigger ([email protected])

Submitted: 31 January 2024 Accepted: 8 July 2024 Published: 21 August 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
The EU has implemented a whole array of industrial policy programmes over the past decade to bolster the
competitiveness of selected knowledge‐intensive industries and to induce a digital and green transition.
Responding to shifting competitive challenges in global capitalism, and the adoption of industrial strategies
by other major economies, the new EU industrial policy seeks to onshore manufacturing capacity in sectors
of geoeconomic importance, and simultaneously reduce dependencies on global value chains. Drawing on a
historical materialist perspective, this article historizes and contextualises the financing strategies adopted
within EU industrial policy. Faced with tight budgetary constraints, and deficit spending not being an option
at the EU level, unlocking private investment takes centre stage, such as by tapping into capital markets or
using member state aid or EU structural funds as a precursor, as well as by incentivising private investments
through risk‐absorbing financial instruments that rely on the EU budgetary resources. As will be shown, the
EU has been experimenting with such risk‐absorbing financial gimmicks for industrial policy purposes since
the 1990s; yet, their usage has reached unprecedented levels with the heightened geoeconomic tensions
since the 2008 and Covid‐19 crises. The article demonstrates moreover that organised factions within
financial and industrial capital have actively advocated for public safeguards, and that their deployment thus
is not merely a functionalist response to shifting power dynamics or a desperate last resort in the absence of
a supranational fiscal policy.

Keywords
capitalism; European Union; finance; financial capital; industrial policy; risk

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

Alarmed by rising geoeconomic tensions and the adoption of vast industrial policy programmes around the
world, the EU has launched a series of industrial policy initiatives over the past decade. Similar to Made in
China 2025, Make in India, or Build and Buy America, EU programmes are reminiscent of a “Make Europe
Great Again” strategy that aims at positioning the single market as a global hub for knowledge‐intensive
high‐tech and digital industries (European Commission, 2023c). Confronted with the risk of sliding into a
similar trade war with China as the US, the EU seeks to onshore a range of selected high‐value‐added
industries and reduce dependencies on global supply chains, notably in industries where Chinese
manufacturers have been catching up rapidly, such as in energy renewables, electric car batteries, or
electronics (European Commission, 2014a, 2017b, 2023c). Furthermore, sponsoring such industries should
put the EU on track for reaching the net‐zero emission goals set for 2050, and counteract the increasing
trade deficit with China. By deepening intra‐EU economic ties, manufacturing products should be exported
with the label “Made in Europe” (European Commission, 2020b).

The European Commission (hereafter the Commission) estimated that only for scaling up manufacturing
capacities for net‐zero technologies and products more than €700 billion of additional annual investments
will be needed until 2030 (European Commission, 2023a). This raises the question of how the new EU
industrial policy is being financed, and, by extension, who is accumulating the profits, and who is controlling
the innovation process and for what purpose. Understanding the redistributive consequences of EU
industrial policy and its financing is particularly pertinent when considering that the EU has a budget
comparable to that of Denmark, and cannot run a deficit or take on debt, while not every EU member state
has much fiscal leeway, especially in the context of the strict debt and deficit rules of the Economic and
Monetary Union. This article shows that, in addition to non‐reimbursable EU grants or state aid, a whole
arsenal of risk‐absorbing financial instruments has been developed to unlock private sector loans, private
equity or quasi‐equity investments, or what the European Commission (2023b) refers to as crowding in
investors. These instruments often rely on the EU budget or the liquidity reserves of EU and national
development banks as a revolving guarantee fund, and tend to be coupled with other forms of state aid,
non‐repayable EU grants from one or several of the 43 programmes of the EU structural funds, or funding
retrieved on capital markets (European Commission, 2023a).

This article adopts a historical materialist perspective, which is particularly well equipped for historicizing the
financing strategies in the evolution of EU industrial policy and locating the interplay between industries and
the EU state apparatus against the backdrop of shifting geoeconomic rivalries. As will be shown, industrial
capital has been firmly embedded in a dialogue with the EU state institutional body to discuss challenges
and co‐develop industrial policy responses, notably in the wake of the weak recovery from the 2008 financial
crisis and the 2020 pandemic slump. At the same time, financial capital has also been closely involved and has
managed to carve out a powerful position in deciding whether or not to invest and under what conditions.
Organised labour and other societal interests, in turn, have been factored out.

The article contributes to the political economy literature on the revitalisation of EU‐level industrial policy in
several ways. Although much attention has been paid to how EU statecraft seeks to redefine geoeconomic
power dynamics (Aiginger & Rodrik, 2020; Bulfone, 2023; Di Carlo & Schmitz, 2023; Lavery, 2023; McNamara,
2024; Schneider et al., 2023; Seidl & Schmitz, 2024), the intertwinement of public‐private financing has often

Politics and Governance • 2024 • Volume 12 • Article 8192 2

sailed under the radar, leaving important questions about its redistributive effects untouched. Exceptions are
scholars who have documented the growing importance of the European Investment Bank (EIB) Group, which
operates a quasi‐fiscal EU body that, in addition to loan provision, has been de‐risking private investments
for decades (Cooiman, 2021; Gabor, 2023; Griffith‐Jones & Naqvi, 2021; Mertens & Thiemann, 2019). While
Gabor (2023) and Cooiman (2021) speak of a de‐risking state under financial capitalism, Mertens and Thiemann
(2019) observe a “hidden investment state,” emphasising the opaque nature in which the EIB Group subsidises
the profits of private investors while socialising the risks. As will be shown here, the EIB Group continues to
form a cornerstone in the financing of EU industrial policy; yet, EU industrial policy financing strategies expand
beyond the development banks, which amplifies the intransparency further.

Political economists who focus on industrial policy have conceptualised the EU as a “catalytic state” that
connects agents and scattered organisational and financial resources as if it were a neutral or “honest”
broker that merely solves collective action problems (Di Carlo & Schmitz, 2023; Prontera & Quitzow, 2022).
Or scholars actively advocate an “entrepreneurial state” that should take over the role of risk taker and
market shaper, fill the financing gap, and lead investments and stimulate innovation (Aiginger & Rodrik,
2020; Mazzucato, 2018). The state–capitalism nexus in the (re‐)production of power asymmetries, and the
redistribution of wealth, is often not further discussed, theorised, or analysed (an exception is
Van Apeldoorn & de Graaff, 2022). Industrial policy is also sometimes subsumed under “state capitalism,”
defined as states scaling up their roles as promoters, supervisors, and owners of capital, and using an
“extremely wide array of practices, policy instruments and vehicles, institutional forms, relations and
networks that involve the state to different degrees and at a variety of levels, time frames, and scales” (Alami
& Dixon, 2020, p. 71; see also Babić, 2023; Schindler et al., 2022). This article, in contrast, perceives EU
industrial policy as part of the “capitalist state” (see also Germann, 2023; Lavery, 2023; Schneider et al.,
2023). What may seem merely semantic has important ontological implications: States, or incomplete
state‐like apparatuses like the EU, do not control investments or the production process through industrial
policy, but rather selectively sustain particular capital accumulation patterns.

The article draws on a critical reading of EU policy documents and position papers of organised interests.
Section 2 delineates the key ontological dimensions of a historical materialist take on the capitalist state and
industrial policy. Sections 3 and 4 sketch in broad strokes the evolution of European Community‐level
industrial policy and its financing from the postwar era of European integration to the neoliberal state
restructuring, where risk‐absorbing gimmicks gradually have made their inroads. Section 5 zooms in on the
heightened utilisation of such gimmicks over the past decade. The conclusions reflect on the agency and
privileged role of financial capital, and the limits of debt‐led accumulation patterns in the current
geoeconomic conjuncture and the climate emergency.

2. A Historical Materialist Perspective on the Capitalist State and Industrial Policy

Historical materialism foregrounds the constant and constitutive role that states and state regulation play
in the expansion and reproduction of global capitalism, and the multiple asymmetries in wealth and power
arising from it within and across geographical spaces, and social classes. Rather than being neutral arbiters or
honest brokers, states or state‐like entities like the EU are perceived as asymmetrical institutional terrains that
through regulation legitimise, codify, and formalise the capitalist social relations of (re‐)production, and, in this
process, reproduce their own institutional authority and political legitimacy, which renders states capitalist

Politics and Governance • 2024 • Volume 12 • Article 8192 3

themselves (Jessop, 1999; Van Apeldoorn, 2013). Those who control a society’s productive resources enjoy
a powerful position, and the outcomes of past struggles are inscribed in state institutional settings, which
renders the state as a site and a centre of power to be structurally biased (Poulantzas, 1978, pp. 127, 132).
Notwithstanding this, states are not mere conveyor belts for the interests of capital above labour but retain
a relative autonomy, a certain “strategic selectivity” to promote or obstruct specific interests, coalitions, and
action possibilities, and, by extension, they impinge on, or ease, specific logics of capital accumulation (Jessop,
1999, pp. 44–45). States can be strategically selective by virtue of their ability to provide general conditions
for the continued accumulation of capital and the social antagonism revolving around capitalist competition.
This competition pits not only capital against capital, capital against labour, and labour against labour, but
also precipitates the agglomeration of unevenly distributed regionalities, or what Trotsky (1977) coined as
“uneven and combined development” whereby advanced production and labour processes are concentrated
in some areas, and less advanced ones are diffused in others. As capital usually flows where the rates of
return are highest, or where a stable income stream can be generated, provided that the conditions for its
reproduction are more favourable elsewhere, state regulation can seek to intervene in the redifferentiation
of the conditions of production, and impact on the geographical asymmetries on which global capitalism is
based. It is here where the geoeconomic nature of industrial policy is rooted.

Capital accumulates through the exploitation of labour and nature; yet, the broad categories of capital and
labour are not seamless monolithic entities but internally fractionalised in multifaceted ways across various
axes and stages in the capitalist cycle, with shifting hierarchies over time and space (Jessop, 1999; Poulantzas,
1978). For example, while national and transnational industrial capital is invested in the production of goods
and services, financial capital, as a fictitious form of capital, thrives on extracting value from the realm of
production, such as through the extension of debt, or other rent‐generating income streams (Hudson, 2021).
Although all surplus capital is temporarily fictitious prior to being valorised through a profitable reinvestment
in the sphere of exchange or production, profits can continue to accrue through financial channels rather
than trade or commodity production. Financial circuits of accumulation can come to prevail if the regulatory
environment allows for it (Krippner, 2011, pp. 27–28).

Class fractions that emanate from different accumulation regimes can be confronted with varying
competitive pressures and hold contrasting views on how the economic realm ought to be regulated, which
renders unified class positions for a strategic direction of the agenda‐setting, decision‐making, and
implementation of state regulation difficult to attain. Common identities and demands continuously need to
be forged and (re‐)negotiated. To win the consent of others, class fractions often have to articulate a
strategic orientation beyond their immediate interest, which is why, in addition to a state’s strategic
selectivity, political influence and power cannot simply be assessed by tracing lobbying activities
(Van Apeldoorn, 2013). Furthermore, industrial policy can cater to multiple interests simultaneously,
especially as it tends to come in “packages of interactive measures and strategic coordination” (Andreoni &
Chang, 2019, p. 146). Such packages can attenuate in‐built class rivalries, such as by giving labour or other
interests a say in the orientation and control of investments and innovation, or privilege industrial capital
associated with either ascending or descending accumulation patterns without attempting to achieve
consent from contesting groups in the form of (material) concessions. The focus can lie on stimulating or
curbing the exposure to capitalist competition, and thereby subsume competition policy. Industrial policy
can also take shape as investment policy, such as by enabling the spatial dispersion of reinvestment
opportunities or by reaching out to financial capital and direct investments into a particular direction.

Politics and Governance • 2024 • Volume 12 • Article 8192 4

Following from this, historical materialism underscores the historically contingent and open‐ended nature of
political struggles that gives shape to the state–capitalism nexus. The historical contingency is also inscribed
in the very nature of the EU as an incomplete, rescaled, multi‐scalar, and multi‐level state‐like apparatus with
a continuously evolving set of supranational and intergovernmental competences. As the next two sections
demonstrate, industrial policy and its financing are testimony to this: Although industrial policy became a
shared competence only in the 1990s, supranational industrial strategies and its financing have given shape
to European integration at the outset.

3. Charting the Evolution of Community‐Level Industrial Policy and Its Financing

Industrial policy was a key pillar of European integration, starting with the European Coal and Steel
Community of 1952, which can be seen as an industrial policy par excellence. The European Coal and Steel
Community ensured corporate access to coal and steel, two resources that were essential for
energy‐intensive and fossil fuel‐based Fordist accumulation patterns of Western capitalism. In addition to
price, quality, output controls, and working conditions, the European Coal and Steel Community also
coordinated member state loans, subsidies, and grants for upgrading coal and steel industries and related
infrastructures (European Community, 1966). And even though the Treaty of Rome establishing the
European Economic Community in 1958 did not include industrial policy as a designated Community‐level
competence, it can be seen as a meta‐level industrial policy: Through the reconfiguration of several markets
into one giant common market, it sought to establish the conditions for economies of scale and scope
production. Importantly, its preambles declared a high degree of competitiveness as an overarching
community goal, which laid the foundations for integrating industrial policy objectives in various policy areas,
like competition, transport, and trade policy, alongside sectoral policies like energy or the common
agricultural policy (Pelkmans, 2006, p. 8).

Industrial policy during the postwar decades has been characterised as “inward‐looking” (Bulfone, 2023).
Indeed, there was a conviction that some industries, and to a lesser degree also workers, had to be
cushioned from “external” shocks that came with the gradual exposure to the trade re‐liberalisation at
international level (Jessop & Sum, 2006, pp. 124–125). At the same time, industrial policy was imbued with
strong geoeconomic rationales, responding to “outside” competitive pressures stemming from the
dominance and technological superiority of US industries in the market for high‐value goods
(Servan‐Schreiber, 1968). As Commission President Hallstein argued at the time, the purpose of “the
transformation of the market relations in the European Community as a whole was to build a new giant big
enough in a world of giant powers” (cited in Freyer, 2006, p. 282).

The need for an industrial policy was widely endorsed at national and supranational levels, albeit to different
degrees (Warlouzet, 2014). While member states imposed concrete industrial programmes, the European
Community exerted its statecraft through the imposition of protectionist tariffs, quotas, and non‐tariff
barriers to limit imports, and through the enforcement of supranational competition laws, a domain where
the Commission was equipped with unmatched discretionary powers, without the European Parliament or
the Council having a say (Wigger & Buch‐Hansen, 2013). Based on Articles 85 to 94 (in the Lisbon Treaty,
Articles 101 to 109), the Commission sought to create Eurochampions through facilitating all sorts of
cross‐border alliances, joint ventures, distribution and supplier agreements, as well as the cross‐licensing of
intellectual property, or franchising contracts, alongside an overall permissive stance towards cross‐border

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economic concentration (Hayward, 1995). The Commission left public monopolies in key utility sectors
untouched, which translated to beneficial downstream effects for all sorts of industries, such as lower prices
for energy, water, transportation, postal services, or telecommunications (Bovis, 2014, p. 32).

Supranational competition control was also pivotal for the financing of national industrial policies. The
Commission generously permitted direct or indirect forms of state aid, such as subsidised loans and financial
guarantees, financial support in the form of government grants for investments or R&D projects, tax
reductions or guaranteed preferential public procurement contracts, and export assistance. Recipients were
industries lagging behind US counterparts, such as computing and aerospace, and industries considered “too
important to fail,” such as agriculture, steel, coal, electricity, car, textiles, shipbuilding, infrastructure, or
defence (Warlouzet, 2014, p. 228). Industrial policy and its financing through state aid enjoyed the vast
political support of an inter‐class alliance between organised industrial capital and labour. Against the
backdrop of unseen GDP growth rates averaging 4 percent between 1950 and 1973, corporate profits
tended to be reinvested to maximise productivity growth, as a result of which the stock of gross‐fixed capital
formation in European manufacturing industries doubled from 1960 to 1973 (Hobsbawm, 1994, p. 261).
During the postwar boom, industrial capital yielded to the (wage) demands of the predominantly male labour
force, while financial capital was largely subordinate to the interests of industrial capital and constrained to
member states by the Bretton Woods capital controls.

When the Great Stagflation Crisis of the 1970s hit, member states stepped up their industrial policy
measures. The Commission initially permitted the “ever‐rising tide of restrictive agreements, concentrations
and protectionist national subsidies” (Cini & McGowan, 1998, p. 27). To deal with overproduction,
overinvestment, and overcapacity in steel, shipbuilding, chemicals, man‐made fibres, and textile industries,
the Commission also authorised “crisis cartels,” which it justified on the basis of public interest, the
restoration of full employment, and regional development and technological progress (European
Communities, 1977). When the “new protectionism” failed to alleviate the economic downturn, industrial
policy and state aid were increasingly criticized for rescuing lame ducks and sunset industries that have lived
past their glory times, and for exacerbating what was referred to as the “Eurosclerosis” (Giersch, 1988).
As outlined in the next section, industrial policy did not disappear with the neoliberal political project.

4. Industrial Policy and Its Financing During the Ascendancy of Neoliberalism

From the mid‐1980s onwards, Community‐level industrial policy came to embody the shift from Fordist to
post‐Fordist accumulation patterns where labour‐intensive medium‐ and low‐technology manufacturing was
offshored to cheap labour areas, and service and financial industries began to prosper. Ascending fractions
of transnationalizing industrial and financial capital, and fractions revolving around the service industries,
advocated restoring economic growth through a dismantling of all sorts of market barriers, reducing
corporate taxes, flexibilizing labour markets, suppressing wages, deregulating financial markets, and relaxing
lending standards, alongside a monetarist focus on maintaining low inflation (Wigger & Buch‐Hansen, 2013).
State aid was still considered legitimate in some areas, such as the case of car manufacturers that faced
competitive pressures from US, Japanese, and later also Korean producers; however, in others, it was
compared to “woodworms eating away the carcass of the ship of integration” (Andriessen, 1982, p. 6).
The Commission started to make inventories of “anti‐competitive” state aid schemes and encroached on a
naming and shaming campaign by publishing the size of state aid granted by each member state (Wilks,

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2005, p. 124). With the imposition of new state aid conditionalities, the enforcement of competition laws
became more stringent, and the Commission started to prosecute unauthorised state aid before the
European Court of Justice (Wilks, 2005, p. 124). Community‐level industrial policy focused instead on
encouraging and monitoring industrial “restructuring” and “rationalisation” plans (European Communities,
1981). The budget deficit and public debt rules of the Economic and Monetary Union in the 1990s curtailed
the financing of industrial policy further: From 1992 to 2011, overall EU state aid levels were reduced in half
(Schito, 2021, p. 279).

At the same time, the Treaty on the Functioning of the European Union of 1992 declared industrial policy as
a shared competence, which empowered the Commission to propose concrete industrial policy programmes
(see TFEU, Article 173). Although the content and form of supranational intervention remained undefined,
its scope was limited to horizontal measures only, such as securing framework conditions favourable to
industrial competitiveness. Throughout the 1990s, and especially with the launch of the Lisbon Strategy and
its successor strategy Europe 2020 from the 2000s onwards, EU industrial policy increasingly took shape as
public‐private partnerships that focused on stimulating innovation and R&D in high‐tech manufacturing,
infrastructure development, and technical education and training meant to raise the skills in the labour force
(Avdikos & Chardas, 2016; European Commission, 2005). Geoeconomic rivalries once more gave the
impetus for the redefined EU industrial strategy. To keep pace with competitors from the US, Japan, and
South Korea in the ICT and related industries revolving around Silicon Valley in California or Route 128 in
Boston, organised transnational industrial capital, such as in the formation of the European Round Table of
Industrialists, pushed for EU support in bolstering knowledge‐ and technology‐intensive high value‐added
production, such as labour‐related measures in the form of benchmarking lifelong learning to transform the
EU into a knowledge‐driven economy and the flexibilisation of labour markets (Van Apeldoorn & Hager,
2010, pp. 218–210). With the ensuing deindustrialisation and the transnationalization of production, wage
pressures increased and organised labour in manufacturing was weakened considerably (Bieler, 2005).
And what was not paid out in wages found new outlets in the liberalised financial circulation sphere:
The extension of debt and the trading of debt instruments led to an alternative and more profitable capital
circuit alongside commodity production and trade, triggering a situation whereby investors channelled
ever more surplus capital into financial markets where anticipated profits were higher (Schneider et al.,
2023, p. 256).

With the proliferation of public‐private partnerships, financial capital made its inroads into EU industrial
policy. The EIB evolved as an active promoter of public‐private co‐financing for industrial policy purposes
(Liebe & Howarth, 2019). Already in the late 1970s, it adopted instruments that partially covered investor
losses in addition to facilitating grants and equity investments (Griffith‐Jones & Naqvi, 2021, p. 96).
The usage of such instruments increased with the advent of the European Investment Fund in 1994, which
was itself the result of private‐public co‐financing, and with private financial institutions taking a seat in its
governing board (Cooiman, 2021, p. 8). From the 2000s, the EIB and the European Investment Fund, which
together form the EIB Group, became the single largest lender for public‐private partnership projects,
making use of “increasingly complex financial instruments and products” that created investment
opportunities for a whole array of financial intermediaries and institutions beyond commercial banks, such
as private equity funds, angel investors, and venture capitalists (European Court of Auditors, 2023, p. 6).
These were all financial players that, compared to the US, had hitherto played a significantly smaller role in
the EU (European Commission, 1998). The usage of such instruments proliferated beyond the EIB Group,

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when EU structural funds were gradually opened up for financing risk‐absorbing instruments to provide
loans or equity to corporate recipients without the risks that were usually involved (Bovis, 2014, p. 94).

As the next section demonstrates, with the revitalisation of EU industrial policy after the 2008 and the
Covid‐19 crises, the deployment of such instruments increased further.

5. Risk Socialisation as a Financing Pillar for the “New” EU Industrial Policy

EU industrial policy gained prominence in the wake of the 2008 global financial crisis and remained a high
priority during the Covid‐19 crisis and the ongoing climate emergency. When the 2008 crisis transmuted into
a sovereign debt crisis, economic growth lingered, intra‐EU value chains and intra‐EU trade decreased, and, in
most EU economies, private investments in the formation of fixed capital, as an indicator for investments in
the production economy, fell to its lowest level (European Central Bank, 2014). Emerging economies like China
and India doubled their share of global GDP between 1990 and 2010, while the EU share declined from 25
to 15 percent during the same period (Lavery, 2023, p. 337). Geoeconomic tensions intensified when China
and India adopted industrial programmes to transform their economies into high‐tech manufacturing hubs in
strategic value chains, alongside nearly a hundred other states that launched some form of industrial policy,
accounting together for more than 90 percent of the global GDP (United Nations Conference on Trade and
Development, 2018).

A coalition of national and transnational industrial capital demanded to put industrial competitiveness at the
centre of EU policy‐making, especially after Chinese foreign direct investment (FDI) had seized control of a
few EU‐based hi‐tech companies (European Round Table of Industrialists, 2013, 2014; Federation of German
Industries, 2014; Joint Declaration of Industry Representatives, 2017; Lavery, 2023). The Commission
subsequently heralded a “European industrial renaissance” and promised measures that would increase the
manufacturing share in the EU GDP to 20 percent by 2020, thereby closely echoing the European Round
Table of Industrialists’ similarly titled position paper (European Commission, 2014a; European Round Table of
Industrialists, 2014). These measures initially sought to improve the price and cost‐competitiveness of
manufacturing through internal devaluation, especially as currency devaluations were not an option to
induce export‐led growth within the Economic and Monetary Union’s “iron cage” (Ryner, 2015). A range of
flanking policies were adopted that did not require public funding, such as the introduction of
competitiveness proofing to eliminate existing EU legislation considered too costly for business and to screen
new laws for their impact on industrial competitiveness. Similarly, by blending industrial policy initiatives into
existing EU policy areas and funding structures, additional public spending was not necessary. For example,
in 2014, Smart Specialisation, a programme aimed at catalysing the transition of manufacturing sectors to
innovative Industry 4.0‐type technologies like robotics, the internet of things, and artificial intelligence, was
subsumed under EU Cohesion Policy and the Cohesion Fund (Di Cataldo et al., 2022). As part of the
Renewed EU Industrial Policy Strategy in 2017 and following up from the 2013 European Steel Action Plan
and the 2016 Defence Action Plan, the Commission announced the launch of action plans for almost every
imaginable industry—most of which would not require public funding (European Commission, 2017b).

Political pressures for “a genuine European industrial policy strategy” intensified when, in 2019, the German
and French ministries of economy and finance outlined a joint vision for the EU to become a “manufacturing
powerhouse in 2030” (German Federal Ministry of Economic Affairs and Energy & French Ministry of

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Economy and Finance, 2019). Coinciding with the European Green Deal of 2019 as the EU’s new “growth
strategy,” EU industrial policy was reinvigorated in the name of digital and green transition, suggesting that
the digitalisation of industries would serve as a key enabler for decarbonizing capitalism. Amongst others,
the post‐pandemic recovery programme NextGenerationEU of 2021, and the Chips Act and the Digital
Single Market Act of 2022 were adopted, which alongside a wide range of greening initiatives sought to
reduce dependencies on global semiconductor and microchips value chains, and move industries ahead of
the global digital supremacy race respectively. The green growth strategy received new momentum with the
2023 Green Industrial Plan as a geoeconomic counterproject to the 2022 US Inflation Reduction Act, a
$400 billion package of conditional subsidies, tax breaks, and loan guarantees to ease investments into
US‐based clean‐tech industries. Responding to organised industrial capital fearing disastrous consequences
for industrial ecosystems in the EU (European Round Table of Industrialists, 2022), Commission President
von der Leyen (2023a) assured that the EU would do whatever it takes to support industries in winning the
race for leading green technology value chains. As part of a “selective fortification strategy” for industries of
key geoeconomic significance (Lavery, 2023), REPowerEU, the EU Net‐Zero Industry Act and the Critical
Raw Materials Act were adopted with the aim of reducing energy imports, enable corporate access to raw
materials around the world, and ensure that 40 percent of the new green technologies will be homegrown
by 2030 (European Commission, 2023c).

The green growth plans come with a variegated financing strategy that exceeds the reliance on existing EU
funds. To begin with, the Directorate‐General for Competition generously allowed for state aid for so‐called
game‐changing industries, like batteries, microelectronics, hydrogen, and cloud computing within the
Treaty‐based possibility that allows for a public financing of Important Projects of Common European
Interest. Unlike traditional state aid, Important Projects of Common European Interest can be fully financed
with non‐reimbursable grants, without imposing a limit. At the same time, “ordinary” state aid control has
also been lifted until 2025 for all public investments into the same net‐zero technologies as targeted by the
US Inflation Reduction Act (European Commission, 2023d). The Directorate‐General for Competition even
allowed for exceeding US state aid levels, such as in the case of Germany seeking to attract a battery
producer that had already secured state aid in the US (European Commission, 2024b). Eventually, however,
state aid should only be a temporary measure and be phased out by the completion of the Capital Markets
Union, which aims at facilitating corporate financing beyond bank loans (von der Leyen, 2023b).

In addition, tapping into capital markets has also become a financing strategy for EU industrial policy
programmes, where the Commission, mandated by the Council, issued bonds on the basis of the collective
triple‐A rating of the EU‐27 (European Commission, 2023c). So far, NextGenerationEU constitutes the
biggest borrowing programme in EU history, but REPowerEU is also being financed through obtaining
collective debt (European Commission, 2023c). In addition, EU industrial policy is increasingly being financed
through the deployment of public guarantees and counter‐guarantees that should seduce financial capital to
invest, such as by covering an agreed amount or percentage in the case of a loan default, or unrealised profit
in the case of equity or various forms of quasi‐equity investments, a type of financing ranking between
equity and debt (European Commission, 2020a, p. 6). In 2020, the Commission managed 36 different
risk‐absorbing instruments, of which 23 targeted beneficiaries within the EU (European Commission, 2020a).

Using the firepower of instruments that back up investor liabilities should minimise “budgetary outlays for
the public sector”: Whereas non‐reimbursable grants can only be spent once, the EU budget is expected to

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work like a revolving guarantee fund that can be reused multiple times to de‐risk financial capital and unlock
ever more private investment (European Commission, 2018). To facilitate the usage of such instruments, the
Financial Regulation that governs the EU budget has been reformed to allow for a greater variety of
risk‐sharing modalities, and for blending them with other forms of public support, as well as for including a
wider range of financial intermediaries (European Court of Auditors, 2023, pp. 27–29). In addition to EU and
national development banks, international financial institutions like the World Bank, national promotional
banks, as well as private commercial banks, sovereign wealth funds, private equity, angel investors, or
venture capital institutions can also make use of EU budgetary safeguards (European Commission, 2017a).
The reform also introduced a Common Provisioning Fund, a safety buffer that should cover contingent
liabilities to avoid losses in the annual EU budget. In addition, the General Block Exemption Regulation
No. 651/2014, which exempts financial instruments from the state aid notification requirement, has been
adopted to encourage member states to make more use of such instruments instead of non‐reimbursable
grants (see Commission Regulation No. 651/2014 of 17 June, Article 21(13)). The Commission’s rationale
was that financial intermediaries were beneficiaries in their own right, despite the fact that they “must be
managed commercially and their managers shall take investment decisions in a profit‐oriented manner”
(European Commission, 2014b).

These reforms paved the way for the adoption of a series of EU risk‐bearing facilities, such as the European
Fund for Strategic Investments for mobilising private funding for risky infrastructure and innovation projects,
and the Programme for the Competitiveness of Enterprises and Small and Medium‐sized Enterprises
(COSME), which partially covered the risks of more than a thousand registered financial institutions when
providing loans to SMEs (European Commission, 2018). According to the Commission, these risk‐bearing
facilities have contributed to mobilising more than €500 billion during 2015–2020 (European Commission,
2024a). When they expired in 2020, InvestEU was adopted for the 2021–2027 budgetary cycle with the
aim of bringing all the instruments under one roof and facilitating the procedures. Drawing partly on the
debt‐financed budget of NextGenerationEU and the EU budget, InvestEU offers a guarantee of €26.2 billion,
which, on the basis of a multiplier effect of 1:14, should mobilise at least €372 billion of private investment
until 2027 (European Commission, 2024a). While 75 percent of InvestEU is reserved to back up financial
instruments issued by the EIB Group, the remaining 25 percent are being used for backing up loans, equity,
or quasi‐equity investments by other financial players, such as private investors with a public service
mission, private equity and other venture capital institutions, or other investment companies, which the
Commission can sign up as implementing partners at any given time (European Commission, 2024a).
Importantly, although InvestEU was entrusted with a “green” mandate, only 30 percent of the programmes
need to target green transition investments (European Commission, 2024a).

Financial capital has been closely involved in designing the various safe harbour possibilities for investors.
For example, the vast majority of more than 4,000 pages of feedback to the 2013 green paper Long‐Term
Financing of the European Economy stemmed from financial sector representatives (European Commission,
2014b). Respondents, like the European Financial Services Roundtable, argued that such public safeguards
were urgently needed, especially as the liquidity requirements imposed in the wake of the 2008 crisis had
led to unintended contraction in longer‐term funding of the economy, forcing financial players to focus on
“funding loans with shorter tenors” (European Financial Services Roundtable, 2013a, 2013b, pp. 3, 7–8).
The Association for Financial Markets in Europe demanded a higher public risk coverage for a wider array of
private investors and the lowering of thresholds and requirements for private investors, such as by reducing

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the minimum requirement for private sector co‐investment from 50 to 20 percent only (Association for
Financial Markets in Europe, 2013). This Association, together with several other financial sector
organisations, also reached out to organised industrial capital, like BusinessEurope, when demanding that a
greater variety of financial market actors should be included in EU risk‐absorbing instruments (Association
for Financial Markets in Europe, 2017; see also BusinessEurope, 2016, pp. 6–7). And when InvestEU was
drafted, financial capital suggested that the private sector should take the lead whenever investments were
profit‐making, and that the public sector should intervene whenever a project was making a loss (European
Financial Services Roundtable, 2019). BlackRock, the world’s largest asset manager, and one of the biggest
shareholders of the top European banks, advised the Commission on “acceptable levels” of private sector
risks (European Commission, 2013a). The Commission reiterated these demands and argued that the EU had
to step in whenever private investor risks were too high, or the return on investments would take too long
to be realised (European Commission, 2013b, 2017a).

The expansion of public risk‐coverage instruments, often without any strings attached, also led to
contention. Organised labour at the EU level criticised “an economy dependent on and driven by financial
markets” and demanded the inclusion of conditionalities like pay raises and better working conditions
(European Trade Union Confederation, 2023). Moreover, a report commissioned by the European Parliament
pointed to the democratic shortcomings that came with the complex and nontransparent “galaxy of funds
and instruments around the EU budget” (European Parliament, 2017). As the Parliament can only approve or
reject the EU budget, it lacks the right to make amendments to annual commitments and payments made
related to EU programmes or funds, and as risk‐absorbing instruments are usually adopted by Council
regulations, the Parliament is not consulted in the legislative process (European Court of Auditors, 2023,
p. 32). The Parliament also lacks oversight rights and intervention possibilities for instruments deployed
off‐budget, such as in the case of collective borrowing through capital markets, or in the case that the
Common Provisioning Fund, the safety buffer for covering contingent liabilities, would be exhausted and
defaults affect the EU budget (European Court of Auditors, 2023, pp. 4, 33).

6. Conclusions

Industrial policy as a response to shifting geoeconomic challenges has been a constant feature in European
integration to counter competitive threats, but the financing strategies have diversified over time. Different
forms of state aid, traditionally associated with industrial policy financing during the postwar reconstruction
era and the crisis of the 1970s, have certainly undergone a revival now that the EU seeks to keep up with
the vast industrial programmes of other major economies that seek to bolster domestic high‐ and clean‐tech
industries; however, state aid, whether reimbursable or not, is considered merely a temporary measure that
comes with an expiry date. At the same time, collective debt financing outside the EU budget has made its
entry as an industrial policy financing strategy, debt that is also partially being used to back up the increased
usage of risk‐mitigating financial instruments, alongside EU budgetary resources that operate as a revolving
guarantee fund.

The usage of public money as a safeguard to incentivise private investment may sound politically appealing,
notably as it seeks to channel financial capital away from the bloated financial circuit. It may also seem the
only option available, given the size of the EU budget and the absence of a supranational fiscal policy; yet,
both debt financing and the complex labyrinth of hybrid financing channels that rely on the EU budget

Politics and Governance • 2024 • Volume 12 • Article 8192 11

come with major redistributive consequences and impair the democratic position of the European
Parliament. Rather than being an instance of “state capitalism” (Alami & Dixon, 2020; Schindler et al., 2022),
EU industrial policy opens up new frontiers for capital accumulation. The EU does not invest but instead
seeks to leverage investments by private financial capital; after all, the current risk‐bearing facility is called
InvestEU, and not EUInvest. Alongside ascending fractions of industrial capital in technology‐intensive value
chains, financial capital is not only a key beneficiary but also enjoys a powerful position: It can make a profit
from the loans or equity investments without having to carry all the risks, while (organised) labour, and
society at large, has no participatory role in the decision‐making about the reinvestment of accrued profits.
Importantly, within set parameters, it is financial capital that determines whether or not to invest in EU
industrial policy programmes, and who can receive a loan or equity investment on the basis of EU
guarantees. Financial capital also sets the investment conditions, notably the amount, the duration, interest
rates, and fees. This has also major implications for how we tackle the climate emergency. By handing the
reins to financial capital, it is financial capital that determines the pace of decarbonizing capitalism and
achieving an emission‐free energy transition. Importantly, the public sponsoring of loans implies that the
green transition of industries is subsidised by debt. Debt serving as a lever for the green transition not only
carries financial risks but debtors will eventually have to prioritise short‐term economic growth over
long‐term ecological and social sustainability, which raises the question of how much more debt we can
afford within our planetary boundaries.

Acknowledgments
I would like to thank the anonymous reviewers for their valuable comments and suggestions, and the thematic
issue editors Milan Babić, Nana de Graaff, Lukas Linsi, and Clara Weinhardt for their excellent guidance. I am
also very grateful to Mark Schwartz and Reijer Hendrikse, who have discussed an early version of this article
at the EWIS Workshop in Amsterdam in 2023.

Conflict of Interests
The author declares no conflict of interests.

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About the Author

Angela Wigger is an associate professor of global political economy at Radboud

University in the Netherlands. Her current research centres on the geopolitics of EU
industrial and antitrust policy and industrial re‐shoring and onshoring attempts. She wrote
The Politics of European Competition Regulation. A Critical Political Economy Perspective with
H. Buch‐Hansen, and has been published widely in journals like the Review of International
Political Economy, New Political Economy, Journal of Common Market Studies, Economy and
Society, Globalisations, Geoforum, Global Political Economy, and many more.

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Politics and Governance
2024 • Volume 12 • Article 8188
https://doi.org/10.17645/pag.8188

ARTICLE Open Access Journal

A Regulatory‐Developmental Turn Within EU Industrial Policy?

The Case of the Battery IPCEIs
Helena Gräf

Faculty of Economics, Law and Social Sciences, University of Erfurt, Germany

Correspondence: Helena Gräf (helena.graef@uni‐erfurt.de)

Submitted: 31 January 2024 Accepted: 24 July 2024 Published: 19 September 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
The European automotive industry is transitioning from combustion engines to electric vehicles but lags
behind international competitors. This geoeconomic competition has contributed to the revival of industrial
policy in the EU. However, EU competition policy restricts more vertical industrial policy approaches. In this
context, the Important Projects of Common European Interest (IPCEIs) have emerged as a novel governance
tool. This article examines this transformation in EU industrial policy by focusing on the Battery IPCEIs.
The article includes an in‐depth case study of the Battery IPCEIs, using secondary literature and 11 expert
interviews. It concludes that IPCEIs represent a gradual regulatory‐developmental turn within EU industrial
policy by drawing on developmental state theory in a European context, critical EU integration literature,
and global production networks research. In response to geoeconomic competition and the region’s lack of
productive capacities, the EU is indirectly facilitating the development of European battery innovation and
production networks by issuing direct state aid at the national level. However, the EU’s participation in the
subsidy race and the global green‐tech race via “green” industrial policy indicates only a partial shift in the
relationship between states and markets.

Keywords
batteries; competition policy; developmental state; European Union; global production networks; industrial
policy; IPCEIs; subsidies

1. Introduction

International economic dynamics can affect the design of industrial policy (Hannon et al., 2011, p. 3696). Since
the late 1970s, EU policy has been aligned with a broader neoliberal policy paradigm shift. This neoliberal

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
era is associated with less interventionist modes of economic governance and seeks to ensure “undistorted”
competition. The EU’s neoliberal policy orientation has become even more pervasive since the Maastricht
Treaty was ratified in 1992. This has limited the policy space for vertical industrial policy, including subsidies,
and favored horizontal industrial policy (Pianta et al., 2020). However, Wade (2014) has identified a “return
of industrial policy” which presents a challenge to this neoliberal paradigm and indicates that developmental
state functions also exist in industrialized Western countries. In the case of the EU, there is indeed growing
evidence of an increase in “state interventionism” (McNamara, 2023) and the presence of “state capitalist
elements” (Alami & Dixon, 2023). Similarly, other authors identify industrial policy in the EU as having an
increasingly supranational “market‐directing” character (Seidl & Schmitz, 2023) and serving “developmental
functions” (Di Carlo & Schmitz, 2023). However, this return of industrial policy could also be interpreted as
a “weak” return of the state, as an approach that ultimately enables “corporate welfare” due to the lack of
conditionality tied to industrial policy programs (such as state aid) and thus as a type of subordination to
business interests (Bulfone et al., 2023, p. 253). Alternatively, current developments could be understood as
a more “gradual shift” in EU economic governance that reflects a willingness to embrace new forms of state
intervention, including in industrial policy (Gräf & Schmalz, 2023). These changes in industrial policy have even
been interpreted as a type of “de‐risking” measure implemented by (green) capitalist states within a continued
neoliberal paradigm (Gabor, 2023).

Despite these varying interpretations, five key drivers have stimulated the return of industrial policy in the
EU (Eder & Schneider, 2020), and have once again introduced debates about industrial policy to the political
agenda. The first driver, the global financial crisis of 2007–2008, laid the groundwork for the EU to embrace
more vertical industrial policy within an otherwise horizontally‐oriented post‐Maastricht industrial policy
arena. A second driver is the shifting thematic focus of industrial policy. “Green industrial policy” (Rodrik,
2014) has emerged as a priority and focuses on industrial transformation towards a clean energy and
low‐emission industrial base. In the EU, this is most prominently exemplified by the European Green Deal and
programs related to the energy transition such as the Net‐Zero Industry Act (Gräf & Topuria, 2023). The third
driver is the EU’s intention to create a digital single market, which would require the digital transition of
European industry through industrial policy. The fourth and most recent driver results from the risks related
to global value chain dependencies, which became particularly apparent during the Covid‐19 pandemic.
While approximately 70% of international trade involves global value chains (OECD, 2023), this has remained
a “neglected issue” in industrial policy so far (Chang & Andreoni, 2020). The final driver, increased
geoeconomic competition, has resulted in a “geo‐dirigiste turn” (Seidl & Schmitz, 2023) in industrial policy.

The European Industrial Strategy 2020, updated in 2021 in light of lessons learned during the Covid‐19
pandemic, defined strategically important global value chains (European Commission [EC], 2021b, p. 12). One
of these is the battery value chain; European firms are lagging behind significantly in battery innovation and
production, a fact recognized as early as 2018: “The EU only had about 3% of the global production capacity
of Lithium‐ion (Li‐ion) battery cells, while China had about 66% and South Korea together with Japan and
other Asian countries about 20%” (EC, 2021a, p. 68). Since then, the EU has launched several industrial policy
initiatives to enhance its position in battery innovation and production in an effort to establish competitive
European battery production networks. These initiatives are intended to narrow the technological gap
between Europe and major Asian competitors (EC, 2021a, p. 68). With this in mind, European public policies
are intended to “target the whole value chain of strategic green sectors, including large‐scale deployment
and access to raw materials” (von der Leyen, 2022) in the context of the “global clean‐tech race.’’

Politics and Governance • 2024 • Volume 12 • Article 8188 2

In this context, the Important Projects of Common European Interest (IPCEIs) have emerged as a novel
governance instrument in the EU’s updated industrial policy toolkit. IPCEIs are cross‐country industrial
policy projects where firms from multiple EU member states collaborate on the development, production,
and “roll‐out” of key strategic technologies and their value chains. These technologies are more advanced
than current state‐of‐the‐art technology and require significant research, development, and innovation in
areas where European firms are currently lacking geoeconomic competitiveness (IPCEI Batteries, 2024).
In addition to private funding, participating firms receive public funding in the form of state aid
(subsidies/direct grants) from their respective member states in accordance with EU state aid regulations,
namely the IPCEI funding scheme (EC, 2024). Hence, IPCEIs are industrial policy projects that are
interconnected with competition policy. Among others, there are two IPCEIs on batteries targeting the
battery value chain. The IPCEIs may even “serve as a blueprint” (Letta, 2024, p. 39) for further EU industrial
policy aspirations (Letta, 2024, p. 11).

Taking the Battery IPCEIs as an example, this article analyzes the question: Is EU industrial policy
transforming, and, if so, is industrial policy becoming more developmental as it actively shapes European
battery innovation and production networks? Section 2 outlines the relevant theoretical tenants, which build
on developmental state theory in a European context and critical EU integration literature. These
approaches are further complemented by global production networks (GPN) research. Section 3 explains the
methodological approach for the empirically grounded case study of the two Battery IPCEIs based on
11 expert interviews. Section 4 analyzes the Battery IPCEIs empirically. Section 4.1 contextualizes the EU’s
lack of lithium‐ion battery innovation and production networks and explores how this deficit has contributed
to a variety of key policies and programs targeting battery production, including the IPCEIs. Section 4.2
explains the vertical orientation of the IPCEIs as a specific state aid mechanism. Section 4.3 conducts an
empirical investigation of the Battery IPCEIs and their developmental functions. Section 5 concludes that
the Battery IPCEIs represent a geoeconomically driven albeit regulatory‐developmental turn within EU
industrial policy.

2. Theoretical Debates on the Return of Industrial Policy in the EU

To analyze the question of whether EU industrial policy is transforming, this section introduces three
theoretical tenants: (a) developmental state theory in a European context, (b) critical EU integration
literature, and (c) GPN research.

2.1. Developmental State Theory in a European Context

Developmental states target structural economic changes and infant industries by intervening in economic
sectors and taking on “a leading role in governing the market…[through] market‐steering [and] ‘societal
mission’ roles well beyond neoliberal limits” (Wade, 2018, p. 518). While developmental states can take
different forms, they are generally associated with late‐industrializing countries that are in the process of
catching up. Examples include some Latin American countries which are characterized by “new
developmentalism” (Bresser‐Pereira, 2019) and most famously the classic East Asian “developmental states”
(Wade, 1990). Within these contexts, industrial policy emerged as a crucial governance tool (Meckling,
2018, p. 62).

Politics and Governance • 2024 • Volume 12 • Article 8188 3

Industrial policy can take developmental, entrepreneurial, or regulatory forms (Ebner, 2009, p. 383).
In contrast to regulatory‐oriented industrial policy (focused on market liberalism and rule‐making) and
entrepreneurial‐oriented industrial policy (focused on state entrepreneurship and innovations), policymakers
that apply industrial policy in a developmental tradition utilize more significant interventions designed to
support the local assimilation of new technologies and pursue long‐term goals for economic catching‐up.
These three outlined functions of industrial policy are often depicted as mutually exclusive, but they can
also co‐evolve and coexist within the same jurisdiction (Ebner, 2009, p. 381; Meckling, 2018, p. 61). For
example, Andreoni and Roberts (2022, p. 1431) identify an “entrepreneurial‐regulatory state” approach
to governing large digital platforms and the development of industrial capabilities through industrial and
competition policies.

Interestingly, a growing body of research also identifies increasingly “developmental” industrial policies in
so‐called developed and industrialized Western countries (Wade, 2018). For example, Block (2008) famously
identified the US as a “hidden developmental state,” referred to as a “developmental network state,” even
during the neoliberal era. The “developmental network state” strategically promotes technologies through
targeted resourcing to overcome certain key hurdles, opens windows by providing funding and support for
collaborations, acts as a broker to link scientists and engineers, and facilitates the establishment of technical
standards that accelerate the commercialization of new technologies (Block, 2008, pp. 188–193). However,
the “developmental network state” would not grant subsidies to firms that are already leading in international
competition (Block, 2008, p. 172).

2.2. Critical EU Integration Literature

Economic governance in the EU has been neoliberally oriented since the Single European Act came into
force in 1987. The resulting “new constitutionalism” (Gill, 1998) marked a shift from positive integration in
the EU, where member states focused on spending and taxation, to fiscal consolidation, liberalization, and
deregulation. Regulation became the primary form of state intervention at the EU level (Majone, 1997;
Meckling, 2018, p. 61). This neoliberal governance was institutionally anchored by the Maastricht Treaty
(concluded in 1992) and assumes that market processes, as opposed to state interventions, are better suited
to determine which industries and firms are most efficient. Consequently, market actors are seen as the
primary producers, while policymakers are expected to refrain from influencing production decisions
through industry‐specific financial support. One essential outcome of this approach to governance was the
EU’s adoption of mostly horizontal industrial policies (Pianta et al., 2020).

Horizontal industrial policies are designed to target economic structures broadly, offering support to all firms
and industries equally. This approach includes tools such as R&D funding, general tax incentives, and the
provision of infrastructure. In contrast, vertical industrial policies are directed at specific industries or firms
selected by policymakers. Due to the varying levels of selectivity and diverse implementation methods
employed by state entities, vertical industrial policy is associated with stronger state intervention in market
processes (Weiss & Seric, 2021). Hence, the predominantly horizontal post‐Maastricht institutional
framework limits the scope for the EU to implement vertical industrial policy, and, more importantly, to
serve developmental functions.

Politics and Governance • 2024 • Volume 12 • Article 8188 4

Nevertheless, the EU is increasingly applying developmentally‐oriented policies as geoeconomic
competition intensifies. In terms of infrastructure policy, a geoeconomic shift in focus towards controlling
transnational value chains has led to more state‐interventionist governance of projects like Gaia‐X and the
Hydrogen Strategy (Abels & Bieling, 2024). Similarly, the EC executes developmental functions within
EU industrial policy. Comparable to the US, the EC promotes innovation through targeted resourcing by
funding projects likely to achieve technical breakthroughs, for example through the European Investment
Fund, and brokers the emergence and sustenance of cross‐national and cross‐sectoral networks, such as
industrial alliances. A key difference from Block’s (2008) conceptualization is the increased role of the EU in
protecting firms from competition with non‐EU firms, demonstrated by tools like the Foreign Subsidies
Regulation. Moreover, the EC facilitates the adjustment of EU regulatory constraints to promote these
networks within the post‐Maastricht horizontal institutional framework (Di Carlo & Schmitz, 2023,
p. 2069). Additionally, green technologies are emerging as central components of these gradually
transforming developmentally‐oriented industrial policies (Meckling, 2018). A key difference between classic
developmental states and these emergent developmental functions in the EU is their decentralized and
networked character (Di Carlo & Schmitz, 2023; Meckling, 2018, p. 62).

2.3. GPN Research

Nowadays, policymakers, including those in the EU, must not only govern markets and firms in a national
context but also in transnational value chains (Abels & Bieling, 2024). In contrast to linear and chain‐oriented
research, these networks are best explained by GPN research. GPNs are comprised of organizationally
fragmented and spatially dispersed economic activities yet are functionally interconnected via transnational
networks (Bridge & Faigen, 2022, p. 2). These networks intersect horizontal, vertical, and transnational
dimensions of production, trade, and distribution, covering both upstream and downstream processes (Coe
& Yeung, 2015; Henderson et al., 2002). Typically, research in this field has focused on firms as key actors:
“Through [a] process of strategic coupling, national firms have been gradually disembedded from state
apparatuses and re‐embedded in different global production networks that are governed by competitive
inter‐firm dynamics,” a process “spanning different territories and regions” (Yeung, 2015, p. 70). However,
there has been a renewed scholarly interest in the state–GPN nexus and the role this relationship plays in
shaping production networks due to the revived involvement of states in governing GPNs, including through
industrial policy (Horner, 2017). For example, state actors in a facilitator role assist firms in addressing
challenges within GPNs, e.g., through subsidies (Horner, 2017, pp. 7–9). From a spatial perspective, these
networks are governed through “vertical governance” which links different tiers of GPNs, while “horizontal
governance” connects national political economies (Gereffi & Lee, 2016, pp. 28, 30). Overall, industrial policy
serves as a governance tool that has the potential to influence the competitive position of firms and sectors
within these production networks (Chang & Andreoni, 2020).

Overall, GPNs are a “contested field” (Levy, 2008) involving diverse actors with unique interests in specific
developmental outcomes (Coe & Yeung, 2015). These interests pertain to high value‐adding activities
distributed across different parts of production networks, related to both innovation and production.
However, this depends on varied and asymmetric power resources. Firms can exercise corporate power
while states possess institutional power. For example, powerful lead firms have the ability to control and
significantly shape GPN outcomes, whereas this power drastically diminishes towards the lower tiers of
production and their suppliers. Moreover, GPN actors are embedded within specific institutional contexts

Politics and Governance • 2024 • Volume 12 • Article 8188 5

Neoliberal governance: Regulaon as primary mode of intervenon European Union

Horizontal industrial policy

IPCEIs (Direct state aid)

• Vercal industrial policy orientaon Facilitate Ba ery
• Developmental funcons innovaon and
producon
networks

Figure 1. Developmental functions of the IPCEIs within EU’s neoliberal governance.

that can be either limiting or supportive (Henderson et al., 2002). Figure 1 summarizes how the IPCEIs
remain embedded within horizontal industrial policy and a broader neoliberal economic governance
paradigm characterized primarily by regulatory modes of state intervention. Nevertheless, IPCEIs are a form
of vertically‐oriented industrial policy and reflect emerging developmental functions within this institutional
setting. These contribute to the facilitation of European battery innovation and production networks.

3. Research Design

This exploratory study empirically analyzes the early stages of project execution (through the end of 2023)
for the two Battery IPCEIs by employing qualitative research methods. It builds on a review of primary
sources including relevant governmental documents from the EU and member states as well as press
releases, and secondary literature, in particular scientific publications on EU industrial policy. This review
primarily informs the analysis of the context of the EU’s lack of battery innovation and production networks
which has contributed to a variety of policies and programs that target this deficit, including the Battery
IPCEIs. It further informs the analysis of the IPCEIs as a state aid funding scheme.

Several key conceptual terms guide the analysis: Since the Maastricht Treaty (1992), European economic
governance has mostly facilitated horizontal industrial policy (general support intended to assist the entire
economy and industry) and limited vertical industrial policy (selective support of specific industries or firms).
However, as will be demonstrated, the IPCEIs have a more vertical industrial policy orientation, which is
characteristic of developmental industrial policy traditions. The resulting regulatory‐developmental turn in
EU industrial policy is linked to the emergence of new developmental functions within the EU’s primarily
neoliberal and regulatory governance paradigm. These developmental state functions and policies (a) target
structural economic change and economic catching‐up to (b) support infant industries (c) beyond the
limitations of neoliberal governance through (d) specific (financial) resources, including state aid, and (e) aim
for the local assimilation of new technologies. In a European context, industrial policy is executed through
(f) highly decentralized and networked structures. This is the case for both Battery IPCEIs which facilitate
decentralized collaboration on the development of battery cells and systems between several firms across
various member states. The IPCEIs include firms responsible for upstream processes (raw materials) and
downstream processes (recycling) and link various lead firms and tiers of transnational battery production
networks to capture high‐value‐adding activities. Hence the Battery IPCEIs can be understood as “an
organizational platform through which actors in different regional and national economies compete and
co‐operate for a greater share of value creation, transformation, and capture through geographically
dispersed economic activity” (Bridge & Faigen, 2022, p. 2).

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Referring to these conceptual key terms, an in‐depth single case study of the two Battery IPCEIs was
conducted based on 11 semi‐structured expert interviews. Experts were selected using “purposive sampling”
(Campbell et al., 2020). These experts, which include representatives from firms and member states involved
in the execution of the Battery IPCEIs, provided insights into the functioning of the projects. The resulting
interview sample is detailed in Table X of the Supplementary Material. As a result of this selection strategy,
the sample covers various national contexts, governance scales, firm sizes, and the four work streams to
understand the decentralized and networked character of the Battery IPCEIs. Based on Kuckartz (2014), the
interviews were transcribed and analyzed using qualitative content analysis. The coding and analysis focused
on five areas: geopolitics, innovation, cooperation, funding, and conditionality. Data triangulation validates
the results. All interview partners remain anonymous.

4. Analysis

This section empirically analyzes the geoeconomically‐driven regulatory‐developmental turn within EU

industrial policy in three ways: firstly, by contextualizing the lack of lithium‐ion battery innovation and
production networks in the EU and the emergence of the Battery IPCEIs as one key governance instrument
to support the development of these networks (Section 4.1); secondly, by explaining the vertical orientation
of the IPCEIs as a specific state aid mechanism (Section 4.2); and thirdly, by conducting an empirical
investigation of the Battery IPCEIs which demonstrate emerging developmental functions (Section 4.3).

4.1. Context: The Lack of Lithium‐Ion Battery Innovation and Production Networks in the EU

A key trend in global automotive production networks is the shift from internal combustion engines to
electric vehicles (EVs). Lithium‐ion batteries, in particular, play a crucial role in this transition. While batteries
are essential to various markets such as energy storage and e‐bikes, the increasing relevance of EVs remains
the primary driver of battery demand (Bridge & Faigen, 2022, p. 8). More importantly, batteries constitute up
to 40% of the value added to an EV (Bundesministerium für Wirtschaft und Klimaschutz, 2022). This
highlights the significance of batteries for the automotive industry. More importantly, this poses challenges
to traditional lead firms in particular and their suppliers in the automotive GPNs. The reason therefore is that
Asian firms, especially Chinese firms, have already established themselves as key players and are currently
dominating emerging battery innovation and production networks within automotive GPNs. To illustrate this,
in 2023, China held an 80% market share in global battery cell manufacturing (Racu & Poliscanova, 2024,
p. 13). Consequently, current lead firms in the internal combustion engine‐based automotive GPNs,
particularly European lead firms (e.g., BMW, VW, etc.), have been lacking international competitiveness.
Nevertheless, they aim to catch up by transitioning to electric mobility (Interview 4). This classifies the
European battery industry as an infant industry (Interviews 6, 7, 11).

To address this lack of innovative and productive capabilities (Interviews 2, 5), the EU has initiated a variety
of industrial policy instruments and programs to shape and facilitate an emerging battery industry. This is not
only motivated by geoeconomic competition but is further driven by the EU’s sustainability goals which aim
to achieve climate neutrality and include a planned de facto ban on new internal combustion engines by 2035.
The EC’s 2018 Action Plan laid the groundwork for these initiatives and was informed by the revised Strategic
Energy Technology Plan in 2015 and the 2017 EU Industrial Policy Strategy (European Court of Auditors, 2023,
pp. 16–17). Some key policies and programs include CO2 emission standards, new regulations on batteries and

Politics and Governance • 2024 • Volume 12 • Article 8188 7

waste batteries, the EU anti‐subsidy investigations into and tariffs on EU imports of EVs from China, as well
as the Battery IPCEIs (EC, 2023). These IPCEIs present a novel type of state aid mechanism that contributes
to the regulatory‐developmental turn occurring within EU industrial policy.

4.2. The Case of the IPCEIs

This section explains how the IPCEIs act as a novel industrial policy instrument as they enable more
vertically‐oriented industrial policy within the EU’s horizontal institutional framework. Due to the EU’s
shared competence in competition policy, state aid is allocated at the member‐state level, but only in
accordance with EU state aid regulations. The predominantly horizontal approach taken to industrial policy
since the Maastricht Treaty, within the broader neoliberal policy paradigm (see Section 2), restricts direct
state aid. Direct state aid is considered a distortion that interferes with competition in the single market.
Given this, such aid is only permissible if it is deemed compatible with competition policy and internal
market rules (Pianta et al., 2020, p. 787). This reflects the contradictory interconnectedness of competition
policy and more vertically‐oriented industrial policy in a European context.

However, Article 107(3)(b) of the Treaty on the Functioning of the European Union allows for a specific type
of state aid scheme in the form of direct aid to “promote the execution of an important project of common
European interest or to remedy a serious disturbance in the economy of a Member State” (Treaty on the
Functioning of the European Union, 2008, Article 107(3)(b)). This state aid scheme refers to the IPCEIs.
The IPCEIs were already part of the Treaty of Rome but were only formalized in 2014 during the state aid
modernization process. The 2014 EC Communication (COM/2014/C 188/02) established the guidelines for
evaluating projects as being of common European interest. These IPCEIs must be strategically important to
the EU, generate positive spill‐over effects across member states, involve several member states, and focus
on technologies beyond the state‐of‐the‐art (Gräf & Topuria, 2023). The implementation of IPCEIs was
only considered in the context of intensified geoeconomic competition in future technologies and strategic
value chains.

These IPCEIs represent a legal and vertically‐oriented “loophole” (Gräf & Schmalz, 2023) within the
post‐Maastricht horizontal competition policy for several reasons. First, IPCEIs target specific sectors
deemed strategically important to the EU (EC, 2018). Currently, there are seven approved IPCEIs, including
two in microelectronics, two in hydrogen, one in cloud and edge technology, and two in batteries. Two
further IPCEIs are planned for solar energy and health (as of April 2024). A key criterion for selection as an
IPCEI firm is that the firm is able to meet the high level of technological innovation required for participation
(Interview 4). This shows that IPCEIs are unique in being sector‐specific and technology‐biased in contrast
to, for example, the General Block Exemption Rules. Second, IPCEIs are not traditional R&D and innovation
projects (Interview 5). Instead, they adopt a unique funding logic, allowing funding up to the “first industrial
deployment” (after pilot stages and before mass production). This implies that the EC and member states can
fund projects for an extended duration and further into the production process phase up to the market
ramp‐up phase (Interview 1). Third, IPCEIs reflect an expanded understanding of market failures. IPCEIs are
intended to “remedy a serious disturbance in the economy of a member state” (Treaty on the Functioning
of the European Union, 2008, Article 107(3)(b)), and hence to address “market failures” by facilitating the
scale‐up of high‐risk future projects amid geoeconomic competition (Interview 10). According to
neoclassical theory, government intervention is justified only in cases of market failures, where there is a

Politics and Governance • 2024 • Volume 12 • Article 8188 8

lack of investment in high‐risk projects (Mazzucato, 2018, pp. 806–807). However, there is a broadened
understanding of market failure in the context of a “geo‐dirigiste turn” within EU industrial policy, as the EC
is more willing to “adequately ‘price in’ geo‐economic competition beyond traditional market failure
concepts” (Seidl & Schmitz, 2023, p. 14). Building on this, IPCEIs address a lack of productive capabilities,
such as in the battery sector, amidst geoeconomic competition (Interview 4).

Nevertheless, IPCEIs remain embedded in the EU’s competition policy and maintain the horizontal character
of EU industrial policy by ensuring that multiple countries and firms benefit from this type of funding within
a single IPCEI project. The allocation of direct state aid to a specific IPCEI firm is contingent upon several
more IPCEI firms receiving direct state aid within selected sectors and production networks. Additionally,
the 2014 EC Communication was revised in 2021 to mandate participation from at least four member states
to enhance compatibility with the EU single market. Moreover, the public funding received by IPCEI firms
ultimately comes from national budgets, without a simultaneous increase in national or EU‐level budgets
(EC, 2024). Increased state budgets and spending are associated with stronger state intervention as seen, for
example, during the Covid‐19 pandemic (McNamara, 2023). While still adhering to regulatory modes of
governance characteristic of the (still dominant) neoliberal paradigm (Di Carlo & Schmitz, 2023, p. 2063;
Majone, 1997), the EU nevertheless makes indirect decisions about production and privileges certain firms
and networks, such as battery production. Therefore, the Battery IPCEIs demonstrate a more vertical
industrial policy orientation while maintaining horizontal industrial policy elements.

4.3. The Battery IPCEIs: Unpacking the Regulatory‐Developmental Turn Within EU Industrial Policy

The Battery IPCEIs are reflective of a regulatory‐developmental turn in EU industrial policy, and the
abandonment of the previous paradigm of “undistorted” competition via market forces. This section analyzes
how the Battery IPCEIs’ rationales, governance structures, production network implications, funding, power
dynamics, and conditionality contribute to key developmental functions. These functions target structural
economic change and facilitate the catching‐up process of the European industry by funding technological
battery development and production via direct state aid to decentralized networks of firms. These functions
operate beyond the limitations imposed by neoliberal governance in the EU (particularly in terms of vertical
state support; see Section 3):

If Europe had not been convinced in 2017 that it wanted [the battery] industry and that it wouldn’t work
under normal market conditions due to geopolitical competitors actively promoting these industries,
rather than leaving them to market forces, then there would be no IPCEI. Certainly, the industry here
in Europe would have faced many challenges. (Interview 6, translated by author)

Then in 2019, the first Battery IPCEI (“IPCEI on Batteries”/“Summer IPCEI”), comprised of 17 participants from
seven member states, was adopted and extended through 2031. In 2021, the second “IPCEI European Battery
Innovation (EuBatIn)” (“Autumn IPCEI”), comprised of 42 participants from 12 member states was adopted and
extended through 2028 (see Tables 1 and 2). The issuance of the second Battery IPCEI reflects the demand
for this type of state support (Interview 4).

Politics and Governance • 2024 • Volume 12 • Article 8188 9

Table 1. Overview of the Battery IPCEIs.
IPCEI on Batteries: Firms Country Automotive GPN actor State aid (in €1,000)
Opel ACC GER Lead firm 436,812
BASF Schwarzheide GER Tier‐1/‐2 165,107
Automotive Cells Company FRA Tier‐1 115,000
VARTA Micro Production GER Tier‐1/‐2 101,452
VARTA Microbattery GER Tier‐1/‐2 90,506
BMW GER Lead firm 60,092
SEEL SE R&D 53,066
BASF GER Tier‐1/‐2 14,899
Rhodia Operations FRA Tier‐1/‐2 7,030
Solvay Chemicals BE Tier‐1/‐2 5,734
BASF Battery Materials Finland FIN Tier‐1/‐2 5,605
Terrafame FIN Tier‐1/‐2 3,206
Keliber FIN Tier‐1/‐2 2,641
Umicore GER Tier‐1 2,625
Fortum Waste Solutions FIN Tier‐1 1,047
Elemental Strategic Metals POL Tier‐1/‐2
Nanocyl BEL Tier‐2
Endurance ITA Tier‐1
ENEL X ITA Tier‐1
FAAM ITA Tier‐1/‐2
Flash Battery ITA Tier‐1
Notes: Information about firms, member states, and share of public funding has been retrieved from the EC’s State Aid
Transparency Database; due to the two‐step funding process, it is possible that some member states, e.g., Italy, have
not yet paid the pre‐approved funding; firms’ position within the battery‐based automotive GPN and their relationships
to the automotive industry have been identified based on the IPCEI project descriptions, the firms’ websites, and
further research.

The key (technological) objective of the two Battery IPCEIs is to steer the development and production of
“next generation” lithium‐ion batteries among European firms, encompassing not only liquid electrolyte but
also solid‐state technologies. Each IPCEI is clustered into four work streams covering “raw materials” (work
stream 1), “battery cells and modules” (work stream 2), “battery systems” (work stream 3), and “recycling and
repurposing” (work stream 4). In addition to addressing the current lack of productive capabilities of battery
cells, modules, and systems, IPCEIs shall further contribute to efficient mining and material technologies and
exploit the unused potential of existing raw materials through recycling, e.g., second‐life batteries. Hence,
the Battery IPCEIs focus on developing battery production networks in the EU, including upstream and
downstream processes relevant to battery production.

Overall, the IPCEIs are highly decentralized (see also Di Carlo & Schmitz, 2023, p. 2027) and are
characterized by indirect dependencies among the participants (unlike, for example, a consortium).
Participating IPCEI firms collaborate within, but also across, these work streams (Interview 1) in both intra‐
and inter‐IPCEI networks. These collaborations, outlined in an internal and confidential document called the
“Chapeau” document, are not limited to a certain national context, but can be transnational and are

Politics and Governance • 2024 • Volume 12 • Article 8188 10

Table 2. Overview of the EuBatIn.
EuBatIN I: Firms Country Automotive State aid EuBatIN I: Firms Country Automotive
GPN actor (in €1,000) GPN actor
Northvolt Germany GER Tier‐1 155,445 Alkeemia ITA Tier‐2
Manz GER Tier‐1 71,335 Arkema FRA Tier‐1/‐2
BMW GER Lead firm 67,993 Ferroglobe SPA Tier‐2
Cellforce Group GER Tier‐1 56,718 Hydrometal BE Tier‐1/‐2
Skeleton Technologies GER Tier‐1 50,994 Italmatch Chemicals ITA Tier‐2
SGL Carbon GER Tier‐2 42,926 Tokai Cobex FRA Tier‐2
ElringKlinger GER Tier‐1 33,770 Green Energy Storage ITA Tier‐1/‐2
Northvolt SE Tier‐1 21,470 Midac ITA Tier‐1/‐2
InoBat Auto SK Tier‐1 19,192 Sunlight Group GR Tier‐1
ENERGO – AQUA SK Tier‐1/‐2 15,207 Endurance ITA Tier‐1
ZTS – Výskum a Vývoj SK Tier‐1/‐2 14,940 Enel X ITA Tier‐1
Rosendahl Nextrom AT Tier‐1/‐2 10,620 FPT Industrial ITA Tier‐1
VARTA Innovation AT Tier‐1 9,197 Rimac Automobili ITA EV producer
Alumina Systems GER Tier‐1/‐2 8,700 Engitec ITA Tier‐1
InoBat Energy SK Tier‐1 8,495 Little Electric Car SPA EV producer
Voltlabor AT Tier‐1 6,721 Syensqo ITA Tier‐2
AVL List AT Tier‐1 6,365
Valmet Automotive FIN Tier‐1 4,324
Miba eMobility AT Tier‐1 3,837
Borealis AT Tier‐1/‐2 3,671
Liofit GER 2,840
Fortum Waste Solutions FIN Tier‐1 1,884
Keliber Technology FIN Tier‐1/‐2 550
Notes: Information about firms, member states, and share of public funding has been retrieved from the EC’s State Aid
Transparency Database; due to the two‐step funding process, it is possible that some member states, e.g., Italy, have
not yet paid the pre‐approved funding; firms’ position within the battery‐based automotive GPN and their relationships
to the automotive industry have been identified based on the IPCEI project descriptions, the firms’ websites, and
further research.

influenced by pre‐existing commercial partnerships, geographical proximity, and national contexts.

Nevertheless, new collaborations have emerged within the context of the IPCEIs (Interviews 1, 5, 6). These
collaborations do not only encompass the technological development of batteries, including both up‐ and
downstream processes, but also for example the handling of legislative regulations. For example, IPCEI
participants have been cooperating on industry standards such as a common recommendation for the
development of the new EU digital battery pass, which sets standards for battery production in the EU and
on the composition requirements of battery cells for easier recycling (Interviews 1, 6). Additionally, IPCEI
firms may engage in additional parallel cooperation and partnerships concerning technological
developments that do not relate to the IPCEI projects directly (Interview 5).

European policymakers coordinate these Battery IPCEIs through vertical governance, linking the various
transnational, decentralized, and networked tiers of participating firms across the emerging battery

Politics and Governance • 2024 • Volume 12 • Article 8188 11

production networks. The EC defined battery production as a technological priority and implemented this
novel form of state aid that permits participating firms to utilize IPCEI state aid in compliance with EU
competition policy (see Section 4.2). This process was further influenced by the German and French
governments and by consultations with the private sector. At the (sub‐)national levels, the EC maintains a
lower degree of involvement. The operational and administrative coordination is overseen by the French and
German governments. The French government coordinates the IPCEI on Batteries, and the German
government coordinates the EuBatIn (Interviews 1, 2, 4). However, the German government has outsourced
these tasks to an external German project management firm. This firm undertakes a variety of tasks ranging
from idea development, the suggestion of participants, and the preparation of funding approvals to
providing supplementary research and facilitating networking among IPCEI participants as well as with
external networks and actors. In addition, the German government’s plans to expand the second Battery
IPCEI to include countries like Portugal and non‐EU countries such as Switzerland and Norway faced
opposition from the EC. Instead, the EC introduced the option of associated membership in November 2023.
Current IPCEI members decide on admission based on the Chapeau document. An associated membership
allows participation in networking events and the work streams of the Battery IPCEIs, but without receiving
state aid through the IPCEIs (Interview 1). This private intermediation in the German case, coupled with
conflicting interests between the EC and the German government regarding the expansion of the IPCEIs,
reflects a more fragmented role of state activity in the return of industrial policy in the EU.

Nevertheless, the implementation of the Battery IPCEIs has been enabled by new geoeconomic competition
for high‐value‐added activities in the battery‐based automotive GPNs (see Section 4.1). IPCEI firms
acknowledge that their main competitors are non‐European firms, referring in particular to Chinese firms but
also to Japanese, Korean, and US firms (Tesla), who in some instances receive foreign state subsidies
(Interview 4). Furthermore, the Battery IPCEIs were driven by an interest in preventing the “Foxconnisation
of the automotive industry” (Lüthje, 2022) in the EU (Interview 5). This would imply changing power
dynamics as traditional automotive lead firms would have to rely on contract manufacturers and new players
such as battery systems producers who capture large shares of the value added.

These conditions led to the implementation of the Battery IPCEIs as a novel type of state aid (see Section 4.2),
granted when there is a need to catch up to international competition and a lack of innovation vis‐à‐vis the
leading international competitors (Block, 2008, p. 172). This enabled a total share of €3.2 billion in state aid
for the first IPCEI, supplemented by €5 billion in private investments, and €2.9 billion in state aid for the
second IPCEI, supplemented by €8.8 billion in private investments (for a detailed allocation see Tables 1 and
2). Member states fund the IPCEI firms through their national and subnational budgetary funds. Overall, there
is consensus among involved firms and policymakers that the IPCEIs are a helpful instrument and funding
scheme, given the limitations on direct state aid in the EU in contrast to, for example, the Inflation Reduction
Act (concluded in 2022) in the US (Interviews 1, 3, 5, 8, 9, 11).

While Chinese firms, in particular, are currently leading in battery production (see Section 4.1), European
firms are nevertheless engaged in a fragile catching‐up process. Importantly, IPCEI state aid is indeed leveling
investments and battery production capacities. For example, Northvolt has announced the provision of
60 GWh of battery cell capacity in Germany, Automotive Cells Company (ACC) in France 40 GWh, and
InoBat & Gotion (Slovakia) 20 GWh by 2030 (Racu & Poliscanova, 2024, pp. 14–15). In addition, the Battery
IPCEIs support gigafactories, which reflects the global trend of gigafactories becoming central to state and

Politics and Governance • 2024 • Volume 12 • Article 8188 12

investment strategies within the global battery GPNs, as they function as key nodes in these networks
(Bridge & Faigen, 2022, p. 8). For example, the German chemical firm BASF constructed a gigafactory for
cathode materials in Lausitz, Germany, supplemented by upstream products from the BASF site in Harjavalta
(Finland); the Swedish battery producer Northvolt is setting up a battery gigafactory in Heide (Germany); and
the European joint venture ACC is establishing a gigafactory for battery cells and modules in Billy‐Berclau
(France) as well as a factory at the Opel site in Kaiserslautern (Germany) that are expected to create cluster
effects. Yet, reports of delays and disruptions also exist (Interview 5).

However, if the analytical focus is shifted to power dynamics, it becomes clear that the Battery IPCEIs replicate
existing asymmetric corporate power dynamics along several dimensions of the European combustion‐engine‐
based automotive GPNs. The main beneficiaries of the Battery IPCEIs are primarily powerful GPN actors not
only in terms of firm size (encompassing lead firms as well as Tier‐1 or Tier‐2 supplier firms and gigafactories)
but also in terms of the position of firms in the combustion‐engine‐based automotive GPNs. In contrast, only
a minority of IPCEI firms are considered small or medium‐sized enterprises (see Tables 1 and 2). Moreover, the
automotive industry, in particular in France, was quite influential in initiating the IPCEIs on Batteries, and are
now among the key beneficiaries. The first “IPCEI on Batteries” was primarily driven by French automotive
firms together with the French government (Interview 1). This shows that the automotive industry was not
only influential in the design of the Battery IPCEIs but is also one of the main beneficiaries.

In addition, the return of industrial policy in the EU raises questions about the conditionality of funding
distribution, such as subsidies (Bulfone et al., 2023). Strong conditionality is lacking for the IPCEI funding
(Interview 11). The Battery IPCEIs, particularly the second IPCEI, claim to support social and environmental
objectives (IPCEI Batteries, 2024), but these are secondary to technological and economic goals
(Interviews 1, 5, 4). Social objectives are primarily focused on the creation of high‐skilled jobs, which are,
importantly, small in numbers. For example, only about 100 jobs are being created at an IPCEI lead firm in a
deindustrialized region (Interview 6). There is even a “war for talent” among IPCEI firms (Interview 7).
Environmental goals are assumed to be met through contributions to electric mobility, which is seen as
synonymous with environmental sustainability (Interviews 1, 4). This reflects “green industrial policy”
(Rodrik, 2014) approaches that are focused on modernizing rather than transforming existing industrial
structures, such as new mobility concepts (Pichler et al., 2021).

A condition for funding is, however, the sharing of knowledge among IPCEI participants and with the wider
public after project termination, excluding core business secrets (Interview 1). In addition, this requirement
was one of the reasons why Tesla opted out of the first Battery IPCEI (Interview 6). Moreover, a so‐called
“claw‐back” mechanism, regulated by the Chapeau document, ensures the repayment of extra profits to their
member states after IPCEIs end (Interviews 1, 5). This is a significant financial condition to place on funding.
Its effectiveness remains to be seen, with calls to ease this mechanism already being made (Interview 7):
“A State Aid framework with common conditionality for disbursement is crucial. The effectiveness and
acceptability of State Aid instruments depends crucially on the strategic use of public funds to achieve
common public policy objectives” (Letta, 2024, p. 39).

Politics and Governance • 2024 • Volume 12 • Article 8188 13

5. Conclusion

Intensifying geoeconomic competition has contributed to debates about the return of industrial policy in the
EU, raising questions about whether the character of EU industrial policy is transforming. This study
contributes to these debates by analyzing the Battery IPCEIs as a novel governance instrument in the EU’s
industrial policy toolkit designed to facilitate European battery innovation and production networks.

Despite limitations imposed by EU competition policy, these IPCEIs allow for the distribution of direct state
aid to a network of selected firms engaged in the advancement of next‐generation lithium‐ion batteries across
member states, encompassing both upstream and downstream processes. The rationale for these projects is
that the EU aims to support structural changes in the European automotive industry by catching up in battery
innovation and production, particularly to the Asian firms currently leading in battery production. Notably,
batteries account for up to 40% of the value added to an EV. The Battery IPCEIs thereby create opportunities
for vertical industrial policy as well as emerging developmental functions within EU industrial policy, which
traditionally favors horizontal approaches consistent with a neoliberal governance paradigm, with regulation
as the primary mode of intervention.

Hence, this article concludes that EU industrial policy is experiencing a geoeconomically‐driven regulatory‐
developmental turn, and is moving away from the primacy of undistorted competition. Indeed, the Battery
IPCEIs have triggered investments in expanding battery innovation and production and are contributing to
the process of European firms catching up to their Asian counterparts. Nevertheless, this progress remains
fragile within a dynamic and emerging battery industry. Furthermore, from a critical perspective, the Battery
IPCEIs tend to replicate asymmetric power dynamics and lack strong conditionality.

As this study examines the early stages of IPCEI project execution, future research should analyze the
evolution of these projects and critically assess how emerging developmental functions evolve. It should also
evaluate the impact of this state aid mechanism, given that the EU’s institutional framework still imposes
limitations on stronger public support and intervention, in contrast to, for example, the Inflation Reduction
Act in the US.

Acknowledgments
I would like to express my gratitude to the three reviewers and the academic editors for their very valuable
feedback and comments, my PhD supervisors for their important guidance, the participants of the 2023 EWIS
workshop “New conflicts on the horizon? The geoeconomic turn in global trade, investment, and technology”
for their comments on an earlier draft, Anne Martin for proofreading, and Steffen Redeker for the inspiring
exchange.

Funding
The author disclosed receipt of the following financial support for the partial research of this article: This work
was funded by the German Research Foundation DFG under grant numbers SFB TRR 294/1–424638267 and
447723986, and supported by Open Access funds of the University of Erfurt (https://ror.org/03606hw36).

Conflict of Interests
The author declares no conflict of interests.

Politics and Governance • 2024 • Volume 12 • Article 8188 14

Supplementary Material
Supplementary material for this article is available online in the format provided by the author (unedited).

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About the Author

Helena Gräf is a PhD candidate at the Faculty of Economics, Law and Social Sciences of the
University of Erfurt (https://ror.org/03606hw36) and research associate at the Department
of Business and Economics of HWR Berlin in Germany. Her PhD is titled Green Industrial
Policy in the EU—The State‐Driven Transformation of the Battery Value Chain. Her research
focus lies on (international/comparative) political economy, global value chains/global
production networks, and European economic governance.

Politics and Governance • 2024 • Volume 12 • Article 8188 17

Politics and Governance
2024 • Volume 12 • Article 8127
https://doi.org/10.17645/pag.8127

ARTICLE Open Access Journal

Drivers and Limits of the Geoeconomic Turn in EU

Infrastructure Policy
Joscha Abels and Hans‐Jürgen Bieling

Institute of Political Science, University of Tübingen, Germany

Correspondence: Joscha Abels (joscha.abels@uni‐tuebingen.de)

Submitted: 27 January 2024 Accepted: 12 March 2024 Published: 17 April 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
In recent years, the EU has increasingly applied state‐interventionist practices to initiate and implement
infrastructure policy projects. This stands in stark contrast to a phase of liberalization of infrastructure
networks and services accompanying European integration and fiscal consolidation and infrastructure decay
during the euro crisis. This article argues that the new state interventionism is strongly driven by the
changing global constellation of a “new triad competition” where the EU is increasingly competing over
infrastructures with the US and China. As a consequence, EU infrastructure policy undergoes a
geoeconomic turn that aims to control transnational value chains and related political‐economic spaces.
Drawing on concepts of critical geography and international political economy, the article outlines the core
features of this geoeconomic design logic of infrastructures and contrasts it with complementary or
competing ones. The article substantiates these arguments by analyzing EU decision‐making on two cases of
high‐tech infrastructure in the fields of communication and energy: the federated data infrastructure Gaia‐X
and the Hydrogen Strategy. Both cases provide evidence for the geoeconomic turn in EU infrastructure
policy. Yet, the analysis also highlights that the turn is at times supported but also hampered by a capitalist
logic that is reflected in the positioning of European and non‐European businesses, as well as the EU’s
reliance on private action. Furthermore, it illustrates that an ecological and a social‐integrative design logic
to key infrastructures are largely subordinated. The conclusions reflect on the discrepancy between the EU’s
geoeconomic agenda and its less far‐reaching implementation.

Keywords
European integration; European Union; Gaia‐X; geoeconomics; global competition; hydrogen; infrastructure
policy

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

On the European level, infrastructure policy has moved to the forefront of the political debate. The EU
nowadays sees the strategic development of infrastructure as a necessary response to contemporary
challenges. From an ecological perspective, it views the active shaping of its energy and transportation
networks as a prerequisite for reaching its goal of climate neutrality. From an economic perspective,
state‐directed impulses are meant to overcome a decade of what has largely been a stagnating and
imbalanced European economy. Most central to this article are the EU’s geoeconomic motives: its position in
a “new triad competition” with the US and China forces the EU to engage in global competition over the
strategic control and economic potential of infrastructures (Abels & Bieling, 2023a). This has resulted in a
more strategic infrastructure policy that hitherto received considerably less academic attention than the
EU’s shifts in industrial policy (Lavery, 2023; McNamara, 2023) or trade and investment (Meunier &
Nicolaidis, 2019; Schmitz & Seidl, 2023).

This article analyzes recent developments in EU infrastructure policy, asking how key infrastructure
initiatives come about and which logics and political alliances drive them. It argues that the EU is engaging in
a more state‐interventionist infrastructure policy that aims to control transnational value chains and related
spaces: land masses, oceans, airspace, and outer space, even cyberspace. Triggered by the changed global
constellation, the geoeconomic turn in EU infrastructure policy represents a structural phenomenon that is
increasingly shaping the European agenda. In practice, progressing from agenda‐setting and planning to
decision‐making and implementation, other political interests and design logics influence the extent to
which the geoeconomic turn takes shape. Most centrally, we find the geoeconomic logic to be in parts
supported but also hampered by a capitalist logic that determines the positioning of European and
non‐European businesses contributing to initiatives, as well as the EU’s persisting reliance on private actors.
The article substantiates these arguments by analyzing EU decision‐making on the federated data
infrastructure Gaia‐X and its Hydrogen Strategy.

It proceeds as follows: the second section specifies the structurally changed historical context and
indicators of the geoeconomic turn in EU infrastructure policy. The third section draws on critical
geography and international political economy to outline a geoeconomic design logic that views
infrastructure policy as both a means to secure control and access to essential networks as well as to
expand economic production. It relates this logic to other competing and complementary design logics: a
capitalist, an ecological, and a social‐integrative one. The fourth section analyzes the logics and alliances
driving the geoeconomic reorientation empirically. We take a look at two central initiatives in the field of
communication and energy: Gaia‐X and the Hydrogen Strategy. The conclusion reflects on the implications
of the findings.

2. The New State‐Interventionism in EU Infrastructure Policy

Following the global financial crisis and subsequent crises, the global and European political‐economic
landscape underwent significant changes. The dominance of neoliberal concepts seems to have waned,
while protectionist and state‐interventionist strategies are becoming more widespread (Babić et al., 2022;
Roberts et al., 2019). The new state interventionism seeks to enhance control over transnational value
chains that appear to be at risk: either because certain actors can weaponize them by restricting or

Politics and Governance • 2024 • Volume 12 • Article 8127 2

preventing flows (Farrell & Newman, 2019) or because accidents or crises might disrupt or permanently
damage established networks of commercial cooperation.

For the last decades, the EU strongly relied on export activity and a largely market‐liberal globalization strategy
to maintain its international position. Yet, in response to a series of crises, the EU has geared its policy areas
towards safeguarding and strengthening the resilience of value chains (Rosén & Meunier, 2023). Aside from
security, energy, and trade policy, this particularly concerns infrastructure and industrial policy. Infrastructure
policy primarily aims to improve connectivity, i.e., the circulation of resources, goods and services, money,
knowledge, people, etc. It includes all efforts that seek to maintain, develop, and regulate infrastructures
within and beyond a political space. In practice, infrastructure policy and industrial policy often go in the same
direction (see Figure 1).

Cycles of infrastructure and industrial policy in the EU have been historically correlated. In the post‐war era,
national industrial and infrastructure policy activities were guided by Keynesian concepts of state
interventionism (Bulfone, 2023). Governments selectively built and modernized infrastructures according to
domestic industrial structures. It was only in the 1980s and 1990s that the EU developed a significant
infrastructure policy. During the process of integrating the internal market, transnational capital advocated
for the enhancement of cross‐border infrastructures (Balanyá et al., 2000). At the core of this agenda was
the Trans‐European Networks (TEN) initiative, which sought to coordinate the expansion and interlocking of
European transportation, energy, and communication infrastructures. Network‐related infrastructures such
as post, telecommunications, rail, gas, and electricity were liberalized, and sector‐specific directives drove
the organizational separation of infrastructure and service providers. The TEN strategy has successively
been extended to neighboring regions, including Eastern Europe, the Caucasus, and the Mediterranean
region. It continued in the 2000s but became increasingly securitized due to the rise of international
terrorism and cybercrime. The concept of “critical infrastructures” gained prominence during that time, as
the EU focused more strongly on monitoring and preventing new infrastructural risks (Council directive
2008/114/EC of 8 December 2008, 2008).

During the euro crisis, however, the EU intensified its market‐liberal approach to infrastructure policy.
Public‐owned energy and transportation infrastructures in crisis countries were often sold below market
value to consolidate national households. In addition, the EU’s management of the euro crisis forced those

Infrastructure policy Industrial policy

(regional and global (selecve promoon of sectors,
infrastructure development) companies, and products)

• Diversificaon of supply and distribuon networks

• Reshoring of network elements
• Promoon of infrastructure hubs
• De-risking private investments
• Promoon of technological innovaon

Resilience of value chains

Figure 1. Intended effects of infrastructure policy.

Politics and Governance • 2024 • Volume 12 • Article 8127 3

member states most affected by the crisis to cut back on infrastructure‐related investment. Figure 2 outlines
the substantial economic divergences these decisions created within the EU regarding investments in
communication, energy, and transport infrastructure development. Data for 2007 serves as an index value.
Productive investment only includes assets that are materially produced, which subtracts land purchases and
natural resources and excludes residential buildings. It highlights that budget cuts in the Southern periphery
had strong negative effects on public investment in transportation and energy infrastructures, where private
investment was insufficient to compensate for this. This undermined the productive capacity of those
economies and contributed to economic divergences between member states.

In the aftermath of the financial and euro crises, internal and external factors contributed to an upgrading
and reorientation of infrastructure policy. Internally, the member states were under pressure to promote
re‐industrialization and counteract the legitimacy crisis of the integration project. The “infrastructure push”
(Ougaard, 2018) was an attempt to compensate for the infrastructure gap that resulted from market forces’
failure to allocate available resources towards infrastructures under crisis and non‐crisis conditions.
Externally, the EU’s position within an intensifying “triad competition” (Abels & Bieling, 2023b) with the US
and China created pressure to modify the European approach to infrastructure development.
The privatization of publicly owned infrastructures during the euro crisis opened the door to foreign
ownership of essential European transport and energy networks. While the EU had hoped for some time to
benefit substantially from China’s global infrastructure initiatives and the modernization of routes between
Asia and Europe, Beijing’s central role in and control over these networks led to calls for increased economic
sovereignty on behalf of the EU (Leonard et al., 2019). The US seemed to be several steps ahead. Under
President Biden it implemented a transformative economic agenda that built on large‐scale
infrastructure‐relevant programs such as the Infrastructure Investment and Jobs Act and the Inflation
Reduction Act, subsidizing the development of US‐based technologies and infrastructures.

This global constellation contributed to an increasingly geoeconomic orientation of central infrastructure

initiatives. The European Economic Security Strategy warns of “risks [that] can occur along the entire value
chain,” concerning, among others, the “physical and cyber security of critical infrastructure” as well as the
“weaponisation of economic dependencies” (European Commission, 2023a). Key documents such as the
New Industrial Strategy (European Commission, 2020a) and the EU’s Digital Strategy (European Commission,
2020b) seek to reduce dependencies regarding access to critical infrastructures and technologies,

communicaon energy transportaon

190
NWE NWE
175
gross fixed capital formaon

160 EE
145
(2007 = 100)

NWE
130
SE EE
115
EE
100
85 SE SE
70
55
2005 2008 2011 2014 2017 2020 2005 2008 2011 2014 2017 2020 2005 2008 2011 2014 2017 2020

Figure 2. Productive investment in different sectors for European regions, 2005–2020. Notes: EE = Eastern
Europe; NWE = Northern/Western Europe; and SE = Southern Europe. Source: Own calculations based
on Eurostat.

Politics and Governance • 2024 • Volume 12 • Article 8127 4

particularly in the fields of energy and communication. The Important Projects of Common European
Interests (IPCEI) exploit legal exemptions in the EU’s state aid rules to promote business endeavors related
to geoeconomically relevant technologies, such as battery development, cloud infrastructure, and hydrogen.
In response to the Covid‐19 pandemic, the Recovery and Resilience Facility (RRF)—an EU fund with a
volume of about €750 billion—was designed to accelerate infrastructural transformation through public
investment. Finally, with a more global outlook, the EU announced its Global Gateway initiative in 2021,
which is supposed to make available up to €300 billion in financing for infrastructure projects in Africa, Latin
America, and Asia until 2027 (Heldt, 2023).

3. Design Logics of Infrastructure Policy

Infrastructures are socio‐technical networks that include material or digital facilities and their connections
and enable the circulation of goods, services, people, energy, and data across space (Larkin, 2013).
In principle, therefore, infrastructures also enable the organization and provision of public goods, including
mobility, communication, education, and so forth. However, they are also associated with negative side
effects, including their ecological and social impact as well as financial costs.

Infrastructures are the product of different forms of infrastructure policy where political influence is exerted at
several points: in the planning, production, financing, and regulation of infrastructures. Overall, infrastructures
are political, as they are subject to competing or complementary design logics, backed by different social
interest groups and alliances. In the EU, in addition to the Commission and national governments, non‐state
actors such as think tanks, transnational corporations, and business associations are involved in the formation
of infrastructure policy. Each of these actors is guided by a specific set of political objectives and ideas related
to the design and operation of infrastructures. We schematically differentiate between four design logics that
can, depending on the issue at hand, be mutually reinforcing or competing:

1. The geoeconomic design logic is the one central to this article. It corresponds to the changed global
constellation and seeks to organize infrastructures in a way that enables the control of transnational
value chains. Within the EU, the geoeconomic logic is primarily promoted by the European
Commission and select national governments, in cooperation with think tanks operating at the
intersection of European trade, competition, and foreign policy—e.g., the European Council on Foreign
Relations or the Center for European Policy Studies—as well as some sectoral business associations,
while umbrella associations are more hesitant.
Geoeconomics is distinct from geopolitics. While in a narrow or instrumental understanding, it can refer
to the utilization of economic tools, such as sanctions in geopolitical (sometimes even military) conflicts,
geoeconomics in a more comprehensive form constitutes politics that strive to control transnational
value chains for the purpose of expanding national production, safeguarding economic autonomy, and
gaining a competitive edge over global rivals. Infrastructures play a crucial role in this. Networks generate
patterns of dependency and allow actors in control of critical hubs to exploit this for territorial or social
control (Farrell & Newman, 2019). This includes the instrumentalization of extant infrastructures, but
also the strategic planning, financing, and regulation of new ones, for security aims and the control
of spaces. The geoeconomic shaping and operation of infrastructural networks also serves to expand
economic production, as infrastructures constitute the physical and digital linkages between economic
spaces, determining the pathways and speed through which their exchange takes place. A geoeconomic

Politics and Governance • 2024 • Volume 12 • Article 8127 5

 design logic thus views infrastructures not just as powerful tools of coercion or information‐gathering,
but also as prerequisites of consolidating transnational value chains and of economies’ inclination to
expand geographically (Abels & Bieling, 2023b). Accordingly, infrastructure policy is geared towards
outperforming competitors in the race for key markets and technologies.
2. There is a capitalist design logic that displays some significant compatibilities with the geoeconomic one.
These concern above all the productive facet of geoeconomics that corresponds with establishing
specific “spatio‐temporal fixes” (Harvey, 2003). Infrastructure policy aims to fix capitalist development
by anchoring and embedding it materially and channeling financial resources into fields of investment
that are crucial for improved economic connectivity. Yet, the capitalist logic is not confined to
geoeconomics but focuses on two intrinsic aspects: macro‐economically on stabilizing the economy
and micro‐economically on promoting productivity and enabling profits. Thus, at the EU level, this logic
is commonly promoted by the European Commission (above all by the Directorate‐Generals for the
Single Market, Competition, Industry, and Trade), financial investors, and all kinds of lobby groups and
business associations, including the European Industry Round Table and BusinessEurope. Infrastructure
development presents investment opportunities where large volumes of capital are mobilized and
channeled into projects with a long‐term perspective. It is related to the prospect of future profits for
companies utilizing infrastructures and those involved in establishing and financing them. This may
imply tensions with the geoeconomic logic, as profit‐seeking actors such as transnational corporations,
financial investors, and associated political forces have incentives to prioritize and promote not those
projects of the highest geostrategic value but those that generate the highest returns.
3. There is also an ecological design logic that aims to optimize the energy and climate balance of
infrastructures and the connectivity generated by them. Against the backdrop of the climate crisis, this
design logic has gained importance practically and discursively. It has been articulated primarily by
environmental movement organizations as well as green parties and has been taken up and transposed
into a modernization strategy by business actors, other political parties, and state apparatuses (Haas
et al., 2022). As current debates on renewable energies, hydrogen, or the expansion of rail networks
illustrate, issues relating to the generation and supply of energy and mobility are at the center of many
infrastructure policy considerations. The ecological design logic is reflected in concepts for an
innovative transition policy, entailing a comprehensive infrastructural reorganization embedded in the
broader discourse on sustainable development.
4. A social‐integrative design logic aims to improve democratic control, participation, and social cohesion
(Foundational Economy Collective, 2018). It is frequently articulated by trade unions, including the
European Trade Union Confederation, consumer associations, and social movements. This logic views
infrastructures as prerequisites for the provision of essential public goods. It thus pushes for the
development of social infrastructures in the fields of childcare, education, and housing, but also for the
general availability, affordability, and accessibility of infrastructures in the fields of energy,
communication, and transport. In addition, the logic is characterized by calls to compensate or ease the
consequences of rapid structural change via the flanking of infrastructural programs with employment
programs, vocational training, and further measures.

The outlined design logics and the alliances that promote them have been stimulated and shaped by recent
crisis dynamics. There are some practical compatibilities between logics, yet they are frequently subject to
minor or major conflicts of objectives. As the analysis in Section 4 demonstrates, all logics impact EU
infrastructure policy to some degree, but some design logics articulate themselves hegemonically.

Politics and Governance • 2024 • Volume 12 • Article 8127 6

4. Analyzing EU Policy on High‐Tech Infrastructures

4.1. Methods and Material

Seeking to understand what logics and alliances are driving the new state interventionism in EU
infrastructure policy, this article takes a closer look at the development of two central high‐tech
infrastructure projects: the federated data infrastructure Gaia‐X and the Hydrogen Strategy. We chose these
two cases as they are representative of two major infrastructural fields: communication and energy. Hence,
comparing the findings will help us identify larger dynamics of EU infrastructure policy instead of remaining
limited to a certain field. In addition, both the processing of European data as well as the energy transition
are central issues in which current debates over the control and autonomy of European value chains
intersect. The two projects, Gaia‐X and the Hydrogen Strategy should be viewed as elements of the new
state‐interventionist phase in EU infrastructure policy. As both are rather recent initiatives, they are still in
the planning and early implementation phases: Gaia‐X was announced in 2019 and the Hydrogen Strategy
was agreed on in 2020.

The analysis seeks to identify and compare in a structured manner the geoeconomic context, the intervening
logics and alliances, and the policy outcomes of both projects. It builds on data from official documents,
position papers, and media reports to reconstruct the underlying constellations. Non‐state actors,
particularly business actors, are becoming part of the organizational structure of the infrastructure projects
as they progress. Negotiation processes are also becoming more opaque and public records by the involved
parties more scarce. We collect available documents and statements made by central state and business
actors—companies and associations—involved in both cases and present the most significant in the
following analysis.

Gaia‐X is characterized as a communication infrastructure, whereas the Hydrogen Strategy concerns the field
of energy. Due to their geostrategic, ecological, social, and economic relevance, the previously outlined design
logics have a role to play. These design logics constitute an admixture of material interests and ideational
preferences, which relevant state and non‐state actors pursue and find their expression in their contribution
(or resistance) to specific infrastructural initiatives. The self‐positioning of actors is cross‐checked with media
reports and academic studies to approximate the relevant design logics and their proponents.

4.2. Gaia‐X

4.2.1. Geoeconomic Context

Cloud services are central building blocks of a digitizing economy. They allow companies and consumers to
access and use the storage and computing capacities of central providers according to their current demand
and without having to set up designated data centers. The flexibility in utilizing these services—being able
to assign high capacities to individual processes—has made them indispensable tools for digital applications
such as the training of machine learning models as well as the processing of vast amounts of data generated
by autonomous vehicles or smart cities. Cloud services rely on the setup of infrastructures in the form of data
centers at strategic locations and their physical connection via ties, such as fiber optic cables.

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Cloud providers benefit from economies of scale, as larger providers will get better deals on hardware and
software and can optimize the costs of networks and personnel. Consequently, centralization effects in the
cloud sector contributed to the concentration of traffic and data access. Several big players became
increasingly influential. Subsidiaries of Amazon, Microsoft, and Google have a combined market share of
around 65%, making cloud services a segment mostly controlled by US tech firms. In light of global
competition, the US government has leveraged its position as a global cloud services hub. In March 2018, it
passed the US Cloud Act, which grants US law enforcement access to electronic data held by domestic
providers even if the data is stored on servers located outside the US.

For the EU, this has raised concerns about the dependency of European states and businesses on essential
infrastructures provided by US firms, about data security, and conflicts with the EU General Data Protection
Regulation (Autolitano & Pawlowska, 2021, p. 11). In 2019, initiatives for a more autonomous cloud sector
in the EU resulted in a proposal by the German Ministry of the Economy (BMWi), closely coordinated with
the French Ministry of Economy, to set up an EU‐based infrastructure called Gaia‐X. The initiative, which
German Minister of Economy Peter Altmaier praised as a “moonshot” and a “gold standard for cloud services”
(Koch et al., 2020), would be coordinated by a non‐profit association seated in Brussels, while national Gaia‐X
hubs were to be set up in participating member states. As of now, the organization consists of 377 members.
It operates via its board of directors, consisting of management staff from participating organizations. Board
members have to be headquartered in Europe. It is currently headed by Catherine Jestin from Airbus. It also
includes representatives from companies such as Deutsche Telekom and Orange as well as large European and
national business associations. EU actors earmarked substantial funds for the project, with the Commission
aiming to contribute €2 billion (Obendiek & Seidl, 2023, p. 1319). In 2023, they set up a designated IPCEI
called Next Generation Cloud Infrastructures and Services (CIS), which is supposed to fund initial industrial
use cases with a volume of €3.5 billion.

4.2.2. Intervening Logics and Alliances

In the early phases of the initiative, the form Gaia‐X would eventually take was still subject to debate.
The logics and alliances involved in the formation of political decisions on Gaia‐X were pulling in different
directions. A geoeconomic logic addressed both the EU’s external dependencies and productive potentials.
It viewed Gaia‐X as a way to make Europe more autonomous in its access to and regulation of essential
cloud infrastructure, while also highlighting the potential of securing a share of the cloud market and related
value chains for European companies.

Thierry Bretton, former CEO of the French tech firm Atos and, since 2019, Commissioner for Internal Market in
the von der Leyen Commission, has been criticizing non‐European providers and demanded European data to
be stored and processed in Europe (Manancourt, 2020). The BMWi took up his arguments, criticizing the lock‐in
effects that made it hard to migrate data away from US providers and warning that this dependency could
negatively affect the EU’s economy “in the event of political conflicts” (BMWi, 2019, p. 8). The geoeconomic
argument was that an independent EU cloud infrastructure would decrease the foreign leverage over European
companies and, by extension, states, and increase the EU’s autonomy and capacity to act.

Such territorial arguments have also been reflected in statements from national business associations.
The Federation of German Industries (BDI) and the French employer federation MEDEF have been strongly

Politics and Governance • 2024 • Volume 12 • Article 8127 8

supportive of the initiative from its inception, associating with it an acceleration of “sovereign digitisation”
and “leadership in the digital economy” (BDI & MEDEF, 2020). VOICE, Germany’s largest umbrella
organization of IT‐using companies, warned that “Europe cannot and must not assume that US or Chinese
providers will pursue…the interests of our companies” and that US and Chinese data regulations would
endanger data security and promote industrial espionage (VOICE, 2019). Bitkom, a large association of the
German digital economy, which is represented on the board of directors at Gaia‐X, has viewed the project
and the calls for digital sovereignty as a “German and European response to US threat scenarios,” while
stressing the need to “revitalize the partnership with the US” (Bitkom, 2020). Ultimately, state actors and
business organizations, mostly national ones, promoted a geoeconomic logic and expressed the expectation
that Gaia‐X could reduce external dependencies and make the EU more competitive technologically
and economically.

The geoeconomic logic was in parts complemented, yet eventually overshadowed by a capitalist one that
viewed Gaia‐X in terms of productivity and profit‐seeking, enabling business activity and new business models
that would help Europe catch up in the digital economy. This logic has been part of BMWi’s initial reasoning
for Gaia‐X as well: European companies, particularly SMEs, would remain skeptical about the costs of cloud
usage and resulting dependencies, which means that “innovative ideas are less likely to be translated into new
business models” (BMWi, 2019, p. 8). At a conference, Marco Alexander Breit, senior official of the BMWi
responsible for Gaia‐X, referred to Europe’s lack of an innovation hub comparable to Silicon Valley, viewing
Gaia‐X as an opportunity to create such a hub digitally (Baur, 2023, p. 16).

Large European industry associations discussed Gaia‐X in a similar tone. Digitaleurope, a major trade
association of the digital technology industry, is represented on Gaia‐X’s board of directors. It largely refrains
from addressing Gaia‐X in terms of global rivalry, focusing more strongly on “jobs, innovation and economic
growth” and calls for public de‐risking of private investments in the cloud industry (Digitaleurope, 2021).
What unites large tech‐centered associations like Digitaleurope, Bitkom, or CISPE is that their membership is
open to non‐European companies. Digitaleurope and Bitkom both represent the interests of Amazon, Apple,
Google, Microsoft, Intel, and Huawei as their members. The organizational structure of Gaia‐X stipulates
that only European‐based companies are authorized to sit on the decision‐making body, the board of
directors. However, the fact that Digitaleurope, Bitkom, and CISPE are represented there has also brought
US tech companies and other non‐European organizations to the table. The European companies working
on Gaia‐X are often partnering with or in a dependent relationship with these firms, which has given
non‐European capital a strong leverage in working groups as well (Goujard & Cerulus, 2021). In effect, the
geoeconomic orientation of the project has been toned down. Government actors were hardly able to
counteract this. Gaia‐X’s organizational structure and the dominance of private actors in the initiative
strongly reflect the desire of member states to make this “a project of the industry for the industry”
(Obendiek & Seidl, 2023, p. 1321). Private companies—both European and foreign—made use of this
hands‐off approach by the member states to shift Gaia‐X’s design logic further towards the advancement of
their profit interests and the stabilization of their business models via public funds.

A social‐integrative logic has been essential to the project in the initial phase but has been less pronounced
since. The safeguarding of European data and the free choice of cloud services for users have been stressed
as central objectives of Gaia‐X. All participating providers are expected to fulfill standards in line with
European regulations on data protection. However, documents published by private contributors seldom

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refer to the accessibility or affordability of services or their societal benefits. VOICE has criticized that
Gaia‐X as an organization almost exclusively features the supply side—cloud providers, associated industries,
and their representatives—instead of user associations (VOICE, 2019).

The ecological design logic plays only a marginal role, even though cloud infrastructure has a substantial impact
on the environment and the climate. Data centers emit a lot of waste heat and consume vast amounts of
electricity. In the political debate, the ecological relevance of the project is mostly addressed in ways that
frame renewable energy systems and the circular economy as potential beneficiaries of Gaia‐X (BMWi, 2020).

4.2.3. Policy Outcome

As a consequence of the gradual amendment of a geoeconomic logic by a capitalist one, Gaia‐X remains one
of the EU’s major state‐initiated infrastructure projects, yet its form has changed over time. The initiative has
argued that “once more, our continent is in danger of losing out in one of the core sectors for the economic
development of the century,” but that a European cloud hyperscaler would “engage in a futile attempt to
compete for market share in mass business with the dominant platforms of the Americans and Chinese”
(Gaia‐X, 2022). What was originally discussed as an “AI‐Airbus” has been transformed into an “ecosystem”
connecting certified cloud providers. Gaia‐X now envisages to rather standardizing cloud providers in
Europe, binding them to European rules and standards, and preventing lock‐in effects.

This reshaping of the initiative has gone hand in hand with a discursive and political shift towards attenuated
geoeconomic ambitions to which several factors have contributed: internal conflicts between companies
over organizational details; a retreat of state‐interventionism after the initiation phase; and the influence of
non‐European actors from cloud provider giants, like Amazon Web Service to US‐military associated firms
like Palantir.

4.3. Hydrogen Strategy

4.3.1. Geoeconomic Context

Hydrogen is seen as an energy carrier with great potential. It has been the subject of research for some time
and is at present mainly produced from gas or coal—so‐called “grey” and “brown” hydrogen—or obtained as a
by‐product of industrial production. However, the high technological and material requirements, security risks,
and considerable costs associated with producing, storing, transporting, distributing, and using hydrogen, have
limited its use (Lebrouhi et al., 2022). This now appears to be changing due to new energy sources, especially
renewables (“green” hydrogen), and more efficient electrolysis or hydrogen extraction, combined with carbon
capture and storage (“blue” hydrogen). The change is contingent on the provision of a suitable infrastructure
linking production and use to establish a functioning hydrogen market.

In recent years, this development has gained momentum, initially in the context of the European Green Deal
(Haas et al., 2022). Hydrogen represents an option for mitigating the large fluctuations in renewable
energies, especially solar and wind power, through storage. It also represents a way of replacing fossil fuels
with alternative fuels in industries, such as steel and chemical, as well as in heavy freight transportation such
as trucks and ships. The EU is working to expedite this transition. The Hydrogen Strategy (European

Politics and Governance • 2024 • Volume 12 • Article 8127 10

Commission, 2020c) has announced ambitious targets to be achieved by 2030: the European increase of
electrolysis capacity from below one gigawatt to 40 gigawatts and the production of 10 million tons of clean
hydrogen annually. The development of hydrogen infrastructure in addition to newly built pipelines and
refueling stations, also includes the conversion of the existing gas infrastructure (pipelines, storage, liquefied
natural gas terminals) and the establishment and connection of regional hydrogen clusters.

The geoeconomic dimension of the Hydrogen Strategy is significant. The EU is competing with the US,
China, and Japan for global technological leadership across all elements of the hydrogen value chain
(Van de Graaf et al., 2020, p. 4). This competition also involves the definition of specific standards for
production, storage, and transport in international forums and organizations. Additionally, the EU aims to
achieve its targets by importing green hydrogen. The REPowerEU plan proposes the import of 10 million
tons per year starting from 2030 (European Commission, 2022). For this purpose, it suggests the
establishment of three major hydrogen corridors through the Mediterranean, the North Sea area, and
Ukraine (as soon as conditions permit). The Russian attack on Ukraine has further emphasized the
geoeconomic orientation of EU energy policy (Siddi & Prandin, 2023). This is also reflected in the manifold
activities through which the EU aims to achieve control over all components of the hydrogen value chain.

4.3.2. Intervening Logics and Alliances

The emerging hydrogen market is more heterogeneous, flexible, and decentralized than the international gas
market. This is partly due to the complex nature of the hydrogen value chain, open to manifold forms of
influencing. Consequently, companies from different business sectors, in cooperation with state agencies,
try to expand the capitalist design logic in their interest (Van de Graaf et al., 2020, pp. 2–3): by pushing for
the technical, financial, and regulatory promotion of a particular type of green, blue, or grey hydrogen or by
facilitating infrastructure projects that allow the handling of specific forms of hydrogen—gaseous,
compressed, or liquid. Companies compete for specific transition pathways to improve their respective profit
expectations by locking in practices corresponding to their business model. This applies above all to
hydrogen‐affine operators of gas pipelines organized in the European Hydrogen Backbone (EHB) initiative
and individual gas companies organized in Hydrogen Europe, highly effective EU lobbying organizations
(Corporate Europe Observatory, 2023, p. 7). Companies from other fields of energy production, logistic
firms, financial actors such as banks and investors, as well as research centers and think tanks also make a
case for hydrogen. They are organized in the European Clean Hydrogen Alliance (ECHA), set up in 2020 to
actively support and implement the EU’s Hydrogen Strategy. The close cooperation within ECHA changes
the form of governance of the project as it allows the EHB, Hydrogen Europe, and financial investors to
lobby European decision‐making from within.

The capitalist design logic largely corresponds with a geoeconomic design logic that focuses on controlling
the different components of the hydrogen value chain. This control is both inward and outward‐oriented.
The inward orientation relates to the attempt to secure energy supply through a more comprehensive
infrastructure: new hydrogen pipelines, upgraded gas pipelines, more storage, additional fueling stations, etc.
Time and again, Hydrogen Europe (2024, p. 6.) has proposed a series of measures that would make a strong
and resilient pan‐European hydrogen infrastructure operational. In line with this, the EU has promoted a
couple of projects, using wind power from the North Sea and Baltic Sea area and solar power from Spain and
Portugal for a trans‐European hydrogen grid. This is complemented by an outward orientation that aims at

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both technological leadership in the field of hydrogen and clean hydrogen imports from neighboring regions,
above all from African countries, such as Morocco, Algeria, and Mauretania (Weko et al., 2023).
The geoeconomic design logic is promoted by supranational state agencies, such as the Commission and the
EIB, member states, as well as the aforementioned lobbying organizations. The latter strongly welcomed and
supported REPowerEU (EHB, 2022). Hydrogen Europe, in cooperation with other European energy and key
material suppliers, calls with urgency for an “EU Clean Industrial Deal,” meaning “a real and tangible
Industrial Policy covering the full supply chain…to ensure Europe does not drop out of the world’s clean
technology race” (Hydrogen Europe, 2023, p. 1). Furthermore, business actors make use of international fora
like the African‐Europe Green Energy Initiative or bilateral diplomacy to prepare outside investments in
hydrolysis capacities, pipelines, and shipping routes.

A social‐integrative design logic can only be identified to the extent that additional investments also create
employment opportunities and thus implicitly activate the consent of employees and trade unions. Compared
to this, the ecological design logic plays a much stronger role. The aim of decarbonizing the European and
global economy is mentioned in all documents and strategy papers and state and business actors play the
climate card frequently. At the same time, the ecological design logic is also articulated by associations and
networks of the environmental movement who have become increasingly critical of the so‐called “hydrogen
hype” (Corporate Europe Observatory, 2023, p. 3). They emphasize the limits and problems of a modernization
approach that regards hydrogen as a technology that serves to rescue fossil energies and corresponding modes
of production and living (Haas et al., 2022, pp. 255–256). Also, they fear that the EU’s foreign hydrogen
infrastructure investments will generate new forms of “green land grabbing” and ecological harm, for example
in water‐scarce regions (Claar, 2022).

4.3.3. Policy Outcome

Critical voices are not absent in discussions about the hydrogen strategy. They are few, however, compared
to the powerful actors organized in the ECHA that cooperate very closely with the Commission and EU
member states. As a result of this cooperation, decarbonization efforts are increasingly reframed and
subsumed to the criteria of profitable investment and geoeconomic control. The reorganization and
securitization of energy provision after the Russian attack on Ukraine also impacts the EU’s Hydrogen
Strategy. The aim to achieve control of the whole hydrogen value chain is tangible in the strategy paper and
related documents, such as Global Gateway (European Commission, 2021) or the Critical Raw Material Act
(European Commission, 2023b). Practically, control should be achieved by a gradual but planned extension
of the hydrogen infrastructure. Financial resources for investments are mobilized by the RRF or as part of
IPCEIs—a second wave of 35 individual projects in 2023 is explicitly dedicated to hydrogen infrastructure.

EHB outlines how, from its members’ perspective, the gradual improvement and extension of the hydrogen
infrastructure should continue until 2030 to reach the goals of REPowerEU (EHB, 2023). Their report focuses
on EU‐internal infrastructure but includes some links to neighboring regions. EU bodies, national agencies, and
private actors like energy companies and transmission operators have been trying to build external links for
some time now, negotiating international standards for hydrogen production, transport, and use to facilitate
investments and hammering out specific projects (Weko et al., 2023). The EU hopes that Global Gateway
will expedite such initiatives, as additional financial resources should stabilize the profitability expectations of
private investors; and, eventually, contribute to geoeconomic control.

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5. Conclusion

The findings of our analyses support the overall argument that European infrastructure policy has, in recent
times, been increasingly driven by the changed global constellation and that it takes a more
state‐interventionist form to reach European objectives. Both Gaia‐X and the Hydrogen Strategy are
representations of this trend. In their planning stage, they reflect a geoeconomic logic that seeks to reduce
external dependencies and guarantee control over and access to transnational value chains. However, as the
project reaches an implementation phase, in both cases a capitalist logic that prioritizes the realization of
profits on the part of European businesses complements (hydrogen infrastructure) or even overshadows
(cloud infrastructure) the geoeconomic one. In both cases, a social‐integrative and an ecological design logic
are largely sidelined and become subordinated. This is particularly remarkable in the case of the hydrogen
strategy where there is an immediate effect of infrastructure policy on the carbon footprint.

The findings do not imply that the geoeconomic logic behind the projects vanishes or that it served only as a
discursive device. As is apparent in the new state interventionism of recent years, the EU infrastructure policy
has indeed changed in light of global pressures, and both Gaia‐X and the Hydrogen Strategy are an expression
of this. In the two cases, the geoeconomic and capitalist logics display substantial complementarities, which
drove the project forward. Yet, particularly in the case of Gaia‐X, the capitalist logic has become more dominant
and limits the transformative potential. While France and Germany, the initiators, showed strong interest in
an autonomous European cloud infrastructure, this ambition has proven at odds with the private character of
financing, operation, and organization of the project.

The extent of geoeconomic control the EU strives for seems to decrease in the case of Gaia‐X, while it
remains prominent in the hydrogen strategy. Whereas in the case of the latter, it is primarily European
lobbying organizations that influence the formation of infrastructure political decisions, with Gaia‐X
non‐European businesses, first and foremost US‐American oligopolistic tech firms, got a substantial say in
the process due to the hands‐off approach of European member states. This confirms the assumption that
European infrastructure initiatives which could become globally competitive provoke external interference
by competitors such as the US, who exploit internal divergences and reluctance to hinder the process,
leveraging their business ties with European companies (Abels & Bieling, 2023a). It also highlights that the
EU runs the risk of infrastructure policy failure as geoeconomic and geopolitical objectives are often
insufficiently aligned with the interests of business elites (Hameiri & Jones, 2023).

The EU’s infrastructure policy is currently in flux. We are witnessing the beginnings of a more
state‐interventionist era where initiatives and the allocation of resources are increasingly the product of
political planning instead of being left to market mechanisms. Yet, at times, the EU’s intergovernmental
structure as well as its non‐aligned business fractions act as a brake on the emerging geoeconomic turn.
The EU frequently relies on private investment in light of tight public budgets and on business impulses to
realize infrastructure projects. This reliance poses strict limits to the geoeconomic orientation of
infrastructure policy as well as the EU’s overall ability to compete globally.

Acknowledgments
We thank the three anonymous reviewers as well as the editors for their constructive feedback on the article.
We acknowledge support from the Open Access Publishing Fund of the University of Tübingen.

Politics and Governance • 2024 • Volume 12 • Article 8127 13

Funding
Funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation), project number
526359979.

Conflict of Interests
The authors declare no conflict of interests.

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About the Authors

Joscha Abels is a PostDoc at the Institute of Political Science, University of Tübingen.

His research focuses on topics of geoeconomics, infrastructure policy, and the political
economy of the Economic and Monetary Union. He has contributed to journals such as the
Journal of Common Market Studies, Comparative European Politics, and Competition & Change.
He is the author of the book The Politics of the Eurogroup: Governing Crisis and Conflict in the
European Union, Routledge.

Politics and Governance • 2024 • Volume 12 • Article 8127 16

 Hans‐Jürgen Bieling is a professor of political economy at the Institute of Political Science,
University of Tübingen. His research focuses on the dynamics of globalization and the
political economy of European integration. He is interested in the Economic and Monetary
Union, financial market integration, and the corresponding reforms of national welfare and
labor regimes. More recently, he has worked on the reorganization of different kinds of
infrastructure in the domestic, European, and global contexts.

Politics and Governance • 2024 • Volume 12 • Article 8127 17

Politics and Governance
2024 • Volume 12 • Article 8186
https://doi.org/10.17645/pag.8186

ARTICLE Open Access Journal

US Critical Mineral Policies and Alliance Strategies in an Age of

Geopolitical Rivalry
Anastasia Ufimtseva , Jing Li , and Daniel M. Shapiro

Beedie School of Business, Simon Fraser University, Canada

Correspondence: Anastasia Ufimtseva ([email protected])

Submitted: 31 January 2024 Accepted: 16 May 2024 Published: 9 July 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
We examine the geoeconomic strategies of the US regarding critical minerals through the lens of geopolitical
rivalry with China. Chinese companies, mostly state‐owned enterprises, play a prominent role in the
extraction and processing of minerals critical to the energy transition. Drawing on the balance of power
theory, we argue that the US, the incumbent hegemon, can employ both domestic policies and
alliance‐building strategies to counterbalance China’s dominance in critical mineral sectors. Empirically, we
first assess the nature of US domestic policies with respect to promoting domestic critical mineral
production and restricting foreign investment in the extractive sectors through investment screening
measures, and then assess the degree to which the US has relied on Five Eyes alliance partners to achieve
common strategic goals. We find evidence that the US uses a multifaceted geoeconomic approach involving
domestic policies and alliance strategies to counterbalance China’s dominant position in critical mineral
supply chains.

Keywords
China–US rivalry; critical minerals; Five Eyes; geoeconomics; state‐owned enterprises

1. Introduction

US–China rivalry has escalated in recent years (Allison, 2017; Kim, 2018), extending its scope to include
climate‐related technologies and critical minerals (Kalantzakos, 2020; Shen, 2022). China dominates in both
sectors, with other countries highly dependent on China for critical minerals (Castillo & Purdy, 2022).
As critical minerals are essential inputs for the global energy transition and an integral part of the global fight

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
against climate change (International Energy Agency, 2021), dominance by a single state over critical mineral
supply chains suggests the importance of de‐risking strategies by countries seeking to reduce resource
dependence on China. De‐risking here refers to reducing the risks of overdependence on a single country in
critical industries while maintaining basic trade and investment activities with that country (Capri, 2023). It is
distinct from decoupling, which entails completely cutting off economic connections with a rival country.
We focus on de‐risking because countries like the US are currently adopting such strategies in critical
sectors with regard to China (Sullivan, 2023). While most discussion focuses on de‐risking in advanced
technologies, such as the US CHIPS and Science Act and efforts to rally allies to restrict exports of
semiconductor tools to China (Donnelly, 2023; Malkin & He, 2023), scant attention has been paid to critical
minerals (Kalantzakos, 2020; Zhou et al., 2023). De‐risking from China in this context poses unique
challenges due to the geographic concentration of critical minerals in specific countries, which may not be
US allies, and the high economic and environmental costs associated with their extraction and processing,
making diversification away from China challenging (Castillo & Purdy, 2022).

In this article, we address the underexplored questions of what de‐risking strategies the US has adopted
concerning critical minerals. Specifically, we investigate the US’ critical mineral strategies and policies from
the perspective of its hegemonic rivalry with China, focusing on its efforts to de‐risk and counterbalance
China’s dominance in critical minerals.

Our work builds on classic realist theories focused on the balance of power (Gilpin, 1981; Walt, 1985; Waltz,
1979), along with their recent applications to understand economic policies in a geopolitical context
(Donnelly, 2023; Malkin & He, 2023; Roberts et al., 2019). We argue that when an incumbent hegemon such
as the US perceives a threat to its position, it tends to take balancing actions, including domestic and
external strategies, to maintain or enhance its relative power. In the context of critical minerals, the US
perceives significant risks arising from dependence on China for these resources and the potential for China
to weaponize its dominance in this sector. Accordingly, we suggest that the US may adopt geoeconomic
strategies—using economic instruments for geopolitical gains (Blackwill & Harris, 2016)—to counter China’s
growing dominance in the critical mineral sector. Domestic balancing strategies include policies to boost
domestic production and strengthen foreign investment screening measures (ISMs). External balancing
strategies are based on diffusing these strategies through alliances (Roberts et al., 2019). We summarize
these arguments in a theoretical framework (Table 1), categorizing US strategies into four types aimed at
enhancing the strategic position of the US and its allies relative to China.

We use this theoretical framework to empirically address the following question:

Does the US use domestic policies and international alliances to de‐risk and counterbalance China’s
dominance in the critical mineral sector, and, if so, what specific strategies does it employ?

To understand the US’ external balancing strategy, we consider critical mineral strategies of its allies in the
Five Eyes (FVEY) intelligence alliance, including Australia, Canada, New Zealand, and the UK. We focus on
this alliance for three reasons. First, these countries are part of a common intelligence network, share similar
economic and political institutions, and have common roots in Anglo‐Saxon common law, all of which
facilitates policy collaboration and policy convergence (Hemmings & Varnish, 2021; Holzinger & Knill, 2005).
Second, these countries either possess potentially abundant critical mineral resources or serve as hosts for

Politics and Governance • 2024 • Volume 12 • Article 8186 2

global resource companies, thereby increasing their appeal as potential alliance partners for the US to build
an alternative critical mineral supply chain. Third, the FVEY countries have been identified by observers as a
coordinated group forming a “protectionist huddle” designed to limit foreign interference and investment
within their borders and support secure supplies of critical minerals (Kissin, 2023).

Analyzing documents pertaining to critical minerals in all FVEY countries, we find that the US has used
domestic policies and alliance‐building strategies to both promote the critical mineral sector in the US and
allied countries and weaken China’s access to resources and capabilities in critical mineral sectors.
Domestically, the US has implemented industrial policies to support domestic critical mineral development.
Additionally, it has linked the extractive sector to national security concerns in its domestic ISMs and trade
policies, thus weakening China’s access to critical minerals in the US. Internationally, the US has established
collaborative partnerships to promote trade and investment with Australia and Canada in critical mineral
supply chains. Our results suggest that a US ally’s shared concerns over dependence on China’s critical
mineral supplies, coupled with the strategic importance of critical mineral businesses for the country’s
competitive advantage, increase incentives to align with US policies in critical mineral sectors. Specifically,
Australia, Canada, and the UK have expressed concerns regarding reliance on China’s dominance in critical
minerals and have strengthened or adopted ISMs to enhance regulatory scrutiny over foreign investments,
particularly those involving foreign state‐owned enterprises (SOEs), in critical minerals in their respective
countries, showing convergence in ISMs with those of the US. In the case of New Zealand, despite
potentially hosting a variety of critical minerals (GNS, 2024), current mining operations in the country remain
relatively small, and it has yet to adopt stringent ISMs or form a partnership with the US on critical minerals.

Our study contributes to geoeconomics research by studying geoeconomic policies (as opposed to military
strategies) in the context of internal and external balancing. Building on current scholarship on
geoeconomics (Babić et al., 2022; Malkin & He, 2023; Weinhardt et al., 2022), we examine how states rely
on economic policies both domestically and internationally to balance a rising rival power. In particular, we
enhance understanding of the conditions leading to convergence in geoeconomic policies among the
hegemon and its allies. Furthermore, our study advances the current discussion on de‐risking (Farrell &
Newman, 2023) by expanding its focus beyond advanced technologies and employing a balance of power
perspective to unpack internal and external de‐risking strategies. We find that the de‐risking strategies in
critical minerals entail industrial, trade, and investment policies, highlighting the various roles of economic
policies in geopolitical competition within an understudied strategic sector.

In the following section, we present our theoretical framework, using the balance of power theory to
understand the US–China rivalry. Next, we study the existing power relations in the critical mineral sector,
focusing on the perceived threat posed by China’s control of the supply chains of specific critical minerals.
We then outline how the US can use both domestic and international strategies to strengthen its position in
the critical mineral sector. Finally, we present our analysis and findings, followed by our conclusion.

2. Theoretical Framework: Balance of Power in the US–China Rivalry

The liberal world order that emerged during the first phases of globalization is being challenged by shifting
geopolitical and geoeconomic developments manifested in the US–China rivalry. This rivalry intensifies as
China increases its economic and military power and is amplified by fundamental differences in economic,

Politics and Governance • 2024 • Volume 12 • Article 8186 3

political, and value systems (Allison, 2017; de Graaff et al., 2020). We see a rise in interventionist economic
policies from advanced industrialized states, led by the US, aimed at counterbalancing the expansion of
state capitalism championed by China (Alami et al., 2022; Babić et al., 2020), which includes attempts to
redefine global supply chains and create new trading partnerships (Kolben & Rioux, 2023; Linsi, 2022;
Malkin & He, 2023).

We use the balance of power theory to examine these issues in the context of critical minerals and hegemonic
rivalry. The theory suggests that a hegemonic power, when it perceives a threat to its position, will seek
to restore balance through domestic policies and external alliances (Gilpin, 1981; Walt, 1985; Waltz, 1979).
Internal balancing relies on domestic policies to improve a country’s position against rivals, while external
balancing entails collaboration with allies and partners through coordinated policies (Roberts et al., 2019;
Schweller, 2016).

As China’s power over a specific economic sector, such as critical minerals, expands and the US becomes
increasingly dependent on China in this sector, the perceived threat to the US also increases. This
vulnerability is captured in the theory of weaponized interdependence, which suggests that countries can
leverage their market power and bilateral dependencies to extract benefits from power imbalances when
they exert dominant control over specific nodes (Farrell & Newman, 2019). Farrell and Newman (2019)
illustrate how US centrality in financial nodes and networks allows it to weaponize its financial dominance,
but the idea can be extended to other sectors such as oil (Detomasi, 2022), and other countries such as
China that can use their centrality in different sectors to weaponize parts of the network where they
dominate, such as by restricting US access to critical mineral resources.

Thus, we anticipate that an incumbent power will take balancing measures against its rival to address the
perceived threats and mitigate the associated risks (Walt, 1985). Moreover, balancing strategies are
increasingly geoeconomic in nature, relying on economic policies to support national interests against
competing states (Ikenberry & Nexon, 2019; Malkin & He, 2023; Weinhardt et al., 2022). Domestic policies,
such as curbs on imports/exports, imposition of tariffs, and adoption of ISMs, are geoeconomic tools that
can be designed to restrict a country’s economic relations with a rival state in selected industries (Roberts
et al., 2019). Governments can supplement these measures with industrial policies promoting selected
industrial sectors. Industrial policies have been used as a response to disruptive technological changes and,
in the Western economies, to the rise of China (Aiginger & Rodrik, 2020). Roberts et al. (2019) note that
countries adopting these policies use national security rhetoric to justify growing interventionism in the
economy. External policies focus on alliance‐building to reshape economic relationships both between
oneself and one’s allies and between allies and the rival state (Roberts et al., 2019). In several cases, the US
has used external balancing by urging its alliances to ban Huawei from its 5G technology (Roberts et al.,
2019), while also employing geopolitically motivated friend‐shoring, linking supply chains among allied
nations (Vivoda, 2023).

Below, we apply the balance of power theory to explore how the hegemonic power, the US, responds to the
dominance of Chinese firms, largely SOEs, in critical mineral supply chains by employing internal and external
balancing strategies to pursue geoeconomic objectives.

Politics and Governance • 2024 • Volume 12 • Article 8186 4

3. Existing Power Relations in the Critical Mineral Sector: Dependence on China and
National Security Considerations of the US

Critical minerals, deemed “strategic resources,” are concentrated in specific geographical regions and prone
to resource competition driven by geopolitical and strategic objectives as states seek resource security and
economic security (Le Billon, 2004; Shiquan & Deyi, 2023). As the world embarks on the next industrial
revolution and a clean energy transition, critical minerals such as lithium, cobalt, and nickel that are essential
in the production of rechargeable batteries for electric vehicles and for renewable energy generation will
increasingly be in demand (Castillo & Purdy, 2022). Securing critical mineral supply chains is thus considered
a “non‐traditional national security” challenge, given their importance in supporting industrial systems
necessary for addressing climate change (Shiquan & Deyi, 2023). In this case, a concentrated control of
critical minerals in a single country considered a rival to the US is seen as a national security threat. Despite
the need for global collaboration in alleviating the global climate crisis, the rise of national security rhetoric
restricts collaboration in strategic sectors like critical minerals.

China is a dominant player in critical minerals. China dominates global supply chains for several critical minerals,
especially in the processing stage (Castillo & Purdy, 2022). Based on 2019 data, China produced around 60%
of the world’s lithium, over 60% of graphite, and processed over 90% of rare earth elements and around 50%
to 70% of lithium and cobalt (International Energy Agency, 2023). Furthermore, China increasingly acts as a
“one‐stop shop” to finance, produce, and refine critical minerals, especially in developing countries, through its
Belt and Road Initiative (Kalantzakos, 2020). This consolidation strengthens China’s ability to set global prices,
restrict access to resources, and use minerals as political leverage. Of particular concern is the potential for
weaponization, as evidenced by China’s past actions, such as restricting exports of rare earth elements during
a dispute with Japan in 2010 and threatening to limit critical mineral supplies to the US during the 2019
trade war (Bordoff & O’Sullivan, 2023). China’s decision in 2023 to tighten export restrictions on gallium and
germanium (Ministry of Commerce of the People’s Republic of China, 2023) further reinforced the fears about
China’s ability to control critical mineral supply chains (“China’s curb on metal exports,” 2023).

China’s ability to weaponize critical mineral supplies is bolstered by the predominant presence of SOEs
among major players in the country’s critical mineral sector. The SOEs play a key role in both supplying the
global critical mineral market and making substantial investments in critical mineral sectors in various
countries, including both advanced and developing economies. Notably, in 2019, nine Chinese companies
ranked among the top 40 global mining companies by market capitalization, with eight of them being SOEs
(PwC, 2020). Chinese SOEs are active participants in the mining sector, accounting for around 76% of
China’s total investment in mining worldwide from 2005 to 2023 (Figure 1). Furthermore, more than 75% of
Chinese acquisitions in the energy and metal sectors of developed countries from 2013 to 2021 were made
by SOEs. In addition to SOEs, the Chinese state may exert influence over private firms through financial
incentives or data sharing when firms are seen as strategically important, even in the absence of formal state
ownership (Milhaupt & Zheng, 2015; Shapiro & Globerman, 2012). These firms are commonly referred to as
state‐influenced enterprises. The extent of their presence in the extractive sectors is difficult to determine,
but their existence suggests an even stronger influence of the Chinese government in the sector.

China’s high degree of control over supply chains of certain critical minerals has been perceived as a threat
to US national security. Such concerns are highlighted by the Biden administration in its 100‐Day Review

Politics and Governance • 2024 • Volume 12 • Article 8186 5

 24%
private
SOE
76%

Figure 1. Chinese mining investment abroad private firms vs. SOEs, 2005–2023. Source: American Enterprise
Institute (2024).

report, which emphasizes the concentration of critical mineral supplies and processing in a single nation and
the dependence on potential adversaries, such as China, as primary risk factors (The White House, 2021a,
2022a). Studies suggest that the US relies on China for over 50% of its critical mineral imports (National
Mining Association, 2023). Considering the expanding capabilities of China in critical minerals and the US’
dependency on China in these sectors, the US may seek to prevent being vulnerable to weaponized networks
by adopting counterbalancing and de‐risking measures, as further discussed below.

4. Applying the Balance of Power Framework to US Policymaking in Critical Minerals

We examine the internal and external geoeconomic balancing strategies of the US to increase its relative
Strategic
goals
power in critical minerals. We develop a two‐by‐two matrix to characterize these strategies (Table 1).
Internal balancing strategies are focused on domestic policies, while external balancing relies on
alliance‐building to support common strategic objectives. The US can pursue internal balancing through
policies designed to strengthen the domestic production of critical minerals or weaken China’s capabilities

Table 1. A balance of power perspective to understand the US’ critical mineral strategies in an age of
geopolitical rivalry.
Strengthen the US' and alliance Weaken the rival country's
partners' capabilities (China's) capabilities

Internal balancing: Domestic Policies in the US to support the Restrictive FDI policies that limit
strategies development of domestic critical Chinese firms’ investments in
mineral sectors. critical mineral industries in
the US.

External balancing: Alliance‐building Alliance‐building to promote Promote the adoption of

trade and FDI in critical minerals restrictive FDI policies by alliance
between the US and partners to limit Chinese firms’
allied countries. critical mineral investments in
allied countries, similar to those in
the US, and coordinate policies
with alliance partners on
critical minerals.

Politics and Governance • 2024 • Volume 12 • Article 8186 6

by restricting its access to critical minerals in the US. The US can also engage in external balancing by either
building alliance infrastructure to promote trade and foreign direct investment (FDI) with alliance partners or
nudging alliance partners to adopt restrictive policies akin to those in the US, thus weakening China’s access
to critical minerals in the US allies.

As noted earlier, we assess the US’ external balancing strategy by analyzing its collaboration with its FVEY
alliance partners. These countries not only share an intelligence infrastructure and common institutions but
are also either rich in critical minerals or host some of the world’s largest mining companies. These
characteristics not only enhance their appeal as important partners for the US in building alternative supply
chains but also suggest that they may share US concerns over China’s dominance in critical mineral supply
chains and be interested in developing competitive mineral sectors themselves. These shared interests may
drive them to work with the US to counterbalance China’s dominance in this sector. Based on critical
mineral production for 2021, Canada, Australia, and the US ranked as the major critical mineral producers
among the FVEY countries (Figure 2), with Australia accounting for 48% of global lithium production and
Canada for 31% of global potash production (Figure 3). Despite Chinese investment in Australia declining
since 2013 and in Canada since 2019, these two countries remain among the top five destinations for
Chinese SOE acquisitions in the mining sectors from 2013 to 2023 (American Enterprise Institute, 2024),

New Zealand
UK
US
Australia
Canada
0 5000000 10000000 15000000 20000000 25000000

Aluminum Cobalt, mined Copper, mine Fluorspar Graphite

Lithium Nickel, mine Potash REM Tin, mine
Titanium, minerals Tungsteen Uranium Vanadium Zinc

Figure 2. Critical mineral production, 2021. Source: Minerals UK (2024).

Uranium
Titanium
Rare Earths
Potash
Nickel
Lithium
Copper
Cobalt
Aluminum
0 20 40 60 80 100

Australia Canada US New Zealand UK World

Figure 3. Share of critical mineral production (selected minerals) compared to global production, 2020. Source:
Canada Energy Regulator (2023).

Politics and Governance • 2024 • Volume 12 • Article 8186 7

suggesting that Australia and Canada may be concerned about national security implications of these
acquisitions. The UK, though not itself a resource‐based economy, lists some of the largest mining
companies in the world (BHP, Rio Tinto, and Glencore) on the London Stock Exchange. Although
New Zealand has the potential to develop its critical minerals resources, it will not be discussed in detail in
our analysis as it is currently in the process of developing its critical mineral list (New Zealand Government,
2024) and has not yet adopted policy measures to influence investment in the critical minerals sector.

5. Analysis and Findings

Our data includes four sets of relevant critical mineral policies and strategies adopted by the FVEY countries.
First, we use the International Energy Agency’s Critical Minerals Policy Tracker to identify 31 critical mineral
policies, which are identified as “strategic plans” under the agency’s policy classifications. Second, we gather
relevant trade and investment policies, along with the state’s industrial policies on critical minerals, from the
New Industrial Policy Observatory dataset (Global Trade Alert, 2024). Third, we gather critical mineral
agreements released by the FVEY countries (Table 2). Lastly, we collect ISMs released by the FVEY countries
with particular attention to critical mineral passages.

For our analysis, we begin by closely reviewing US documents to understand their declared intent and
determine whether their main goal was indeed to de‐risk and counterbalance China’s dominance, while also
identifying specific internal and external balancing strategies adopted by the US in critical minerals.
To achieve this, we review passages that contain keywords such as geopolitical concerns, national security,
China, SOEs, anti‐competitiveness, market intervention, and variations thereof. We use the same approach
to review documents from the FVEY allies of the US, identifying their goals and actions, particularly in
agreements with the US. We also compare the policies of FVEY countries and their evolution over time to
identify any policy alignment in specific domains (such as ISMs). Below, we present evidence for each of the
four US strategies classified in Table 1.

5.1. Internal Balancing: Domestic Strategies in the US to Strengthen Domestic Critical Mineral Industry

Under this strategy, the US adopts policies to strengthen the domestic critical mineral sector and reduce its
dependence on China. Increasingly concerned about its import reliance on China, the US has updated its
Strategic and Critical Mineral Stockpiling Act (The White House, 2021b), developed a set of subsidies to
support domestic climate‐related industries, including critical minerals, such as the Inflation Reduction Act
(The White House, 2022b, 2022c), and is considering other options, such as the Buy American Act, to
support the critical minerals industry (The White House, 2022d; US Department of Energy, 2021).
The Strategic and Critical Minerals Stockpile Act of 1979 and its updates over time have been important in
defining the US approach to critical minerals supply chain security (Bardi et al., 2016; Jordan et al., 1979;
Shiquan & Deyi, 2023).

Based on data from the New Industrial Policy Observatory dataset, the US has adopted 43 trade‐distorting
policies relevant to the critical mineral sector (Global Trade Alert, 2024). Comparing these US trade‐distorting
policies on critical minerals, including tariffs, tax breaks, financial support, and public procurement policies,
with those of other countries indicates that the US alone accounts for over a quarter (27%) of all such measures
adopted globally from 2020 to 2023 (Figure 4). The Inflation Reduction Act, for example, can be considered

Politics and Governance • 2024 • Volume 12 • Article 8186 8

 27%
US
Rest of the world
73%

Figure 4. Critical mineral trade distortive measures, January 2020–November 2023. Source: Global Trade
Alert (2024).

one of the US’ trade‐distorting strategies to safeguard its critical mineral supply chain. The US tends to adopt
more restrictive trade policies in critical minerals than other countries, with three times as many restrictive
policies as the second‐largest adopter, India. Additionally, New Industrial Policy Observatory data shows that
the US cites national security and geopolitical concerns as primary reasons for its tariff policies on critical
minerals. The evidence illustrates the hegemon’s desire to attain self‐sufficiency given limited domestic critical
mineral resources and high dependence on China.

5.2. Internal Balancing: Restrictive Policies to Weaken China’s Access to Critical Minerals in the US

Countries may weaken a rival’s capabilities by adopting restrictive investment policies to prevent the rival
from benefiting from critical mineral exploration and capability development in their territories. These
policies, known as ISMs, are designed to preempt investments deemed harmful to national security (Bauerle
Danzman & Meunier, 2021) and can impede a rival’s access to critical mineral resources and capabilities
within their borders. The US adopts a two‐pronged approach by designating critical minerals as strategic
assets and identifying SOEs and China as entities of special concern, thus subjecting Chinese investments in
critical minerals in the US to rigorous investment reviews. Specifically, since the adoption of the Foreign
Investment and National Security Act in 2007, the US has closely scrutinized FDI by SOEs and, with the
adoption of the Foreign Investment Risk Review Modernization Act in 2018, the US has heightened
regulatory oversight over investment from China in strategic sectors (Government of USA, 2007, 2018).
As of 2022, under Biden’s Executive Order 14083, the scope of the Committee on Foreign Investment in the
United States (CFIUS) reviews expanded to include critical minerals (Government of USA, 2022). These
restrictive ISMs adopted by the hegemonic power indicate not only a desire to protect domestic sectors but
also to restrict a rival country’s capacities by limiting its access to critical minerals projects in the US.

5.3. External Balancing: Alliance‐Building to Strengthen Critical Mineral Industry in the US and
Allied Countries

The US seeks to partner with allies to secure safe access to critical minerals or use alliance networks to
mobilize financial resources through trade and investment for the development of domestic critical minerals.
US Executive Order 14017 outlines the importance of collaborating with allied and partner countries to
secure critical minerals (Executive Office of the President of the US, 2021). To execute this order, the

Politics and Governance • 2024 • Volume 12 • Article 8186 9

Department of Energy seeks to partner with the US allies in developing critical mineral supply chains
(US Department of Energy, 2021). Notably, the US envisions establishing closer trade and investment
linkages with Australia and Canada to diversify its dependence on Chinese‐sourced critical minerals
(Government of USA, 2021).

The success of the alliance‐building strategy of the US, however, depends on whether alliance partners
share similar concerns and are willing to work with the US to develop such minilateral alliances. In the case
of critical minerals, Australia, Canada, and the UK emphasize their desire to reduce dependence on China as
it may undermine their economic and national security (Australian Government, 2022b, 2023; Government
of Canada, 2022c; Government of UK, 2022; Government of USA, 2021). Australia and Canada also brand
themselves as trusted and reliable suppliers, seeking to partner with allied or “like‐minded” partners to
develop their domestic resources by inviting allies to invest or sign trade deals (Australian Government,
2022b; Government of Canada, 2022c).

We find evidence in Table 2 that the US has established close collaborations with Australia and Canada to
enhance the security of the critical mineral supply chain by promoting two‐way trade and investment.
Through these agreements, the US is championing collaboration with allies to uphold trade laws to “address
adverse impacts of market‐distorting foreign trade conduct” (Government of USA, 2021). By promoting
two‐way investment and trade, the allies seek to develop a critical mineral supply chain outside of countries
that may use market distortion, such as export controls, therefore safeguarding the US’ access to minerals
essential for its economy.

We also find evidence in Table 2 that the US supports bilateral and multilateral collaboration on standard
setting, including ESG standards, based on international agreements with its allies. The US, as a hegemon,
has historically used trade policies to shield its domestic industries and support other countries to maintain
its global dominance (Hopewell, 2021; Kim, 2018). However, these trade frameworks have the potential to
differentiate private firms from SOEs, as some SOEs are perceived to have subpar ESG practices.
Recognizing the importance of standard‐setting, the US Department of Energy has taken a “leadership role
in supporting establishing industrial standards” on critical minerals in “coordination with international allies”
(US Department of Energy, 2021). Relatedly, the Canadian critical mineral strategy envisions “regulatory
harmonization” with the partner countries (Government of Canada, 2022c). Similarly, Australia’s critical
mineral strategy emphasizes the importance of ensuring consistency in regulations and standards (Australian
Government, 2022b). By creating a parallel supply chain infrastructure united by common standards, the US
and its allies may be able to counterbalance the dominant position held by Chinese SOEs in the critical
mineral sector.

While the US and the UK have not formalized a partnership to bolster critical mineral supplies, the UK
acknowledges that “[c]oncentrated control of resources creates a risk of economic statecraft” (Government
of UK, 2022) and that China may “weaponize” supply chains, reflecting on the 2010 incident when China
reduced the export quota on rare earth elements causing prices to increase rapidly, to extract political
leverage over them (Government of UK, 2022; UK House of Commons, 2023). In alignment with the US, the
UK has established collaborations with Australia and Canada to seek investment opportunities in those
countries and diversify their dependence on Chinese‐sourced critical minerals (Government of UK, 2022).
Thus, the US and the UK share common objectives of reducing reliance on China and mutual interests in

Politics and Governance • 2024 • Volume 12 • Article 8186 10

working with alliance partners to strengthen their own or allies’ critical resource capabilities.

Table 2. Agreements between the US and its FVEY partners related to critical minerals. Source: International
Energy Agency (2024).
Year initiated US partner Document name Focus Agreement type
2022 Australia Australia–United States Supply chain Partnership promoting
Net‐Zero Technology cooperation in critical trade, investment, and
Acceleration Partnership minerals; diversify commercial linkages on
sources of critical net‐zero technology
minerals with a focus on acceleration.
production, processing,
and manufacturing
capacity.

2023 Australia Australia–United States Establish the Framework to enhance

Climate, Critical Minerals Australia–United States bilateral cooperation on
and Clean Energy Taskforce on Critical climate and clean energy,
Transformation Compact Minerals; diversify including cooperation on
supply chains; secure, investment and standard
stable, sustainable, setting.
responsive, and
responsible global access
to critical minerals;
“development of a
shared energy industrial
base” for critical
minerals;
information‐sharing;
identify risks and market
distortions; collaboration
on critical minerals
through Quad.

2020 Canada Canada–US Joint Action Improving critical Collaboration; Joint

Plan on Critical Minerals mineral supply security Action Plan focusing on
Collaboration by increasing two‐way investment and
investment, information initiatives at the bilateral
sharing, joint initiatives, and multilateral levels.
and collaboration in
multilateral fora.

5.4. External Balancing: Alliance‐Building to Weaken China’s Capabilities in Critical Minerals

External balancing to weaken a rival’s power in critical mineral supply chains involves coordinated actions
among alliance partners to weaken a rival country’s capability to access the critical mineral sector.
The Foreign Investment Risk Review Modernization Act of 2018 mandates the CFIUS to establish a formal
process for sharing information with allies regarding specific technologies and disseminating best practices.
This Act also urges the US president to engage in international outreach to allies to promote processes like
CFIUS (Government of USA, 2018). Thus, since 2018, the US has intensified efforts to encourage its allies to
adopt ISMs similar to those in the US and provided incentives, such as CFIUS review exceptions for certain
investments from these allies (Li et al., 2024). In the areas of critical technologies, infrastructure, and data,

Politics and Governance • 2024 • Volume 12 • Article 8186 11

research demonstrates a substantial degree of policy convergence between the US and its FVEY allies, as
these allies have either introduced or strengthened their national security reviews on FDI in these sectors in
their countries since 2020. In 2022 and 2023, the US granted the FVEY partners exception status under
CFIUS, underscoring the alignment of their ISMs with those of the US (Li et al., 2024).

Critical minerals policies have become an area where national security concerns over inbound FDI in the US
and its allied countries are increasingly converging, and coordination in monitoring FDI patterns is increasing.
The US continues to encourage allies to update their ISMs following the US model, including in the areas of
critical supply chains (Government of USA, 2022). Australia’s Treasurer noted willingness to collaborate with
“key international partners” when monitoring FDI patterns in critical minerals (Watkins & Nowotny‐Walsh,
2022). We also find that Canada and Australia adopted stringent ISMs on FDI in critical minerals, similar to
those of the US. Canada has not only classified critical minerals as sensitive industries vital to national
security but also restricted SOE investment in this sector. Since the release of Canada’s 2022 guidance on
SOE investment in critical minerals, SOEs are allowed to invest in Canadian critical minerals only on an
“exceptional basis,” which acts as a strong signal discouraging foreign SOE investment in Canada’s critical
minerals (Government of Canada, 2022a, 2022b). Furthermore, the Canadian guidance also applies to
private firms influenced by the government from unfriendly countries, suggesting heightened regulatory
scrutiny over FDI from both SOEs and state‐influenced enterprises in Canadian critical minerals
(Government of Canada, 2022b).

Australia also places limits on investment by foreign SOEs by requiring all SOEs to notify the government about
making their investment as of 2019 (Australian Government, 2019), and, in 2022, has explicitly noted that
any FDI in critical minerals is a reviewable national security action (Australian Government, 2022a). Australia’s
Treasurer noted that Australia will be “more assertive” when assessing FDI in critical minerals and determining
if it is in the national interest of Australia to proceed with the investment (Watkins & Nowotny‐Walsh, 2022).

The UK has not placed formal restrictions specific to foreign SOE investments or FDI in critical minerals.
However, the UK passed the National Security and Investment Act in 2022, and, in 2023, it issued guidance
on notifying the government about FDI in 17 sensitive areas. This includes advanced materials
encompassing critical minerals (Government of UK, 2024). Moreover, the UK notes that China’s use of state
intervention and subsidies to expand domestic production and acquire assets abroad with the help of
SOEs is jeopardizing the supply security of critical minerals (Government of UK, 2023). Thus, the National
Security and Investment Act can increase regulatory scrutiny over FDI in critical minerals, particularly by
Chinese SOEs.

6. Conclusion

Our study uses the balance of power theory to understand different geoeconomic policies that the US
employs to de‐risk and counterbalance a rising rival state (China) in the context of critical minerals.
Specifically, we examine the US’ development of domestic policies and external alliances to improve
domestic and allied capabilities or weaken the rival’s capabilities in critical minerals. By analyzing critical
mineral strategies and FDI policies, we find that, domestically, the US has implemented industry policies to
boost domestic critical mineral production and restrictive FDI policies that increase regulatory scrutiny over
foreign investments in critical minerals, particularly by Chinese SOEs. Externally, the US has established

Politics and Governance • 2024 • Volume 12 • Article 8186 12

partnerships with Australia and Canada for critical mineral security and diversification. This highlights how
geopolitical competition drives the US to collaborate with like‐minded partners to reconfigure supply chains.

Our study also reveals that Canada, Australia, and the UK share US concerns on critical mineral dependence
on China and have ISMs that could be used to review investments by Chinese enterprises, especially by
SOEs, in critical mineral sectors. Notably, Canada has taken a stringent approach by explicitly restricting FDI
by SOEs and requesting three Chinese SOEs to divest from critical mineral projects. These results suggest
that a country’s concerns regarding dependence on China’s critical mineral companies and its aspirations to
develop a competitive critical mineral industry can affect its security and strategic considerations, which, in
turn, facilitates policy convergence with the US.

Our analysis contributes to the discussion of de‐risking in supply chains and alliance‐building in the
increasingly realism‐laden world order driven by the US–China rivalry. Our study focuses on the role of the
FVEY alliance partners when examining the US’ external balancing strategies in countering China’s
dominance in critical minerals. Future research could expand upon this by exploring the involvement of
other US allies, such as the EU and Japan, to examine the extent of partnerships and whether these
countries adopt similar ISMs as those in the US. Future studies should also examine if New Zealand follows
the lead of the US in securitizing the critical mineral sector. Additionally, while ISMs in our study are about
regulating inbound FDI, future studies could explore additional policy tools that the US might utilize, such as
regulatory measures enabling the US to regulate firm behavior overseas through extraterritorial control.
Evidence suggests that the US has disciplined non‐US companies investing abroad (Crippa, 2021), as seen in
the intervention in China’s proposed acquisition of Axitron in Germany (“China criticizes U.S.,” 2016). Future
research could explore the feasibility of using extraterritoriality to regulate international investment
activities of non‐US firms, particularly those headquartered or operating in the US.

Furthermore, it is worth investigating the effectiveness of the US’ domestic and international strategies in
diversifying the control of production and processing away from China. There is potential to develop and
process new resources in FVEY countries, especially in Canada and Australia, for certain minerals such as
cobalt and lithium. As of 2022, Canada accounted for 4% of global cobalt production, and Australia accounted
for 47% of the global lithium extraction and 9% of rare earth elements (International Energy Agency, 2023).
From 2023 to 2030, Australia is projected to account for 11% of global planned refining projects for lithium,
and Canada and Australia together are expected to represent 57% of planned refining projects for cobalt
(International Energy Agency, 2023).

These possibilities are promoted under the current critical mineral strategies, but it is too early to gauge their
success. Building an alternative supply chain is particularly challenging, given that mining is a cyclical
industry highly sensitive to price fluctuations related to demand and supply (Kiladze, 2024). Moreover, the
extraction and production of certain critical minerals (e.g., cobalt, nickel) are primarily in developing
economies in Africa, Latin America, and Southeast Asia (e.g., the Democratic Republic of Congo, Chile, and
Indonesia; International Energy Agency, 2023), many of which seek to preserve their ability to balance the
influence of external powers to maintain some degree of policy discretion. In these countries, Chinese firms
may have advantages in investing, given their extensive knowledge and experience in conducting business in
developing countries, as well as the potential government support through the Belt and Road Initiative
(Kalantzakos, 2020). Future research should consider these complexities when measuring the impact of

Politics and Governance • 2024 • Volume 12 • Article 8186 13

critical mineral strategies and ISMs on the effectiveness of developing an alternative FVEY‐led supply chain
for critical minerals.

Acknowledgments
We would like to express our sincere gratitude to the editors of this thematic issue for their guidance and
support; to the anonymous reviewers for constructive feedback; and to Amber Chang for research assistance.

Funding
This article is in part supported by the Canada Research Chair program.

Conflict of Interests
The authors declare no conflict of interests.

Data Availability
Data of the American Enterprise Institute is available here: https://www.aei.org/china‐global‐
investment‐tracker
Data of the Global Trade Alert is available here: https://www.globaltradealert.org/data_extraction
Data of the International Energy Agency regarding the Critical Minerals Policy Tracker is available here:
https://www.iea.org/policies/?country%5b0%5d=United%20States&type%5b0%5d=International%20
collaboration&type%5b1%5d=Minerals%20security%20mechanism&topic%5b0%5d=Critical%20Minerals
Data regarding the critical minerals production can be checked at the World Mineral Statistics Data:
https://www2.bgs.ac.uk/mineralsuk/statistics/wms.cfc?method=searchWMS
Data regarding the critical mineral production shares by countries is available on the Canada Energy Regulator
website: https://www.cer‐rec.gc.ca/en/data‐analysis/energy‐markets/market‐snapshots/2023/market‐
snapshot‐critical‐minerals‐key‐global‐energy‐transition.html

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About the Authors

Anastasia Ufimtseva (PhD, Wilfrid Laurier University) is a program manager of the

International Trade and Investment research pillar at the Asia Pacific Foundation of Canada,
an adjunct professor at the Beedie School of Business, and a faculty fellow at the Jack Austin
Centre for Asia Pacific Business Studies. Her research examines government‐business
relations, foreign direct investment, trade, natural resource governance, and state‐owned
enterprises.

Politics and Governance • 2024 • Volume 12 • Article 8186 19

 Jing Li (PhD, Indiana University) is a professor of international business at the Beedie School
of Business, Simon Fraser University, where she holds the Canada Research Chair in Global
Investment Strategy and serves as the director of the Jack Austin Centre for Asia Pacific
Business Studies. Jing has researched international investment strategies of firms, emerging
markets, state‐owned enterprises, and the intersection of geopolitics, public policies, and
firm strategies, and her work has been published in leading management and international
business journals.

Daniel M. Shapiro (PhD, Cornell) is professor of global business strategy (emeritus) at the
Beedie School of Business, Simon Fraser University. He has worked for over 40 years
as an educator, researcher, and academic administrator. He has published five books
and monographs and some 100 scholarly articles on broad themes of international
and comparative business and public policy (foreign investment policy, mergers, and
competition law).

Politics and Governance • 2024 • Volume 12 • Article 8186 20

Politics and Governance
2024 • Volume 12 • Article 8285
https://doi.org/10.17645/pag.8285

ARTICLE Open Access Journal

The EU De‐Risking of Energy Dependencies: Towards a New Clean

Energy Geopolitical Order?
Tomasz Jerzyniak 1,2
1
Faculty of Arts and Social Sciences (FASoS), Maastricht University, The Netherlands
2
European Commission, Belgium

Correspondence: Tomasz Jerzyniak ([email protected])

Submitted: 19 February 2024 Accepted: 2 July 2024 Published: 5 September 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
The mounting geopolitical tensions and rivalries between the world’s major economies transform the goals
and instruments of domestic and external policies. Industrial strategies of leading global powers call for
technological decoupling, strategic autonomy, and the de‐risking of dependencies in critical value chains.
Economic interdependencies become a liability and de‐globalisation tendencies come to the fore.
The energy sector is not exempted from these trends, leading even to the weaponisation of energy in some
cases. In that vein, this article explores the character and directions of EU international energy engagement
through the geoeconomic lens. Taking inspiration from literature on energy security and the geopolitics of
energy transition, the article theorises the concept of de‐risking in energy to investigate how the EU is
positioning itself as a power while ensuring security and competitiveness. Looking at three illustrative
examples of the energy transition—supply of natural gas, access to energy‐critical minerals, and international
hydrogen markets—the article shows that EU de‐risking means not only diversifying suppliers but, most
notably, constructing new economic, sustainable, and potentially long‐lasting international relations. As a
result, despite the deep geopoliticisation of energy and the new global “disorder,” the EU’s de‐risking has the
potential to reshape international relations by forging new partnerships or reconfiguring existing ones, thus
establishing a new economic order driven by clean energy while offering new economic opportunities to
create local value chains and decarbonise economies in third countries.

Keywords
clean energy transition; dependence; de‐risking; EU energy policy; geoeconomics; geopolitics; international
cooperation

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

At the turn of the 2020s, the global economic order disintegrated and became unwieldy (Babić et al., 2022).
China’s growing assertiveness has been challenging the US and EU global technological and industrial
leaderships (Herranz‐Surrallés et al., 2024; Lavery & Schmid, 2021; Roberts et al., 2019), and the Covid crisis
exposed the vulnerabilities of highly intertwined global supply chains (Eckert, 2021; Goldthau & Hughes,
2020). In parallel, the climate emergency has worsened, with 2023 becoming the hottest year on record.
Most recently, Russia’s aggression on Ukraine obliged the Western countries to cut off trade and financial
relations with Russia to a bare minimum by imposing several packages of sanctions. As a result of this global
polycrisis (Lawrence et al., 2024), political attention has been shifting to the securitisation of economic
policies and weaponisation of strategic trade and investment networks (Farrell & Newman, 2019) while
advocating for relative rather than absolute gains and propelling deglobalisation forces (Kornprobst & Paul,
2021). In this new geoeconomic order (Roberts et al., 2019), economic interdependencies once believed to
bring peace and stability are perceived as vulnerabilities and elicit the leading global powers to call for
technological decoupling, strategic autonomy, and scaling‐down of dependencies in critical value chains.

Confronted with these strategic shifts, the von der Leyen “geopolitical Commission” (Haroche, 2024 von der
Leyen, 2019) launched the European Green Deal as Europe’s new growth strategy towards climate
neutrality by 2050, followed by several specific measures to boost EU competitiveness in innovative clean
technologies and in setting global industrial standards. In parallel, the EU embraced an increasingly
geoeconomic stance by adapting its goals and policies (Herranz‐Surrallés et al., 2024) through a mix of
offensive and defensive instruments that blend trade and investment with security concerns such as the
Foreign Direct Investment Screening mechanism (Bauerle‐Danzmann & Meunier, 2024; Weinhardt et al.,
2022). The adoption of the “open strategic autonomy” model for its trade and investment policies (European
Commission, 2021) encapsulates a political paradox whereby the EU attempts to strike a balance between
remaining open while becoming assertive to strengthen its resilience and reduce its strategic dependencies
(Juncos & Vanhoonacker, 2024; Lavery et al., 2022). This balancing act obliges the EU to manage its
interdependencies and economic relations to achieve more independence and de‐risk its relations.

In 2022, the EU leaders agreed to take further steps to build European sovereignty, reduce dependencies,
and design a new growth and investment model (European Council, 2022), calling for a de‐risking of
economic relations by strengthening the EU’s competitiveness, developing new defensive measures, and
seeking alignment with other international partners (von der Leyen, 2023). These policy developments raise
the question of what this de‐risking means for EU external engagement. Does the EU response indeed entail
scaling down its engagement and turning inwards to reduce dependencies? Or is EU external engagement
transforming into new forms of partnerships and collaboration patterns?

This article answers these questions by looking at de‐risking in the EU energy sector, which is characterised
by a decades‐long dependency on imports of fossil fuels. Moreover, the advancing clean energy transition
brings new energy vulnerabilities to the fore by exposing the EU’s acute reliance on imported critical
minerals, indispensable for the energy transition, and highlighting an aggressively growing competitive
pressure in green energy technologies. Recent literature has concluded that the energy transition will
considerably alter relations between states. However, it has not yet explored the impact of these
vulnerabilities and the de‐risking approaches in energy for the character and direction of EU external energy

Politics and Governance • 2024 • Volume 12 • Article 8285 2

engagement. This article attempts to address this gap in two steps. Firstly, the article conceptualises the
de‐risking strategy and identifies that it consists of internal and external components. In the second step,
the article explores what de‐risking means for the character of the EU’s external engagement. This will
be done by looking at three energy dimensions of imperative relevance in the geopolitics of energy
transition: ensuring supplies of natural gas, seeking access to energy‐critical minerals, and developing global
hydrogen markets.

The article shows that, despite deep geopoliticisation in energy, in the sense of decoupling from Russia and
preventing new dependencies in green energy technologies and critical raw minerals (Herranz‐Surrallés
et al., 2024), the EU is not turning fully inwards, simply because it can’t, as the EU lacks the necessary
resources for its clean energy transition. While the EU decouples decisively from Russian energy and aims at
curtailing its exposure to Chinese energy‐critical minerals, it lays at the same time the grounds for new
international energy partnerships, with new countries and on new terms that altogether create
opportunities for long‐lasting engagement and a new energy order. The re‐assessment of EU external
energy engagement through the geopolitical lens outlines the potential for the emergence of a new
economic order driven by the paradigm of security, the urgent need to decarbonise the global economy, and
the complementarity of external geoeconomic preferences.

These conclusions offer a fresh visualisation of the leverage that clean energy transition policies may have on
international relations between the EU and other countries, which is equally important for scholars as well
as for policymakers. Firstly, the results contribute to the understanding of de‐risking as a concept that has
the potential to constructively shape the new economic order. Secondly, the article emphasises that the EU
is not operating in a political vacuum, and relations with third countries remain imperative for energy security
and energy transition. As the world continues on an unwieldy, belligerent path, fresh knowledge about and
understanding of strategies on how to rebalance external relations seem vital and timely.

The remainder of the article is structured as follows. Section 2 reviews the literature on EU external energy
engagement and links it to the literature on the ongoing clean energy transition and geopolitics. Section 3
develops a conceptualisation of de‐risking and presents the analytical approach. Section 4 constitutes the
empirical core of the article, and the last section concludes, summarising the findings and discussing the
wider implications.

2. A Geoeconomic Turn and the Geopolitics of Energy

For decades, the EU energy sector has been particularly affected by geopolitical shifts due to the scarcity of
endogenous energy resources, notably oil and gas, and a heavy reliance on one dominant supplier.
The academic community has been widely occupied with EU energy dependency and its susceptibility to
manipulation and weaponisation, notably by Russia (LaBelle, 2023; Siddi, 2018; Wigell & Vihma, 2016).
While, domestically, the policy focus was on reinforcing the interconnectivity and resilience of its internal
energy market, externally, the EU was seeking to achieve its security goals predominantly through the
promotion of its market‐liberal rules and institutions, striking a balance between its inherently liberal identity
and greater assertiveness (Goldthau & Sitter, 2015; Herranz‐Surrallés, 2016). Even after the Crimea
annexation in 2014, the EU was trying to handle Russia’s dominant position as a gas supplier by using the
rules of its internal energy market (Batzella, 2022; de Jong & Van de Graaf, 2021; Goldthau & Sitter, 2020).

Politics and Governance • 2024 • Volume 12 • Article 8285 3

Nevertheless, with the growing geopoliticisation of economic and trade relations, the EU’s external energy
engagement also grew progressively more strategic and geopolitical (Bocse, 2019; Prontera, 2020; Siddi &
Kustova, 2021; Siddi & Prandin, 2023), culminating in a shift to deep geopoliticisation in the wake of the
Russian aggression on Ukraine (Jerzyniak & Herranz‐Surrallés, 2024).

In parallel, the ongoing clean energy transition started reshaping international energy relations and the roles
of different countries (Global Commission on the Geopolitics of Energy Transformation, 2019), but the
respective research comes with unclear and even contradictory results on the exact implications. On the
one hand, the clean energy transition may attenuate the geopolitics of physical resources and their
transportation routes because of the omnipresence of renewable energy, contrary to geographically
concentrated fossil fuels, thus improving the geopolitical standing of energy importers (Giuli & Oberthür,
2023; Overland et al., 2022; Scholten et al., 2020). For example, some developing countries with abundant
energy‐critical minerals and/or geographical conditions for the production of renewable hydrogen could join
the global energy markets if they were able to develop the necessary infrastructure supported by a
favourable economic and political environment (Eicke & De Blasio, 2022); in the case of hydrogen, they
could even capture 70% of the global export revenues in 2050 (Shirizadeh et al., 2023).

On the other hand, international energy trade might not disappear but instead create new interdependencies
related to the control of clean technologies (Scholten et al., 2020), hydrogen trade (Van de Graaf et al., 2020),
and access to energy‐critical minerals (Apergi et al., 2023; Vezzoni, 2023). Moreover, scholars also observe
that new and planned hydrogen and critical minerals projects between the so‐called developed Global North
and the developing Global South pave the way for green extractivism (Goldthau & Youngs, 2023; Hickel et al.,
2022), as they drain the Global South of its resources and profits without contributing to local economies and
without paying attention to human rights (Kalt et al., 2023; Lindner, 2023).

Certainly, the EU will not be spared from the geopolitical tectonics of the clean energy transition. Despite
decades‐long measures to build the EU internal market, the EU imported 90% of its natural gas, of which
more than 45% came from Russia when the country started waging its war against Ukraine in 2022
(European Commission, 2022). The situation with energy‐critical minerals seems even more dismal as the EU
almost entirely relies on their imports with more than 90% of these imports coming from only one country,
China (European Commission, 2023b). This is because more than 75% of the global production of lithium,
cobalt, and rare earth elements is produced by only three countries, while their processing is even more
concentrated, with China accounting for 35% of processing operations for nickel, 50–70% for lithium and
cobalt, and nearly 90% for rare earth elements (International Energy Agency, 2023). In the “Net Zero
Emissions by 2050 Scenario” of the International Energy Agency, the demand for critical minerals will
further grow three and a half times by 2030. For some minerals, like lithium, the global demand is expected
to grow by more than 40 times between 2020 and 2030. Regarding hydrogen, the global market is in fact in
its nascency with the EU common rules for hydrogen agreed only at the end of 2023 (Council of the EU,
2023b). Nevertheless, the EU has admitted that for the creation of a viable hydrogen economy, imports will
be necessary. While the European Hydrogen Strategy has set out the objective to produce 10 million tonnes
of renewable hydrogen domestically, the REPowerEU plan (European Commission, 2022) complemented
this goal by another 10 million tonnes to be imported by 2030. Production of clean hydrogen is still
negligible, but estimates show that, globally, clean hydrogen would meet up to 12% of final energy
consumption by 2050 (International Renewable Energy Agency, 2022). While the existing literature has

Politics and Governance • 2024 • Volume 12 • Article 8285 4

grasped the various possible trends in the geopolitics of energy transition, it has not yet linked them with
the implications for the EU’s external energy engagement in the context of the de‐risking of energy
dependencies and the European Green Deal and its complementary Green Deal Industrial Plan. Some
emerging research explores new partnerships, described as friend‐shoring, between countries that attempt
to jointly overcome their dependencies (Vivoda & Matthews, 2023), like in the case of the US‐led Minerals
Security Partnership, or that even try to maintain cooperative relations with their competitors, as in the case
between the EU and China (Kalantzakos et al., 2023). Similarly, some initial evidence shows new forms of
international and multilateral collaborations, which attempt to support structural change in shared value
chains in energy transition through regulatory, technology, trade, and policy collaboration (Aisbett et al.,
2023). Nevertheless, the shift to assertive, or even aggressive, international competition in energy requires a
balancing of dependencies in an ever more sophisticated manner. This article will close this gap and explore
these implications for the character and directions of the EU’s international engagement in energy.

3. Conceptualising De‐Risking

There is no academic definition or metric of the concept of de‐risking. In the political discourse, the
European Commission, in its European Economic Security Strategy, refers to an “ability to make ourselves
more resilient and reduce the risks arising from economic linkages that in past decades we viewed as
benign,” pointing to actions “diversifying economic ties to reduce harmful dependencies and increasing local
production” (European Commission & High Representative, 2023).

The academic debates related to de‐risking can be best found in the world of finance, taking inspiration from
an adage whereby one should not put all of their eggs in one basket. This idea was excellently theorised by
the economist and Nobel Prize laureate Henry Markowitz in his 1952 seminal paper “Portfolio Selection”
(Markowitz, 1952). Accordingly, to avoid the risks of over‐dependence, the dominance of one or only a few
ventures in an investment portfolio should be diluted through diversification by adding more assets with
uncorrelated exposure to risks. In finance, such assets would represent, for example, different investment
classes (stocks, bonds, commodities, etc.), different industrial sectors, or different countries. As a result, a
potential loss of a dominant asset would be reduced and compensated by potential gains of other assets.
It should be noted that, despite its popularity in modern finance, the theory addresses only idiosyncratic
risks (i.e., associated with individual assets) and fails to mitigate the aggregate or systemic risk that can
potentially affect an entire sector at once (Lukomnik & Hawley, 2021).

Following this logic, de‐risking in energy would mean managing dependence to avoid overreliance on one or
very few dominant energy sources (suppliers) by increasing the number of alternative, uncorrelated energy
sources. Managing such dependence can be achieved by internal (domestic) and external measures
(Högselius, 2018). Internal measures reduce reliance on dominant foreign sources by developing domestic
energy production and/or simply by saving energy. External measures reduce this reliance by adding new or
increasing the share of other existing foreign sources. On the one hand, such “balancing dependence” (Choer
Moraes & Wigell, 2022) means adopting state policies that seek to reduce economic dependencies on
foreign actors, whether public or private, by promoting economic autonomy. On the other hand, it means
forging new partnerships or strengthening existing relations with minor partners, and possibly
complementing them with alliances with other dependent countries to strengthen its own negotiating
position and discriminate against non‐members (Meunier & Nicolaidis, 2019). This conceptualisation

Politics and Governance • 2024 • Volume 12 • Article 8285 5

excludes the most radical measures, such as the use of armed forces in exporting countries, which do not
comply with the EU identity as a peace project. Managing de‐risking through internal and external measures
also corresponds with finding a balance between becoming autonomous and remaining open. Linking the
energy portfolio approach to the trade and investment debates, de‐risking through internal measures would
support the claims of de‐globalisation (Kornprobst & Paul, 2021) and the EU’s quest for “strategic autonomy”
(Lavery et al., 2022; Schmitz & Seidl, 2023), while de‐risking through external measures would mean
reaching out to international partners, thus being “open.”

Nevertheless, the capability of internal measures is often limited due to the scarcity of domestic relevant
resources. Consequently, the risk assessment of external measures must be reckoned more profoundly. Such
risks can be analysed from various perspectives: economic, engineering, geopolitical, environmental, or
geological. Because there is no single quantitative indicator, the measurement of energy risks is a highly
complex and context‐dependent task, spanning several interrelated technical, economic, and political
dimensions (Siksnelyte‐Butkiene et al., 2024). To add to this complexity, different risks can be present at
different stages of the energy supply chain: firstly, risks related to the availability of energy resources to
satisfy demand; secondly, risks related to the import of energy and the reliability of suppliers and supply
routes; thirdly, risks related to the reliability and resilience of domestic markets and infrastructure; and,
finally, risks related to economic vulnerability to price movements, and the cost of supply interruptions
(Månsson et al., 2014). In this context, while domestic markets and infrastructure resources play a key role in
de‐risking internally, risks related to import routes and the reliability of suppliers stand out in the external
dimension. In sum, the analytical framework of this article will assess the EU’s de‐risking efforts through
three elements: the actual geographical diversification of energy routes and sources, the alignment of the
partners with the EU values (a “quality” of the partner), and the potential scope of the partnership.

Imports are exposed to disruptions if they pass through strategic passageways (e.g., maritime routes) that could
become chokepoints due to geopolitical factors or accidents. Therefore, geographical diversification of new
suppliers has the potential to reduce risks of energy transportation and is considered the first crucial indicator
in the de‐risking assessment. The reliability of energy partners is more complex and relates to a couple of
elements. To produce energy resources, countries need to possess the capacity to develop the necessary
infrastructure. Such capacity depends largely on a wider political, administrative, and economic context in a
supplier country (Eicke & De Blasio, 2022). In addition, politically unstable countries might deliberately cut off
supplies or even weaponise energy resources as was done repeatedly in recent times by Russia. This leads us
to the identification of two other de‐risking indicators: the quality of the partnerships and their attractiveness
for the third countries.

In fact, the EU’s strategy for external energy engagement (European Commission & High Representative,
2022) stresses the need to “conclude partnerships with reliable partner countries to ensure open and
undistorted trade and investment relations” and that “new standards and governance arrangements will be
required to build more reliable and mutually beneficial partnerships through a rules‐based approach.” This
closely reflects the EU’s identity and objectives specified in the primary EU law whereby EU international
actions must be driven by EU values and principles, as specified in Article 21 of the Treaty on the European
Union (European Union, 2010). The alignment can be well measured by adherence of the relevant countries
to democratic and transparency systems as assessed by the Economist’s Democracy Index (Economist
Intelligence Unit, 2024), based on the assumption that there is a negative correlation between the

Politics and Governance • 2024 • Volume 12 • Article 8285 6

functioning of the government on the one hand and the likelihood to disrupt energy trade or even
weaponise energy on the other. High scores on the Democracy Index also assume a higher capacity to
develop the necessary infrastructure in third countries, hence ensuring higher reliability of the partnerships.
Summing up, de‐risking entails not only managing dependence by replacing one source with another but
also dealing with the diversity and quality of energy sources (Chalvatzis & Ioannidis, 2017). Finally, effective
de‐risking hinges upon the implementation of the partnerships that also depend on the motivation of the
partners to exploit the actual complementarities of preferences between the partners and the EU (Jerzyniak
& Herranz‐Surrallés, 2024). There are some indications that while the urgent need for clean energy is
recognised in third countries, they might not perceive the urgency to export energy resources to the EU
(Brauner et al., 2023).

Table 1 summarises the conceptual framework. In the first step, it demonstrates the two dimensions of
de‐risking: domestic and external. Analytically, in the first step, the article unpacks de‐risking by mapping
the presence of internal measures such as policy actions to increase EU‐internal production of energy,
domestic sourcing of relevant critical minerals, and energy‐saving measures. In the next step, which
constitutes the core of the analytical novelty, the article looks at external actions to increase the share of
new or existing minor suppliers. In this regard, three areas stand out: the geographical diversity of the
energy import portfolio (to avoid the occurrence of correlated potential political and security risks); the
potential quality of the new energy portfolio; and, lastly, the character of the partnership, i.e., whether
the partnerships have the potential to go beyond mere access to energy and focus on cooperation along the
entire value chains. Noteworthy, due to the early stage of all these measures, is that the article’s analytical
emphasis is placed on strategies rather than the actual results of these strategies.

As regards the empirical data, this article analyses the EU’s de‐risking strategies based on two groups of
documents. The first group includes the relevant Commission’s communications and conclusions of the

Table 1. De‐risking strategies in energy.

Domestic (autonomy) dimension External (open) dimension
Objectives of the Reducing the share of the dominant Reducing the share of the dominant
de‐risking strategy supplier by domestic substitution, i.e., supplier by external substitution, i.e.,
domestic production of energy and seeking new sources and/or increasing the
relevant energy resources; share of existing minor suppliers;
Reducing the share of the dominant Complemented by forging new alliances
supplier thanks to energy‐saving. with other dependent countries to
strengthen its own negotiating position
and discriminate against non‐members.

Indicators Strategies and policies to increase the Is the EU energy portfolio becoming
share of EU‐internal production of energy geographically diversified and spreading
or relevant energy resources; more globally?
Strategies and policies to save energy, Alignment of a partner: Is EU international
including recycling. action aligned with EU values?
Cooperation: limited to imports of raw
resources? Integrating the partners in the
value chain? Partnership based on
complementarities?

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European Council adopted between 2020 and 2023, thus after the launch of the European Green Deal
strategy. These documents look at what exactly the EU has done to reduce the share of a dominant supplier,
notably whether there are clear strategies developed and targets set. This step will help primarily investigate
the domestic dimension of de‐risking. Secondly, and specifically for the external component of de‐risking,
the article analyses political agreements signed by the European Commission and European leaders.
The core of the analysis is non‐binding, bilateral (with one exception) memoranda of understanding (MoUs)
on energy, signed on behalf of the EU. These MoUs represent a political intention to cooperate on one or
more of the three geopolitical dimensions. At this point, a word of caution is appropriate: Although such
documents may carry a significant political weight, they are different from legally binding trade agreements,
and they fall under the policy‐making and coordinating functions of the Council. Nevertheless, they send
the often‐necessary signals for business, financial, and non‐governmental stakeholders. This group of
documents also includes other MoUs with a significant energy section and political joint statements signed
by the European Commission. In addition, the article takes into account Green Alliances and Green
Partnerships, concluded under the European Green Deal, with energy being a constituent pillar of these
instruments. Lastly, and for the sake of completeness of the EU external activity, a few agreements under
the framework of Team Europe are included, whenever they deal specifically with energy. These analytical
steps aim to identify whether the energy portfolio has become geographically diversified and spread more
globally, compared to the initial situation. Further, the quality of the partnerships is explored, i.e., whether
the new cooperation agreements are concluded with partners that share the EU values. Lastly, the analysis
looks at what the scope of the partnership is, i.e., whether the cooperation is limited to imports of relevant
resources or it also aims at building more lasting, mutually beneficial linkages. In the investigated period, the
article identifies a total of 39 relevant political documents as summarised in Table 2.

Table 2. Overview of the analysed agreements.

Country Year of Type of Specific General energy General political Alignment of
signature document* energy area agreement, agreement, the partner
agreement** including including (Democracy
specific energy specific energy Index)***
area** area**
Algeria 2022 JS NG, H2 authoritarian
Algeria 2023 JS NG, H2
Argentina 2023 MoU CM flawed
Argentina 2023 MoU H2
Australia 2022 JS H2, CM full
Australia MoU a CM
Azerbaijan 2022 MoU NG authoritarian
Brazil 2023 JS H2, CM flawed
Canada 2021 MoU CM full
Canada 2023 GA H2, CM
Chile 2023 JS H2 flawed
Chile 2023 CM
Democratic 2023 CM authoritarian
Republic of
Congo

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Table 2. (Cont.) Overview of the analysed agreements.
Country Year of Type of Specific General energy General political Alignment of
signature document* energy area agreement, agreement, the partner
agreement** including including (Democracy
specific energy specific energy Index)***
area** area**
Egypt 2022 JS H2 authoritarian
Egypt 2022 JS H2
Egypt 2022 MoU H2
Greenland 2023 CM full
Israel/Egypt 2022 MoU NG full/authoritarian
Japan 2021 GA H2 full
Japan 2022 MoC H2
Kazakhstan 2022 MoU CM H2 authoritarian
Kenya 2023 JS H2 hybrid
Korea 2023 GP H2 full
Mauritania 2023 JS H2 hybrid
Morocco 2022 GP H2 hybrid
Namibia 2022 MoU CM H2 flawed
Norway 2022 JS H2 NG full
Norway 2022 JS NG
Norway 2023 GA H2, CM
Norway 2024 MoU CM
Rwanda 2024 MoU CM authoritarian
Tunisia 2023 MoU H2 hybrid
Ukraine 2021 MoU CM Hybrid
Ukraine 2023 MoU H2
Uruguay 2023 MoU H2 full
United States 2022 JS NG flawed
Uzbekistan 2024 MoU CM authoritarian
Zambia 2023 MoU CM hybrid
Notes: * type of document: Memorandum of Understanding, including announced (MoU, MoU a), Memorandum of
Cooperation (MoC), Joint Statement on energy (JS), Green Alliance (GA), Green Partnership (GP); ** specific energy area:
critical minerals (CM), hydrogen (H2), natural gas/liquefied natural gas (NG); *** the Economist’s Democracy Index: full
democracy (full), flawed democracy (flawed), hybrid regime (hybrid), authoritarian regime (authoritarian).

The framework is applied to the three most geopolitical dimensions of energy transition as identified in the
literature review: securing natural gas supplies, ensuring access to energy‐critical raw minerals, and creating
new hydrogen markets. The article does not look at cross‐sectoral risks. For example, while the de‐risking of
the gas sector is also possible by replacing it to some extent with renewable hydrogen, the three dimensions
of the energy sector are analysed separately. The overall analysis benefits from first‐hand and participatory,
though unstructured, observation of the policy process. Such a method allowed quicker identification of the
relevant documents and provided important input to grasp the political nuances and insider understanding of
the analysed agreements.

Politics and Governance • 2024 • Volume 12 • Article 8285 9

4. Exploring EU De‐Risking in Energy

4.1. Domestic De‐Risking Measures and Their Limitations

In all three geopolitical energy dimensions, the EU adopted strategies and policies to de‐risk domestically.
Regarding natural gas, it has been only with the Russian aggression on Ukraine that the EU decided to end its
dependence on energy from Russia, well before 2030 (European Commission, 2022). Two of the three pillars
of the REPowerEU plan emphasised domestic actions: firstly, through “a massive speed‐up and scale‐up in
renewable energy” (Jerzyniak & Herranz‐Surrallés, 2024) in all sectors, accompanied by a binding target at EU
level to reach at least 42.5% of renewables by 2030, with an aspiration for 45% of renewables in overall energy
consumption; and, secondly, through substantial savings by setting a legal target for at least 15% reduction
of gas consumption, accompanied by a legally‐binding EU target to reduce the final energy consumption by
11.7% by 2030. Both targets were accompanied by additional measures to improve the framework conditions.

The high dependence on imported energy‐critical minerals was first addressed in 2008 with the adoption of
the Raw Materials Initiative and followed by regular publication of a list of critical raw materials and other
supportive actions. Nevertheless, it has only been in the last few years—when clean energy gathered
speed—that access to critical minerals became one of the most urgent priorities for the EU. The 2020
Critical Raw Materials Action Plan (European Commission, 2020b) proposed 10 non‐legislative actions.
However, they were deemed insufficient to mitigate the risks for supply chains, and, in 2023, the
Commission put forward, for the first time, a legislative proposal for regulation establishing a framework
for ensuring a secure and sustainable supply of critical raw materials (European Commission, 2023b).
The proposal aimed to strengthen the EU’s capacities throughout the value chain and set four quantitative
goals by 2030 to annually source 10% of the strategic raw materials through domestic mining and extraction,
40% through domestic processing, and 15% through recycling—with this goal raised to 25%, as agreed upon
by the Council and the European Parliament (Council of the EU, 2023a)—and lastly, no single third country
should supply more than 65% of the EU’s consumption of each strategic raw material. Additionally, the
proposal improves the overall framework conditions for the achievement of the goals, establishes a
European Critical Raw Materials Board, and institutionalises international strategic partnerships.

The EU’s domestic approach to a secure and diversified hydrogen economy relies on three pillars. Firstly, the
EU attempts to trigger its own production to install 6 GW of electrolysers’ capacity in 2024 and 40 GW in
2030 (European Commission, 2020a). To that end, a comprehensive legislative hydrogen and gas market
decarbonisation package has been adopted (Council of the EU, 2023b). Secondly, dedicated financial
mechanisms have been created, most notably the European Hydrogen Bank (European Commission, 2023a),
with a first auction amounting to EUR 800 million from EU emissions revenues channelled through the EU
Innovation Fund launched in November 2023 (European Commission, 2023c). Thirdly, the EU launched
several industrial initiatives, most notably the European Clean Hydrogen Alliance and the Clean Hydrogen
Partnership, to encourage industrial innovation and production of the necessary equipment. Table 3
provides a compact overview of the domestic and external de‐risking measures in the three geopolitical
energy dimensions.

Politics and Governance • 2024 • Volume 12 • Article 8285 10

Table 3. Overview of domestic and external de‐risking measures.
Domestic (autonomy) dimension External (open) dimension
Natural gas REPowerEU: replacing Russian natural gas Five political agreements to increase the
with domestic renewables (dedicated share of existing and new suppliers;
targets and legislative framework) and
Half of the partners are authoritarian
setting targets for energy savings through
regimes, only one partner is a full
legislative measures and saving campaigns.
democracy;
Cooperation focuses also on the reduction
of methane emissions and renewables.

Critical energy Critical Raw Materials Act (2023) setting Geographically well‐diversified portfolio:
minerals 2030 goals for domestic mining/extraction, 12 new partnerships with countries from
domestic processing, and recycling, as well all continents;
as capping the share of supplies from one
Mixed alignment of partners: from full
single country.
democracies to authoritarian regimes;
Cooperation focuses on the entire value
chain: business cooperation, research and
innovation, regulation, skills and capacity
building, and funding.

Hydrogen Goals for domestic installation of Geographically well‐diversified portfolio:

electrolysers, dedicated legislative solutions 21 partnerships with countries from all
to enhance domestic production, new continents (except Australia), though not all
financial instruments, and support with potentially exporting countries;
measures for domestic industry.
Mixed alignment of partners: from full
democracies to authoritarian regimes;
Cooperation focuses on the entire value
chain: supply of hydrogen, global standards,
and development of domestic production
and consumption capacities (domestic
decarbonisation), business cooperation,
research and innovation, regulation, skills,
and capacity building and funding.

4.2. External De‐Risking Measures: New Partnerships and Cooperation Patterns

Despite all the internal measures to de‐risk EU energy, it has been evident that the EU will not be able to
satisfy its demand for natural gas, critical minerals, and hydrogen through domestic measures only, which
necessitates some form of external engagement. In the analysed period of 2021–2023, the EU launched a
wide energy‐related diplomatic outreach to reduce dependency and extend the diversity of energy sources,
resulting in political agreements with 26 countries (Table 2).

To reduce the share of Russian energy in its natural gas portfolio, the EU reached five political agreements.
Firstly, a presidential Task Force on Energy Security has been launched between the EU and the US (2022),
followed by further presidential and ministerial statements. Shortly after, the EU signed two MoUs: a trilateral
one with Israel and Egypt to boost new gas deliveries and another one with Azerbaijan (2022) to increase
the delivery of gas to Europe to at least 20 bcm annually by 2027. In addition, three joint statements have

Politics and Governance • 2024 • Volume 12 • Article 8285 11

been issued: firstly, with Norway, at the ministerial level, to ensure additional short‐term and long‐term gas
supplies (2022), complemented by a presidential joint statement to jointly develop tools to stabilise energy
markets and limit the impact of market manipulation and price volatility (2022); and lastly, with Algeria, at the
ministerial level, to further energy cooperation including natural gas (2022).

Regarding critical minerals, the EU has concluded 12 partnerships: with Canada and Ukraine (2021), with
Kazakhstan and Namibia (2022), with Argentina, Chile, the Democratic Republic of Congo, Zambia, and
Greenland (2023), and with Rwanda, Norway, and Uzbekistan (until April 2024). In addition, an agreement
with Australia has been announced.

In the area of hydrogen, the EU has concluded six MoUs that specifically target cooperation on hydrogen
with Egypt, Kazakhstan, Namibia, Japan (2022), Ukraine, and Uruguay (2023). Hydrogen cooperation has
been also explicitly mentioned in two Green Partnerships with Morocco (2022) and Korea (2023), in three
Green Alliances concluded with Norway (2022), Japan (2023), and Canada (2023), in a MoU on strategic and
global partnership with Tunisia (2023) and a MoU on energy cooperation with Argentina (2023), and in a
Joint Statement of the Energy Dialogue with Algeria (2023). In addition, the EU launched initiatives under
the Global Gateway–Team Europe framework (EU, EU member states, and their implementing agencies and
public development banks). A Fund for Renewable Hydrogen was launched with Chile initially offering
EUR 225 million (2023) and another agreement was reached with Brazil to invest EUR 2 billion in the
production of renewable hydrogen (2023). Moreover, a Team Europe initiative for large‐scale development
of green hydrogen was launched by the Commission with Mauritania (2023) and a Green Hydrogen Strategy
and Roadmap was developed with Kenya (2023).

In all three areas, the EU energy portfolios have become geographically more diversified. As regards natural gas,
the partnerships were mostly expressions of further energy cooperation with existing suppliers—Azerbaijan,
Norway, Algeria, and the US, with the latter one, however, becoming the largest liquefied natural gas supplier
to the EU. The trilateral partnership with Egypt and Israel is the only truly new addition towards de‐risking,
which nonetheless still needs to materialise. In contrast, partnerships for critical raw materials have been
concluded (and announced) with countries from all continents, pointing to a diverse geographical distribution
of the EU energy‐critical minerals portfolio. The geographic distribution of partnerships for hydrogen is also
wide and covers all continents (except Australia), offering potential for a well‐diversified portfolio of future
hydrogen supply sources.

As regards the alignment of the partnerships from a political perspective, the picture is quite diverse. Among
the 26 investigated countries, as measured by the Economist’s Democracy Index, only eight countries are full
democracies, five are flawed democracies, six have hybrid regimes, and seven have authoritarian regimes.
What is more, some of the full democracies, such as Japan, cannot be considered a viable option to increase
the diversity of the hydrogen portfolio but rather only help contribute to market creation. Moreover, three
of the critical sources of additional gas—Algeria, Azerbaijan, and Egypt—are classified as authoritarian
regimes. Also, some of the partners for cooperation on critical minerals belong to the group of authoritarian
regimes (Kazakhstan, Democratic Republic of Congo, Rwanda, and Uzbekistan). This poses a question of to
what extent such partnerships are reliable alternatives and help de‐risk energy dependencies. At the same
time, however, the fact that the EU is reaching out not only to democratic, like‐minded constituencies, but
also to ones that are not aligned with the EU’s values, demonstrates the attempts to exploit the benefits of

Politics and Governance • 2024 • Volume 12 • Article 8285 12

complementary preferences with a wide range of states and involve them in global value chains irrespective
of their political systems.

What appears as the most novel component of all partnerships is that they go well beyond the supply of
energy resources, demonstrating that de‐risking adds a new political layer to EU external energy engagement.
Natural gas agreements show a strong climate‐related component as they explicitly address the reduction of
methane emissions in the value chain of natural gas and underline the need to strengthen the
decarbonisation of the entire energy sector with investments in renewables. Similarly, agreements on critical
minerals go well beyond the mere import of material basis, distinguishing between five clusters of activities:
business cooperation and joint projects along the entire critical raw materials value chains; research and
innovation cooperation; regulatory approximation, notably in the area of environmental, social, and
governance standards; promotion of skills and capacity building in the partner countries; and lastly,
mobilisation of funding whenever applicable. Further, the hydrogen partnerships initially follow broadly two
goals: to diversify supplies of hydrogen to the EU by designing stable and secure supply chains based on
international rules and standards, as well as to support the production of renewable hydrogen in developing
countries by enhancing their industrial basis and helping them decarbonise. To that end, the EU provides
support financially or through the technical cooperation development of new hydrogen facilities, enables the
exchange of relevant technologies, promotes policy frameworks and regulatory aspects of domestic hydrogen
economies, and also supports capacity building, training, and skills. With the developed countries, most
notably Japan and Canada, the EU aims to create global hydrogen markets focusing on sustainable production,
trade, transport, storage, distribution, and use of renewable and low‐carbon hydrogen and promote common
standards and certification, which is the evidence for joint efforts to overcome dependencies.

5. Conclusions

This article analysed the EU’s external energy engagement amidst the mounting geopolitical tensions and
rivalries between the world’s major economies. It attempted to explore how the EU positions itself
internationally given its energy dependence while striking a balance between necessary assertiveness and
the need to import energy and energy‐related resources. To that end, the article conceptualised a political
notion of de‐risking and applied it to three vital energy dimensions: natural gas, energy‐critical minerals,
and hydrogen.

The main result of this article shows that the de‐risking of EU energy relations means managing dependence,
diversifying suppliers, and constructing new economic partnerships. Hence, while de‐risking may sound like
another EU buzzword meaning nothing else than diversification at first sight, it is much more than simply
diluting the share of dominant assets (as in the case of China) or replacing them with any other assets
(as needed following the phase‐out of Russian energy). De‐risking is about constructing new, diversified,
and potentially long‐lasting energy portfolios along the entire value chain. It is about building new
economic relations.

De‐risking through domestic measures can improve energy security only to a limited extent due to the EU’s
scarcity of relevant energy resources. The EU is, and will remain, dependent on imports of natural gas, critical
energy minerals, and hydrogen. Therefore, the second important conclusion is that despite the new global
disorder (Lavery & Schmid, 2021), the EU is not looking inward but reaching out to build alliances with new

Politics and Governance • 2024 • Volume 12 • Article 8285 13

countries across the globe or strengthen existing international partnerships. De‐risking, as applied by the EU,
demonstrates thus a strong constructive component that has the potential to reshape international relations to
the benefit of all participating parties. Paradoxically, it is the EU’s energy dependence that can lay the ground
for a new wave of “green cooperation,” a new trade and investment order driven by the clean energy transition.

Three elements stand out in this potentially new clean energy geopolitical order. Firstly, the article identifies
the redrawing of international relations by breaking up with traditional partners (Russia) and rebalancing
relations with others (China) to the benefit of forging alliances with countries that have never played any
significant role in global energy value chains (e.g., Chile, Namibia, or Zambia). Secondly, the EU de‐risking
strategies are designed to enhance economic growth and social development, especially in developing
countries. If the desired aims are to be achieved in terms of building industrial capacity, promoting skills, and
environmental and safety standards in the third countries, de‐risking has the potential to debunk the claims
of green extractivism. Thirdly, the de‐risking agreements are built on the intention to create new, rules‐based
global trade networks by involving developed and developing countries. Such networks could create trust,
enhance common technical and economic standards, and generate mutual benefits if implemented properly.
Lastly, EU de‐risking may create new economic and political bridges, or at least a springboard for dialogues
with countries that are not necessarily considered like‐minded in terms of their adherence to political values
and human rights. This is of relevance, as many of the new agreements are concluded with authoritarian
regimes or countries that are not fully aligned with EU values. Nevertheless, none of such countries can be
seen as a main supplier of energy and energy sources as was the case of Russia in fossil fuels or the case of
China’s dominant role in processing and supplying energy‐critical minerals.

This research leaves room for a follow‐up. The analysed agreements, although concluded with several
countries in a well‐diversified way, currently express desirability and intentionality only, rather than deliver
tangible results. Hence, a question mark hangs over whether the political intentions, even if based on
seemingly complementary preferences, will materialise. It is not the first time that the EU hoped to establish
value‐driven partnerships through economic and trade cooperation. Therefore, this article proposes two
steps for further research. Firstly, a follow‐up analysis would be recommended to analyse the extent to
which political desirability turns into actual deliverables. Such ex‐post analysis would allow identifying
whether there are specific factors, either on the side of the EU and the partner countries, or specific
framework conditions, that determine the effectiveness of the political agreements. As a further refinement
of such analysis, additional research would be needed to explore differences between the various
partnerships, as countries differ in their institutional paths and economic and political nuances. Approaches
that work in one country might seem ineffective in another. Moreover, the analysis of multilateral initiatives
which were not explored in this article, such as those that try to integrate consumer and producer countries
(e.g., the Minerals Security Partnership or the EU Critical Raw Materials Club), could provide valuable
research results concerning the effectiveness of bilateral and multilateral cooperation patterns. In this regard,
more and continuous research on political and economic international cooperation in the clean energy
geopolitical order will be of immense value, equally for scholars, policymakers, and practitioners.

Acknowledgments
The author is grateful for detailed comments on previous versions of this piece, to Clara Weinhardt and Anna
Herranz‐Surrallés, the participants in the seminar of the ECPR Research Network on Energy Politics, Policy
and Governance in February 2024, as well as to the three anonymous reviewers.

Politics and Governance • 2024 • Volume 12 • Article 8285 14

Conflict of Interests
In this article, editorial decisions were undertaken by Milan Babić (Roskilde University), Nana de Graaff (Vrije
Universiteit Amsterdam), and Lukas Linsi (Rijksuniversiteit Groningen). The author is an official of the European
Union, yet the research for this article was developed independently from that role. The opinions expressed
in this article are those of the author only and should not be considered as representative of the European
Commission’s official position.

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About the Author

Tomasz Jerzyniak is in charge of international and multilateral relations in the

Directorate‐General for Energy, European Commission. He has been working on energy
security, diversification, and clean energy transition with leading global players such as the
United States, China and Japan, the United Nations, the G7/G20, the International Energy
Agency, among others. Previously, he worked on the EU internal energy market and EU
policies for industry, research, and innovation.

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Politics and Governance
2024 • Volume 12 • Article 8221
https://doi.org/10.17645/pag.8221

ARTICLE Open Access Journal

Industrial Alliances for the Energy Transition: Harnessing Business

Power in the Era of Geoeconomics
Riccardo Bosticco 1 and Anna Herranz‐Surrallés 2
1
European Policy Centre, Belgium
2
Faculty of Arts and Social Sciences, Maastricht University, The Netherlands

Correspondence: Anna Herranz‐Surrallés ([email protected])

Submitted: 2 February 2024 Accepted: 18 June 2024 Published: 7 August 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
In a context of rising geoeconomic competition, the EU is embracing stronger industrial interventionism to
address societal challenges and reduce external dependencies in strategic sectors. Developing this type of
strategic industrial policy requires close government–firm relations. This article investigates whether and
how the EU succeeds in articulating public–private collaboration in the pursuit of strategic goals by
examining the role of the recently launched EU Industrial Alliances in clean energy technologies. We build
on a “governed interdependence” (GI) approach to assess whether the Alliances resemble the embedded
public–private networks that are common in states deploying strategic industrial policy. Our findings,
obtained through desk research, surveys, and qualitative interviews, offer a mixed picture. On the one hand,
in line with GI, the Industrial Alliances provide a novel, institutionalised venue for public–private
collaboration, led by geostrategic objectives and contributing to reducing information gaps and fostering
policy coordination. On the other hand, Industrial Alliances adhere less well to a GI system in their
composition and structure, and in their loose articulation of risk‐socialisation mechanisms.

Keywords
business power; clean energy technology; geoeconomics; industrial alliances; industrial policy

1. Introduction

Since 2017, the EU has launched 11 Industrial Alliances, a new collaboration format between public and
private actors designed to achieve strategic objectives in critical technologies and value chains, such as
electric batteries, cloud systems, and semiconductor technologies. Industrial Alliances are part of the EU’s

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
attempt to articulate a more robust industrial policy in response to the challenge of the digital and energy
transitions and growing geopolitical confrontation. When industrial policy has strong geopolitical drivers, it
can be more specifically referred to as strategic industrial policy and a form of domestically‐oriented
economic statecraft, namely “government initiatives designed to reach for or push the high‐tech frontier in
order to fend off, outflank, or move in step with clearly defined rival powers” (Weiss & Thurbon, 2021,
p. 474). States’ ability to deploy this “new economic statecraft” presupposes close government–firm
relations (Aggarwal & Reddie, 2021, p. 2). The launch of the Industrial Alliances thus indicates the EU’s
ambition to develop this form of domestic economic statecraft, complementing the gamut of new external
economic policy tools that seek to enhance the bloc’s economic security (cf. Garcia‐Duran et al., 2023;
Heldt, 2023; Rosén & Meunier, 2023).

However, scholarly analyses investigating these recent trends are divided in assessing whether the EU has
the capacity and instruments to deploy industrial policy, let alone economic statecraft. On the one hand, the
EU has embraced a “geodirigiste” industrial policy in strategic technological sectors (Seidl & Schmitz, 2023;
see also Di Carlo & Schmitz, 2023; Terzi et al., 2023) as part of a broader geoeconomic turn of the Single
Market (Babic et al., 2022; Bauerle Danzman & Meunier, 2024; Herranz‐Surrallés et al., 2024). On the other
hand, some studies emphasise that the EU does not have the fiscal capacity or levers of governance and
control that states have at their disposal (McNamara, 2023). More generally, the EU’s composite nature often
complicates its ability to deploy geoeconomic policies (Christiansen, 2020; Gehrke, 2020; Weinhardt et al.,
2022). Moreover, the shift towards a more interventionist industrial policy further represents a departure
from the EU’s traditionally market‐centric economic approach and the technocratic legitimacy basis of the EU
as a polity, leading to new cleavages and coalitional politics (McNamara, 2023; Seidl & Schmitz, 2023).

Given that geoeconomic measures might disrupt the free play of market forces, one of the potential new
sources of friction is between government and business actors (Choer Moraes & Wigell, 2020, 2022).
The risk of misalignment is particularly high in the EU, given the so‐called “geoeconomic paradox” (Olsen,
2020, p. 43), underlining how decades of market liberalisation have strengthened European private
companies, complicating the EU’s ability to deploy economic instruments for geopolitical purposes. Despite
calls for a less state‐centric approach when studying geoeconomic trends (cf. Babic et al., 2022, pp. 4–5;
Moisio, 2019, p. 4), the emerging literature on EU strategic industrial policy has so far neglected
public–private relations, as studies focus either on mapping and explaining the preferences and strategies of
public actors (Di Carlo & Schmitz, 2023; McNamara, 2023; Seidl & Schmitz, 2023; Terzi et al., 2023) or on
the reaction of private companies to the geoeconomic turn (Choer Moraes & Wigell, 2020; Eckert, 2024;
Vlasiuk Nibe, 2023), rather than the interface between the two.

To start addressing this gap, this article assesses the extent to which and how EU Industrial Alliances succeed
in articulating public–private collaboration in pursuing strategic goals and what challenges emerge in that
process. Specifically, it focuses on Industrial Alliances in the clean tech sector: the European Battery Alliance
(EBA), launched in 2017; the European Raw Materials Alliance (ERMA) and the European Clean Hydrogen
Alliance (ECH2A), both established in 2020; and the European Solar Photovoltaic Industry Alliance (ESIA),
in place since 2022. This sector is analytically relevant since it is the single most important driver of the
EU’s industrial policy activities. Three of the six strategic areas identified in the New Industrial Strategy for
Europe are energy‐related (European Commission, 2020): batteries, raw materials, and hydrogen. Moreover,
the urgency and strategic character of the energy transition turned up a notch with Russia’s full‐scale war

Politics and Governance • 2024 • Volume 12 • Article 8221 2

on Ukraine since February 2022, leading the EU to adopt the REPowerEU Plan to decouple from Russia as
an energy supplier and speed up the deployment of clean energy sources (European Commission, 2022a).
Accordingly, the Green Deal Industrial Plan acknowledges that “net‐zero energy technologies are at the centre
of strong geostrategic interests and the core of the global technological race” (European Commission, 2023).

Analytically, the article builds on the approach of “governed interdependence” (GI), introduced by Weiss (1995),
to understand the articulation of government–firm relations in states seeking to deploy strategic trade and
industrial policy in technological sectors. While this approach was initially developed to study public–private
collaboration in East Asian economies, GI has regained attention in the context of the growing linkage between
industrial and security policies in Western economies, most notably to examine government–firm relations in
the US (Weiss, 2014; Weiss & Thurbon, 2021). The rising global competition for clean energy technologies has
also motivated further refinement of the GI framework applied to China (Fu, 2023) and other leading Asian
green‐tech powers (Kang & Jo, 2021; Kim, 2019). Therefore, we argue that GI still provides a useful benchmark
for assessing whether and how the EU is on the path to deploying strategic industrial policy, particularly in the
domain of clean energy technologies. The analysis triangulates data from desk research, surveys, qualitative
interviews, and participant observation. Our findings suggest that EU Industrial Alliances only partially adhere
to the idea of embedded state–industry networks in GI systems. The analysis thus contributes to identifying
the EU’s shortcomings and challenges in developing instruments of domestic‐oriented economic statecraft.

The remainder of this article is organised into three sections. Section 2 further discusses recent literature on
industrial policy in a hardening geoeconomic context and develops the analytical benchmarks to assess and
cross‐compare the role of the EU Industrial Alliances. Section 3 presents our findings on the emerging features
and functions of the Alliances considered. The final section concludes by discussing the main novelties and
challenges of Industrial Alliances as an instrument to govern public–private relations in a geoeconomic context.

2. Assessing Public–Private Collaboration in EU Industrial Policy

To address the EU industrial policy “trilemma,” namely “to combine decarbonisation with economic growth
and jobs and world competitiveness, while also reinforcing resilience and sovereignty/autonomy/security of
supply,” a close and purposeful interaction between public and private actors is required (Tagliapietra &
Veuglers, 2023, p. 19). The GI approach is relevant in that regard, as its original goal was to identify the
forms of public–private collaboration that underpin an effective strategic industrial policy (Weiss, 1995,
p. 605). The underlying assumption was that developing economic statecraft in technological sectors
requires maintaining “embedded state–industry networks” (Weiss, 1995, p. 595), whereby the state’s
bureaucracy can gather information and coordinate agreements with private actors. In recent elaborations of
the concept, GI is used to describe “a relationship between the state and private actors that involves
considerable negotiation, collaboration and partnering, one that is pursued for mutual benefit but is
ultimately governed by public objectives” (Weiss & Thurbon, 2021, p. 476). What makes GI stand out in the
landscape of international political economy is its explicit aim to transcend the divide between statist and
market approaches to technological innovation (Weiss, 2014, p. 18). Its focus is rather on the ability of
government actors to elicit consensus and cooperation from the private sector.

Within the EU, these strategic state–industry collaborative arrangements have recently taken the form of
Industrial Alliances. Di Carlo and Schmitz (2023, p. 8) conceptualise them as a “brokering” element of

Politics and Governance • 2024 • Volume 12 • Article 8221 3

industrial policy, a form of network governance that envisages “states connecting scientists working in
universities, government laboratories or business settings to stimulate innovation.” To examine the Alliances’
contribution to articulate closer public–private collaboration in the pursuit of strategic goals, we develop an
analytical framework that explores the extent to which the Alliances resemble the properties and functions
of embedded state–industry networks of a GI system and identifies the tensions emerging in that
process. The next subsections spell out these analytical dimensions (see Table 1 for a summary) and the
methodological choices driving the data collection and analysis.

2.1. Properties of Embedded State–Industry Networks

The first element to examine is the size and diversity of membership. Creating broad networks of firms is
particularly relevant when industrial policy aims to achieve technological leadership. Developing advanced
technologies requires going beyond large firms in established industries and demands “a more inclusive and
much less centralised approach” (Weiss & Thurbon, 2021, p. 478). Accordingly, EU Industrial Alliances are
meant to be inclusive and cover different value chain segments in the respective sector. However,
inclusiveness might also be a challenge when articulating close state–industry collaboration. One important
factor outlined by Weiss (1995) is that a robust GI is more likely where nationals own the private sector, the
assumption being that domestic firms are more committed to a well‐functioning industrial ecosystem than
foreign companies. Given that economic statecraft aims to promote the technological leadership of the
“domestic” industry vis‐à‐vis strategic competitors, we would expect Industrial Alliances to be formed mainly
by EU‐based business actors. However, the idea of “open strategic autonomy,” adopted as the new EU trade
policy doctrine (European Commission, 2020), and the realities of some global value chains point in the
direction of greater geographical spread, including non‐EU actors (e.g., Schneider, 2023; Vlasiuk Nibe, 2023).
Moreover, partnering with like‐minded countries is a building block of Europe’s economic security strategy
(Rosén & Meunier, 2023; Timmers, 2022). Examining the Alliances’ composition and membership criteria can
thus provide valuable information about how the EU balances these seemingly contradictory requirements
between inclusivity and exclusivity and, therefore, autonomy and openness.

The second element is the degree of goal consensus. A fundamental characteristic of GI is that the
relationship between the state and private actors is “pursued for mutual benefit but is ultimately governed
by public objectives” (Weiss & Thurbon, 2021, p. 476). In other words, GI necessitates squaring commercial
and geostrategic goals, which may not always be aligned. For instance, Weiss (2014) extensively
documented the frequent reluctance of US’ high‐tech firms to collaborate in government security‐oriented
programmes seeking technological primacy. Within the EU, studies focusing on Germany’s recent shift
towards strategic industrial policy have also identified major divisions within the German business
community on whether to support the government’s agenda (Germann, 2023; Schneider, 2023). Therefore,
the alignment of industry actors with EU geoeconomic policies is not a given, and responses can range from
lobbying in favour of such measures to active resistance (cf. Choer Moraes & Wigell, 2022; Eckert, 2024).
The capacity of Industrial Alliances to reconcile geostrategic and commercial goals is thus relevant for
articulating a fruitful relation of GI.

The third element is the level of centralisation. As an institutional form, GI is “neither simply bottom‐up nor
solely top‐down” (Weiss, 2014, p. 18). Rather, it envisions a balance between an autonomous and dynamic
industrial ecosystem and centralised mechanisms to ensure that the private sector contributes to the set
strategic targets. EU Industrial Alliances are designed to foster bottom‐up and horizontal interactions, with

Politics and Governance • 2024 • Volume 12 • Article 8221 4

private actors assuming a leading role in the management of the network. However, from a GI perspective, if
the Alliances are to comply with the geopolitical drivers of industrial policy, they also require a prominent
steering role from the European Commission. In the original framework, the presence of a committed,
capable, and expert bureaucracy was actually one of the main factors explaining the successful articulation
of GI (Weiss, 1995, pp. 596–597). It is, therefore, crucial to comprehend how the Alliances balance
bottom‐up and top‐down dynamics and the extent to which expertise and bureaucratic capacity influence
the steering ability of the European Commission.

2.2. Functions of Embedded State–Industry Networks

At the most basic level, state–industry networks contribute to reducing information gaps. For GI to produce
the desired effects, state bureaucracy needs adequate mechanisms to gain knowledge of industrial conditions
(Weiss, 1995, p. 596). The purpose of institutionalised state–industry links is to maintain close channels for
gathering and sharing information, thus increasing the chances of a better policy design and implementation
(Weiss, 1995, p. 601). In further elaborations of the approach, Weiss emphasised that the ability of the state to
“extract and exchange vital information with producers” is key to the development of GI, understood as a form
of infrastructural power, echoing Michael Mann’s influential conceptualisation of the ways in which the state
exercises power through linkages and negotiation rather than coercion (Mann, 1993, as cited in Weiss, 2006,
p. 168). The Alliances’ contribution to reducing information gaps, thereby increasing the Commission’s chances
to exert infrastructural power, can be exploratively assessed by the frequency and type of formal events, as
well as working meetings and other internal communication channels. A possible tension when establishing
routinised information flows is how the Alliances juggle between engaging all the members and facilitating
close and agile exchanges. Therefore, we analyse how the Alliances articulate information flows, whether they
are truly bidirectional, and whether they prioritise encompassing information or target a restricted group of
members for a more substantive exchange of views.

A second function of state–industry networks is policy coordination, contributing to a joint articulation of

strategic industrial policy. However, a condition for fruitful GI is that policymaking structures remain
insulated from special interests (Weiss, 1995, p. 598). Some of the recent literature engaging with GI has
examined this tension between connectedness and insulation in government–business relations, arguing
that business actors in critical technological sectors have, over time, gained more power and autonomy
vis‐à‐vis states (Kang & Jo, 2021; Kelton et al., 2022). This debate is also relevant for the analysis of the
Industrial Alliances. On the one hand, the Alliances may become instrumental in generating policy solutions.
These can be assessed by examining whether they produce joint statements or practical initiatives affecting
policy debates and sectorial priorities. On the other hand, the more substantial the role of the Alliances in
that regard, the more they may raise normative‐political concerns regarding the transparency and insulation
of policymakers from business interests. While the Commission explicitly indicates that the Alliances do not
play a role in policymaking (European Commission, n.d.), some NGOs have criticised them as a new form of
“corporate capture” (Friends of the Earth Europe, 2021). The contention is that the Alliances might “unduly
influence political processes and direct public spending” (Friends of the Earth Europe, 2021, p. 2), thereby
impinging upon the EU’s democratic legitimacy and eroding the epistemic basis of EU policies, as
policymakers might rely more on business actors than on independent experts. Whether this tension
between interconnectedness and insulation is a concern that affects how the Alliances work is also relevant
for investigating the articulation of GI in the EU.

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Table 1. Analytical dimensions and empirical indicators for the study of GI in the Industrial Alliances.
Analytical dimensions GI Indicators
Alliances Size and Inclusive industry Membership structure (share of business actors,
properties diversity networks, but exclusive share of non‐EU members)
of third‐country firms Stringency of the admissions procedure (who can
join the Alliances and based on what elements)
Goal Blending of Ambition of EU targets and type of instruments
consensus geostrategic and (market incentivising or restricting)
commercial goals Structure of the market and global value chains
(how limiting the situation of the technological
value chain is for a full geoeconomic display)
Centralisation Balancing bottom‐up Governance structure of the Alliances (who
dynamics with manages the Alliances, how varied and inclusive the
top‐down direction managing board is)
from expert Relation between Commission and coordinating
bureaucracy bodies (what steering roles does the European
Commission assume, why these roles are performed
by the European Commission or other bodies)
Alliances Reducing Institutionalised and Format and frequency of meetings (high‐level or
functions information substantive information working‐level meetings, restricted or broad
gaps flows participation)
Internal communication channels (presence of
newsletters, recurrence of and participation in
steering committee meetings)
Policy Joint articulation of Publications (joint statements, strategic plans)
coordination industrial policy, yet Perceptions regarding the insulation of
maintaining insulation decision‐makers from specific business interests
from special interests (descriptions of and accusations targeting the lack
of transparency in the Alliances’ procedures)
Risk Proactive Alliances’ contribution to promoting public and
socialisation techno‐governance private investment (engagement with public and
measures private investors, existence of project pipelines)
Link between the Alliances and risk‐socialising
measures (e.g., unlocking state aid measures, EU
financing programmes, public–private innovation
partnerships)

Last but not least, in a GI system, state–industry networks serve the purpose of socialising the risk of
technological innovation, including by coordinating investment in strategic industrial sectors. Government
and businesses share the responsibility for raising capital, developing new products and technologies,
finding new markets, and training a skilled workforce (Weiss, 1995, p. 594). While all advanced states
intervene in some way or another in techno‐industrial governance, they can do so to different degrees,
ranging from mere R&D expenditure to more active involvement, for example, by assuring demand for
technological innovations, taking equity in innovation firms, or co‐developing industry standards to outflank
foreign competitors (Weiss, 2014). A system of GI implies the adoption of instruments on the proactive end
of the continuum. For example, the US has long used all these forms of public–private collaboration, in what
Weiss characterises as the “National Security State” (Weiss, 2014). Similarly, though motivated more by

Politics and Governance • 2024 • Volume 12 • Article 8221 6

geoeconomic than geopolitical concerns, East Asian economies have also intensified public–private
collaboration in critical technologies. For example, studying South Korea and Taiwan, Kim (2019) identifies
hybridised industrial ecosystems as a new “institutional mutation” of GI, characterised by a “genuine fusion of
public and private features” (Kim, 2019, p. 160). Besides this high level of public–private integration, their
success lies in linking up all segments of the production and innovation value chain rather than focusing on
the different components. Besides external pressures, the degree of state involvement and choice of
instruments is also determined by domestic factors, such as state–society relations (Weiss & Thurbon,
2021). For example, in the US, the dominant anti‐statist ethos is said to have led to unconventional forms
of state intervention (Weiss, 2014). A tension between ingrained state–society relations and proactive
industrial governance could emerge in the EU, given its traditional market‐liberal orientation and centrality
of competition policy in ensuring a level playing field in the internal market. It is thus relevant to
examine where the Industrial Alliances sit in the continuum between passive and proactive forms of
risk‐sharing collaboration.

2.3. Methodological Considerations

Our selection of four energy‐related Industrial Alliances (EBA, ERMA, ECH2A, and ESIA) launched between
2017 and 2022 aims at ensuring some level of comparability yet capturing differences related to the
industry characteristics or the stages of development. Our empirical analysis relies on publicly available
information from the Alliances’ website, EU and European Institute of Innovation and Technology (EIT)
documents, and news articles retrieved via web research (around 50 documents) from January 2017, when
the first Industrial Alliance was launched, and April 2024. The public data was used to construct our
databases on the membership of the Alliances, their basic organisational structure, and activities performed.
Moreover, nine semistructured interviews (Rubin & Rubin, 2012) were conducted between April and
December 2023. Interviewees included five industry actors from EIT InnoEnergy, Hydrogen Europe, Eurobat,
and the European Association for Electromobility, as well as four European Commission policy officers
involved in managing the Alliances considered (see Table 2 for an overview).

A survey gathered additional insights from 13 private European companies in the critical raw materials,
batteries, solar, and hydrogen sector and business associations representing the clean energy industry
involved in one or more of the Alliances examined. Conducted between February and May 2023, the survey
investigated private perceptions of the linkages between the energy transition and geopolitics and the
relationship with national and supranational institutions in the energy transition. The survey was created and
managed via Qualtrics. Thirteen questions investigated the participants’ perceptions of the linkages between
geopolitics, the race for clean energy technologies, and economic collaboration across firms and national
and supranational institutions. Survey participation requests were sent to 33 individuals, of which 20 were
employed in business organisations and 13 in relevant firms. In total, 13 people completed the survey, with a
response rate of 39%. The responses were completely anonymised, and links are non‐traceable.

This article combines endogenous and exogenous analysis. Specifically, we are interested in how the actors
involved perceive the Alliances and echo any of the tensions discussed above while complementing such
views with our own assessment of how they come close to or differ from the GI benchmark. Semistructured
interviews are thus used as the main research method to address the scarce availability of online data. While
interviews allow insiders’ perspectives to emerge and outline the Alliances’ purpose, the triangulation with

Politics and Governance • 2024 • Volume 12 • Article 8221 7

Table 2. Overview of interviews.
Interview Date Affiliation
1‐BA 8 May 2023 Business association
2‐BA 9 May 2023 Business association
3‐BA 10 May 2023 Business association
4‐COM 5 December 2023 European Commission
5‐COM 13 December 2023 European Commission
6‐COM 14 December 2023 European Commission
7‐COM 19 December 2023 European Commission
8‐EIT 22 December 2023 EIT
9‐EIT 22 December 2023 EIT

data obtained via desk research allows the reconstruction of the (in)consistencies between insiders’ views and
public information. At the same time, the survey’s findings were used to shape our views about public–private
collaboration in the energy transition.

3. The EU Green Industrial Alliances at Work

3.1. Properties: Balancing Inclusiveness, Effectiveness, and Control

Dissecting data on the membership of the examined Alliances raises two important observations. The first is
their remarkable size, ranging from less than 150 members of the ESIA to around 1,000 members of the ERMA
and EBA and more than 1,700 members of the ECH2A. The second observation is the Alliances’ variation in
terms of the type of actors and their geographical spread (see Figure 1). While members do not have to
be strictly EU‐based, the Alliance’s inclusivity ends where applicants cannot demonstrate their intention to
contribute to strengthening the EU’s industrial ecosystem. Moreover, while individual companies and business
associations account for about two‐thirds of the Alliances’ membership, the remaining includes a wide variety
of stakeholders, including research organisations, NGOs, trade unions, financial institutions, and regional or
national public authorities.

EU‐based actors compose most of the examined Alliances’ members (see Figure 2). This is particularly true
for the ESIA, which represents a sector increasingly overtaken outside the EU. However, across the
Alliances, there is a consistent presence of actors from states of the European Economic Area (EEA) and the
European Free Trade Area (EFTA), but most importantly, of overseas actors. Most members outside the EU
and the EEA/EFTA are OECD countries, particularly the US, Australia, Canada, and South Korea, but not
exclusively. In the ERMA, the high proportion of non‐EU actors includes a sizeable African component,
especially in the first segments of the value chain, focusing on primary raw materials. More surprising is the
inclusion of companies from China (e.g., CNGR Advanced Materials Co., Svolt Energy Technology, and
Botree Cycling in the EBA), given the country’s portrayal as a strategic competitor.

When asked about the rationale behind the Alliances’ membership, respondents indicated that the purpose
of Industrial Alliances is to “grow as much as possible” and “bring all kinds of different interests together” as
long as applicants “fulfil the membership criteria” (Interview 6‐COM). Membership is granted if the

Politics and Governance • 2024 • Volume 12 • Article 8221 8

 ESIA EBA

7% 2%
10% 1%
7% Research and
technology Financial
2% organizaons insituons
Trade associaons EU Comission
services
Regional or local
authories Companies,
universies,
Companies
research centers
Other
74% 97%

ECH2a ERMA
600
7%
6% 15%
2% 500

400

300

200
70%
100
Associaons
Companies 0
Financial instuons Primary raw Advanced Final Recycling
materials materials and products
Naonal and regional
intermediate
authories
products
Research and technology
organizaons Other (e.g. NGOs, Finanal instuons Naonal authories
trade unions) and ministries
University and research Associaons Companies
organizaons

Figure 1. Membership of ESIA, EBA, ERMA, and ECH2A (by type of actors).

applicants demonstrate their intention or capacity to produce the relevant materials or technologies in the
EU and create European value chains (Interviews 2‐BA, 3‐BA, and 6‐COM). Such criteria result in “excluding
some requests when the company has no such plans…or when the company is a non‐EU company which is
mainly interested in selling products in Europe” (Interview 8‐EIT). The balance between inclusivity and
exclusivity also depends on sectorial features. For the battery sector, for example, the relevant industry’s
position towards the geostrategic value of technological supply chains is “hard to define…because there are
European companies, which are based in Europe, which see a protectionist policy as an advantageous one,
while others do not” (Interview 3‐BA). This is because batteries need materials that, in most cases, are not
available in Europe; therefore, expecting the European battery industry to be self‐sufficient and exclusive of
competing actors “is a question that…from a certain point of view, is not possible” (Interview 3‐BA). The case

Politics and Governance • 2024 • Volume 12 • Article 8221 9

 ESIA EBA
180
6% 1%
160
140
120
100
80
60
93%
40
20
EU
no EU/EEA–EFTA 0
no EU/no EEA–EFTA Raw Ac ve Cell Ba!ery Applica on Recycling
materials materials manufacturing packs and and and
and machinery systems integra on second life
EU no EU/EEA–EFTA no EU/no EEA–EFTA

ERMA ECH2a
400
5%
4%
350
300
250
200
150
100 91%
50
0 EU
Primary raw Advanced materials Final products Recycling no EU/EEA–EFTA
materials and intermediate no EU/no EEA–EFTA
products
EU no EU/EEA–EFTA no EU/no EEA–EFTA

Figure 2. Membership of ESIA, EBA, ERMA, and ECH2A (by geographical origin).

of the solar industry, which has mostly been lost to China (Interview 7‐COM), is starkly different and
advocates for a more geostrategic approach to adapt to the “new geopolitical energy focused on Net‐Zero”
(SolarPower Europe, 2023). In sum, the Alliances are generally more inclusive than what would be expected
in a GI system. They promote the development and growth of EU‐based industrial ecosystems without
excluding partnerships that could eventually benefit the European industry, even though this may result in
the presence of companies from strategically competing countries.

These sectorial differences are also important for the degree of goal consensus in the Alliances in terms of
blending geostrategic and commercial objectives. As stated by one of the Commission’s officials,
“differences among different Alliances depend on the different features of each market” (Interview 7‐COM).
In the context of the ESIA, “there is geopolitical momentum as the industry has been taken over almost
completely outside the EU, especially in China” (Interview 7‐COM). The Alliance “was launched with the goal
to have 30 gigawatts of manufacturing capacity,” but Chinese dominance along most of the supply chain and
the reinvigorated discourses on energy resilience following Russia’s invasion of Ukraine have further

Politics and Governance • 2024 • Volume 12 • Article 8221 10

stressed the energy security dimension (Interview 6‐COM). Such a situation also explains why the European
Commissioner responsible for the Internal Market, Thierry Breton, personally hosted a ministerial meeting
on the European solar photovoltaic industry under the umbrella of the ESIA to stress the importance of
sustaining and re‐growing an EU‐based solar manufacturing industry (Directorate‐General for Energy, 2023).

While the day‐to‐day work of the Alliances focuses more on the commercial‐technical goals, such as creating
investment pipelines or standardisation, the “pursuit of public objectives, the energy transition in this case,
and the need to reinforce relevant industrial ecosystems in front of third countries’ competition remains a
priority” (Interview 7‐COM). The purpose of the Alliances is “to look at the full value chain” (Interview 8‐EIT);
in the case of hydrogen, “the aim of the Alliance was to bring hydrogen from lab to market,” so the Alliance “has
the goal to support the large‐scale deployment of clean hydrogen in order to decarbonise the industry…but
also…the mobility sectors when it comes to trucks or shipping” (Interview 5‐COM). For this purpose, the
Alliances “bring together not only the private sector but also the public sector” so that “everybody has a
different role” towards the same objective (Interview 5‐COM). The Alliances thus adhere to the notion of
GI by calibrating geostrategic and technical‐commercial narratives according to the state of each industrial
ecosystem; by so doing, they remain fora where discussion and conciliation are favoured to prevent internal
conflict and defections.

The level of centralisation also partly depends on the relevant industrial features. However, the expertise of
the leading organisations and the Commission’s resources are determining factors for the degree of control
assumed by the EU bureaucracy in the Alliances. The Commission “plays a significant role in all of them,
although to different degrees” (Interview 7‐COM). For instance, the EBA and ESIA are managed by EIT
InnoEnergy, a company founded by 27 shareholders and supported by the EIT, an independent EU
innovation body created under the framework of Horizon Europe (EIT, 2021). EIT InnoEnergy is one of the
EIT Knowledge and Innovation Communities, which consist of partnerships dedicated to addressing specific
global challenges, such as climate change. As one of their representatives described it, EIT InnoEnergy is
“an investor in start‐ups and scale‐ups…in the energy transition field of work” (Interview 8‐EIT). Born in
2009, it received “a mandate from the European Commission to start the first Industrial Alliance…a concept
that [they] almost created together with Vice President Šefčovič at the time” (Interview 8‐EIT). Similarly, EIT
RawMaterials is the organisation that the Commission entrusted to manage ERMA’s stakeholders’
consultation process across the entire value chain and channel investments. Conversely, the European
Commission takes care of ECH2A’s operational work. The entrustment of the EBA and ERMA to the
respective EIT innovation communities followed its capacity to act as an incubator and attract investment in
the respective sectors.

While considerations of expertise drive the decision to entrust the management of the Alliances to EIT,
resource efficiency is also important (Interviews 4‐COM and 6‐COM). As argued by one of the interviewees,
“EIT has a lot of expertise and, at this point, they are very experienced with the Alliances” (Interview
6‐COM); it works in close contact with companies and possesses market intelligence, saving the
Commission’s resources (Interviews 4‐COM, 5‐COM, and 6‐COM). However, efficiency comes at the cost of
limited oversight and information‐gathering capacity by the Commission. Some interviewees acknowledged
a trade‐off in having less insight and voice into the day‐to‐day management of the Alliances
(Interviews 4‐COM and 5‐COM). This also explains the higher centralisation of the ECH2A. Given the size of
the hydrogen ecosystem and the multitude of parties involved, internal management of the Alliance was

Politics and Governance • 2024 • Volume 12 • Article 8221 11

preferred, as it is “an advantage when you want to have action or quick information”; moreover, “[the
Commission] can have access to different roundtables, different co‐chairs, and the steering committee.
It’s easier. And then [the Commission] know[s that it] can also monitor a little bit more” (Interview 5‐COM).
Overall, in terms of GI, the tendency to entrust the management of the Alliances to an autonomous industry
actor (though supported by EU funding) does not fully align with the idea of a strong bureaucracy with
in‐house expertise.

3.2. Alliance Functions: Towards the Co‐Production of Policies?

Reducing information gaps is a crucial activity of Industrial Alliances. Of the four examined Alliances, the ECH2A
has the most encompassing information channels. It has a steering committee, which includes the Commission
and the facilitating organisation of each of the six roundtables that define the Alliance’s workstreams. Each
roundtable can include up to 50 members, and the Commission ensures some balance in terms of geographical
spread and type of actors, for example, ensuring a good representation of SMEs (about 20%) and at least two
NGOs per roundtable. The steering committee meets around six times a year to exchange updates from the
Commission on policy streams and the roundtables’ work. Moreover, the ECH2A organises two Hydrogen
Forums a year, featuring speeches from high‐level political figures and thematic discussions, allowing all the
Alliance’s members to participate. Finally, every one to two months, the ECH2A circulates a newsletter across
the membership to synthesise significant updates from events or calls from the European Commission which
are relevant to the hydrogen ecosystem, to update all members about the work inside the roundtables, and
to share cases of successful clean hydrogen projects (Interview 5‐COM).

Comparatively, the EBA focuses on ad hoc and restricted meetings, which include only a segment of the
membership or happen bilaterally (Interview 8‐EIT). EIT InnoEnergy formed “a core group of CEOs that were
a bit of a [sounding] board for the Commission on a number of topics, especially post‐Covid reaction to the
US Inflation Reduction Act and the energy crisis” (Interview 8‐EIT). The EBA also runs targeted meetings to
keep the European Commission informed, especially at the high level, for example, in ministerial meetings,
where “the Battery Alliance was reporting to the ministers in terms of the status of the value chain, what is
needed in that state” (Interview 8‐EIT). In between, the information flows in ESIA mostly occur within the
steering committee, which includes the Commission, EIT InnoEnergy, and two industrial associations,
namely SolarPower Europe and the European Solar Manufacturing Council. These meetings are occasions to
discuss the work inside the Alliance’s four working groups led by key industry players, including Carbon, Enel
Greenpower, Engie, IBC, Meyer Burger Technology AG, and Wacker Chemie AG. The ESIA also runs an
annual forum, which has only convened once so far. In turn, the ERMA does not have a steering committee,
but it hosts an annual EIT Materials Summit and is involved in organising the Raw Materials Week. In sum, in
line with the idea of embedded state–industry networks in GI, the Alliances have built an institutionalised
framework for the circulation of information in a bidirectional way. The channels of information appear to be
more encompassing in the Alliances where the Commission plays a major role, particularly in the ECH2A,
suggesting a correlation between widespread information‐gathering strategies, oversight capacity, and the
need to build in‐house expertise.

In terms of policy coordination, the Alliances aspire to work “towards a shared goal and to discuss concrete
actions…in a structured and efficient way [to] deliver on the goal” (Interview 9‐EIT). Therefore, the Alliances
are driven by specific EU‐level targets. For example, the ESIA aims to reach a series of concrete actions to

Politics and Governance • 2024 • Volume 12 • Article 8221 12

re‐industrialise the European solar photovoltaic industry and achieve the Green Deal targets to develop an
industry to supply an annual capacity of 30 GW by 2025, adding €60 billion of new GDP every year in
Europe and creating more than 400,000 new jobs (ESIA, 2023). In the context of the ECH2A, the European
Commission and 20 CEOs signed a Joint Declaration in May 2022, whereby the signatories committed to a
tenfold increase of their electrolyser manufacturing capacity by 2025, enabling an annual production of
10 million tons of renewable hydrogen by 2030 in the EU as set out in the REPowerEU Communication
(European Commission, 2022b).

Moreover, the Alliances actively contribute to producing strategic action plans in close collaboration with
the European Commission. In 2017, the EBA contributed to shaping the Communication on the mobility
strategy for Europe. In the words of an interviewee, “the goals were set together with the Commission in
2017, and the action plan was devised between 2017 and 2018 and resulted in the Commission’s official
paper” (Interview 8‐EIT). In 2018, the EBA also contributed to developing the Strategic Action Plan on
Batteries (European Commission, 2019), setting out a comprehensive framework of regulatory and
non‐regulatory actions to support the battery value chain in Europe. The ERMA produced a call for action on
rare‐earth magnets and motors and another on energy storage and conversion materials, identifying the
relevant bottlenecks and ways to improve such segments at the European level (Interview 4‐COM).

In this sense, the Alliances influence policymaking, raising the question of whether EU bureaucracy is
adequately insulated from special business interests. However, when asked about whether the Alliances
could be seen as a privileged channel for business to affect the Commission’s work, one interviewee stated,
“I would not say that they have in the Alliance the ideal place to have these very bold lobbying activities
because they do not need, especially the big players…the Alliances to do that” (Interview 5‐COM). On the
contrary, the Commission perceives the Alliances as a way to gather intelligence, identify the major policy
gaps, set priorities, and increase the likelihood that the industry will invest and contribute to European
ecosystems (Interview 7‐COM). The Alliances’ output (analyses, reports, and position papers on specific
issues) often concentrates on highly technical aspects. Other topics can be politically more sensitive, such as
the work of the ECH2A on permitting, standardisation, or the potential impact of the US Inflation Reduction
Act. While so far, there has been limited political or public contestation regarding the role of Industrial
Alliances, these have occasionally been put under the spotlight by transparency NGOs and some political
groups in the European Parliament (cf. Taylor, 2021). In sum, the Alliances have assumed the function of
providing some light forms of policy coordination, with relatively limited concerns regarding the ability of the
European Commission to remain insulated from special business interests.

Finally, on risk socialisation, the Alliances remain on the passive end of the techno‐governance spectrum
envisaged by GI. While facilitating investment constitutes a core function of the Alliances, their contribution
is limited to matching activities rather than direct involvement in innovation, e.g., through subsidies or
public–private partnerships. The EU has developed risk‐sharing instruments, most notably in the form of
guarantees. As a successor of the European Fund for Strategic Investment introduced by the Juncker
Commission, the EU currently counts on the InvestEU programme (2021–2027), powered with €26 billion in
guarantees, to increase the risk‐bearing capacity of the European Investment Bank (EIB) and national
promotional banks to mobilise private investment in areas such as the green transition. The most proactive
mechanisms concern hydrogen, where the Commission is involved in de‐risking production and imports of
green hydrogen through auctions supported by specific financial instruments. Regarding subsidies for clean

Politics and Governance • 2024 • Volume 12 • Article 8221 13

energy technologies, the EU does not provide direct support. However, it has relaxed its state aid rules to
allow member states to subsidise battery and hydrogen technologies (€6.1 and €17.5 billion, respectively).
To qualify as Important Projects of Common European Interest, projects “should be particularly important in
size or scope or imply a very considerable level of technological or financial risk, or both” (European
Commission, 2021, p. 14). Risk‐sharing is thus at the core of the Important Projects of Common European
Interest. Nevertheless, more ambitious EU‐level risk‐sharing mechanisms, such as the European Sovereignty
Fund proposed by Commission President Von der Leyen to promote strategic technologies “made in Europe”
in response to the nearly $400 billion in clean‐tech subsidies of the US Inflation Reduction Act, did not get
the support of the EU member states (Simon, 2024).

In this framework, the Alliances endeavour to help companies access finance by facilitating the matching
between projects and investors, organising investor days and ministerial meetings involving private investors
and the EIB (Interview 7‐COM). Some of the project proposals of the ESIA were presented during the solar
photovoltaic ministerial meeting in December 2023, during which the EIB was one of the attendees
(Interview 6‐COM). Other examples include the ECH2A’s Green Hydrogen Investment Day, organised in
November 2023 in collaboration with EIT InnoEnergy’s European Green Hydrogen Acceleration Centre,
where many projects could be pitched to various investors. The year before, the same Alliance launched two
calls for projects with the EIB (Interview 5‐COM). The ERMA also runs a Clean Technology Materials Task
Force to mobilise and coordinate funding. One example of successful unlocking of private investment is the
EBA Strategic Battery Materials Fund, launched in January 2024 by EIT InnoEnergy and Demeter (a major
European private equity and venture capital firm), consisting of €500 million to boost domestic capacities for
strategic battery materials and increase raw materials supplies from EU Raw Material Partnership countries,
such as Canada, Namibia, and Argentina.

The Alliances also develop “project pipelines,” which are overviews of project proposals in the respective
sectors that the managing organisations collect and assess according to criteria such as project maturity.
The Alliances are particularly intended to grow investments in their respective sectors. Most successfully,
the EBA generated investments for about 160 projects since 2016, when “there was no industry” (Interview
8‐EIT). However, as the same interviewee noted, “[Europe] is still under a lot of pressure and challenge
within this industry to deliver on the commercialisation of those projects. It takes time to be competitive.”
The number of project proposals ranges from 840 project proposals in ECH2A to 150 for ERMA and
20 projects for ESIA. Including projects in the pipeline, however, does not guarantee their realisation. They
can be seen as windows onto the potential of an emerging industry. Overall, the Alliances play a role in
bringing the markets’ attention to public support schemes, though in a rather passive form, by delegating to
EIT, InnoEnergy, and RawMaterials the task of bringing in private capital and encouraging the formation of
new industrial ecosystems without exacerbating dependencies on state support.

4. Conclusion

GI, understood as a specific form of institutionalised state–industry collaboration guided by public goals,
“has become central to the effective execution of economic statecraft” (Weiss & Thurbon, 2021, p. 7). As the
EU tries to boost its industrial policy in response to geopolitical and geoeconomic pressures, this article
examined whether government–firm relations at the EU level, organised in the new format of Industrial
Alliances, also take some of the qualities described in a GI system. The recently launched EU Industrial

Politics and Governance • 2024 • Volume 12 • Article 8221 14

Alliances were examined as important institutional innovations in that regard, as their explicit aim is to
support EU strategic autonomy by increasing the capacity to innovate and domestically produce critical
technologies, goods, and materials. However, our analysis has revealed a more mixed picture.

On the one hand, in line with GI, Industrial Alliances provide an institutionalised venue for public–private
collaboration led by geostrategic objectives that contribute to reducing information gaps and fostering
policy coordination. All examined Alliances provide structured channels of communication that allow the
European Commission to better understand the industry’s conditions and align its strategies with industrial
priorities. By purposefully covering all the segments of the value chains in their respective technologies, the
Alliances also echo the GI‐inspired notion of hybridised industrial ecosystems. On the other hand, Industrial
Alliances adhere less well to a GI system in their composition and structure, and their loose articulation of
risk‐socialisation mechanisms. In terms of membership, the Alliances are generally more open to
third‐country firms than expected by GI. Besides a normative commitment to openness, this inclusiveness
reflects the high level of EU dependency on global technological value chains. The structure and
management of the Alliances also reveal a shortage of resources and in‐house expertise on the European
Commission side to fulfil the steering functions that GI assigns to state bureaucracies.

However, the dimension where the EU practice differs most from GI is the degree of risk‐socialisation
mechanisms. The EU has comparatively limited instruments to elicit cooperation from the private sector.
Hydrogen is the sector where the EU is most proactive, with the largest amount of state aid projects,
specific financial instruments, and risk‐sharing schemes embedded in the European Hydrogen Bank, and a
clear goal to develop standards that give EU electrolyser producers an edge over competitors. However,
while the EU has set strategic goals, such as the domestic manufacturing of 40% of clean technologies by
2030, it does not directly engage in public–private innovation partnerships, which is a key defining trait of
the forms of GI that have developed in the US and East Asian economies. It has few mechanisms to link
national subsidies to EU‐level performance targets.

The EU’s multilevel character and ingrained state–society relations contribute to explaining the
shortcomings and challenges of the EU acting as effectively as other global players in an increasingly
confrontational world. For decades, as it is characterised as a regulatory state (Majone, 1994), the EU has
traditionally avoided linking the Single Market with geopolitical and security considerations. Quite the
contrary, in domains such as energy policy, the EU rather concentrated on dismantling strong
government–firm relations at the national level to unlock the economic potential of the Single Market.
Therefore, the shift from market‐creating to market‐directing industrial policy (Seidl & Schmitz, 2023), while
broadly accepted discursively, remains difficult to implement in practice. Given that the most powerful tools
of strategic industrial policy reside at the national level (e.g., state aid), the EU’s attempts to emulate the
state capitalist tools of the US or China might ironically imply a weakening of the EU’s ability to integrate
and control member states (Fu, 2024, p. 789). Therefore, the risk of fragmentation and accentuation of
regional inequalities within the EU due to the recent wave of industrial policy is a mounting source of
concern (Di Carlo & Schmitz, 2023, pp. 24–25; Wigger, 2023).

The EU’s difficulty in building up economic statecraft via industrial policy, supported by a robust GI, contrasts
with the EU’s relative success in articulating and leveraging its external tools of economic statecraft via trade
and investment policy (cf. Bauerle Danzman & Meunier, 2024). Unpacking the causes and consequences of

Politics and Governance • 2024 • Volume 12 • Article 8221 15

this gap between EU domestic and outward‐oriented economic statecraft constitutes an important avenue
for further research on the interaction between geoeconomics and European integration. The way in which
the EU develops and combines these two dimensions of statecraft is likely to have a profound impact on
state–market–society relations, the balance between national and European authority, and the EU’s ability to
navigate global energy and digital transformations.

Acknowledgments
We are grateful to Claire Dupont, Dag Harald Claes, and the colleagues of the Politics and Culture in Europe
(PCE) cluster of Maastricht University for detailed comments on earlier versions of this article. We are also
thankful to all the interviewees who generously shared their time and expertise. Our thanks also go to the
anonymous reviewers and the academic editors of this thematic issue for helping us improve our article with
sharp and constructive comments.

Funding
This article falls within the Project “Dangerous Assets? Foreign Investment Governance in Times of
De‐Globalization,” funded by the Netherlands Organization for Scientific Research (NWO).

Conflict of Interests
One of the authors was a Blue Book Trainee at the European Commission DG Internal Market, Industry,
Entrepreneurship and SMEs (DG GROW) at the time of writing this article. While that role has facilitated the
identification of key individuals responsible for the internal management of Industrial Alliances, the research
for this article was developed independently from it and interviewees were fully informed about the
research purposes of the interview. The opinions expressed in this article are those of the authors only and
should not be considered as representative of the European Commission’s official position.

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About the Authors

Riccardo Bosticco works at the European Policy Centre, focusing on economic security
and specialising in semiconductor and quantum technology. Previously, he researched EU
energy security and governance at Istituto Affari Internazionali and as a research assistant
to Dr. Anna Herranz‐Surrallés, and has worked on hydrogen policy at the DG GROW of
the European Commission. A graduate of Maastricht University, Riccardo is an incoming
doctoral fellow at the Centre for Security, Diplomacy, and Strategy at the Brussels School
of Governance.

Anna Herranz‐Surrallés is an associate professor of international relations at the

Department of Political Science of Maastricht University. She specialises in European and
global energy governance and is the principal investigator of the NWO‐funded project
Dangerous Assets, which investigates the security dimension of foreign investment in
the clean energy sector. Anna also serves as programme director of the Research Master
European Studies at Maastricht University and as co‐editor of the Journal of European
Integration.

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Politics and Governance
2024 • Volume 12 • Article 8041
https://doi.org/10.17645/pag.8041

ARTICLE Open Access Journal

Latin American Involvement in the 21st Century Geoeconomic

Turn: A Qualitative Comparative Analysis
Julieta Zelicovich 1,2
1
National Scientific and Technical Research Council (CONICET), Argentina
2
Faculty of Political Science and International Relations, National University of Rosario, Argentina

Correspondence: Julieta Zelicovich ([email protected])

Submitted: 9 January 2024 Accepted: 9 May 2024 Published: 24 June 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
In the past decade, profound political and economic transformations have reshaped the landscape of
globalization and challenged the conventional notions of the liberal international order. The traditional
boundaries between the economy and security realms have become blurred, giving place to a geoeconomic
turn illustrated by the high utilization of economic statecraft in international politics. While much scholarly
attention has been devoted to understanding the geoeconomic strategies of global powers like the US and
China, the agency and roles of emerging and developing countries, notably those in Latin America, have
often been overlooked. This article addresses this gap by examining how Latin American nations engage in
21st‐century geoeconomic dynamics. Using qualitative comparative analysis across 18 case studies, the
study assesses the conditions and key characteristics of geoeconomic actions involving Latin American
countries since 2017. The article presents a typology that sheds light on the mechanisms at play within
economic statecraft in the region through six different situations: (a) local geopolitical‐driven economic
statecraft, (b) Latin American value‐driven economic statecraft, (c) extra‐regional sanctions, (d) economic
inducement strategy, (e) coercive strategy for strategic assets and technologies, and (f) precautionary
defensive economic statecraft. The contribution is twofold: On the one hand, the article casts light on the
different facets Latin American countries have in the geo‐economic trends; on the other hand, the analysis
and classification of these situations help understand the links between economic and strategic policies.

Keywords
economic policy; economic statecraft; geoeconomic turn; geoeconomics; Latin America; strategic policies

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
1. Introduction

Over the past decade, political and economic transformations have triggered a geoeconomic shift in
international relations. Governments now leverage their economic power to pursue political, strategic, or
security aims. This has blurred the boundaries between the economic and security realms, changing the
international economic scenario and leading to the configuration of a “geoeconomic turn” (Babić et al., 2022;
Bauerle Danzman & Meunier, 2024). Within this context, most of the specific literature has focused on
understanding the dynamics of geoeconomic strategies between the US and China. Conversely, emerging
and developing countries’ roles, particularly Latin American ones, have remained overlooked.

This article addresses this gap in international relations literature by focusing on the dynamics of the
21st‐century geoeconomic turn in Latin America. The analysis aims to address how Latin American countries
have managed their strategies in geoeconomic times. Applying qualitative comparative analysis (QCA), the
research examines the conditions and goals that trigger geoeconomic actions and the characteristics of the
tools involved across 18 case studies. Further, it compares the configurations shown when Latin American
countries are the initiating actors or the targets in a geoeconomic dynamic. The findings help to develop a
typology of six different situations: (a) local geopolitical‐driven economic statecraft, (b) Latin American
value‐driven economic statecraft, (c) extra‐regional sanctions, (d) economic inducement strategy, (e) coercive
strategy for strategic assets and technologies, and (f) precautionary defensive economic statecraft.

Section 2 delves into a thorough literature review, examining theoretical frameworks and empirical insights
that have contributed to understanding geoeconomics and Latin American countries’ role in the
geo‐economic turn. Section 3 presents the case selection and the conditions applied in the QCA. Section 4
discusses the characteristics of Latin American countries’ involvement in the geo‐economic trends and
presents a nuanced typology based on the case studies. Finally, the concluding remarks synthesize the key
findings and contributions.

2. Literature Review

The study of geoeconomics has gained prominence as the competition between the US and China settled
as the central dynamic in global international relations since 2017 when the US government acknowledged
China’s growth as a challenge to American power and interests and introduced economic security as a pillar
in the US National Security Strategy. The reasoning is twofold. On the one hand, there is a growing sense
of competition instead of cooperation between major powers, which makes strategic policies more salient
(Baracuhy, 2019). On the other hand, due to the extent of global interdependence, economic power is assumed
to be a suitable tool for strategic goals—in some cases, even more than military ones (Farrell & Newman, 2019;
Wigell et al., 2018).

Geoeconomics is a contested concept (Scholvin & Wigell, 2018). It can be defined as “an extension of the
sphere of geopolitics applied to international economic relations” (Coelho Jaeger & Pereira Brites, 2020,
p. 22). It has been applied as a systemic level approach that can characterize the growing tensions in great
powers competition (Aggarwal & Kenney, 2023) and as a term that indicates how a state exercises power
using economic tools (Bauerle Danzman & Meunier, 2024; Blackwill & Harris, 2016). From this perspective,
the economic factors, including the position in economic networks, are framed as power resources in

Politics and Governance • 2024 • Volume 12 • Article 8041 2

interstate competition. It can be considered a special type of economic statecraft (Baldwin, 2020) that
pursues particular aims: Instead of mere economic goals, these actions use economic tools for geopolitical
purposes (Bauerle Danzman & Meunier, 2024). Motives can be mixed, but what distinguishes this type of
behavior in the international arena is that it applies economic tools to pursue goals beyond their immediate
economic effects, mostly linked with interstate rivalry (Scholvin & Wigell, 2018).

Among others, geoeconomics, as a type of economic statecraft, can be applied with aims such as shaping the
strategic environment (Vihma, 2018) and influencing the behavior of other countries by deterring or
compelling them to take certain actions (Baldwin, 2020; Mastanduno, 2003). In addition, it can be used as a
punishment or signaling mechanism (Zhang, 2019) to satisfy domestic and international opinion or even as a
bargaining tool (Miyagawa, 2023). For Choer Moraes and Wigell (2022), geoeconomics implies “trying to
enforce dependencies on others” or “reducing such dependencies so as not to become a pawn in
geoeconomic power politics” (p. 35). Under geoeconomics, “states use economic interdependence
offensively to further their foreign policy goals” or “may defend themselves against the use of weaponized
interdependence by other states” (Weinhardt et al., 2022, p. 108).

Geoeconomics and economic statecraft can encompass a wide range of instruments. Trade, finance,
investment, and control of strategic assets and technologies are “weaponized” to exercise power.
Governments, unilaterally or in coordination with others through regional integration processes, resort to
coercive economic measures that restrict economic flows between the target and the sender, applying
export restrictions, tariff increases, withdrawal of most‐favored‐nation treatment, freezing assets, capital
control, aid suspension, and similar actions with geopolitical or strategical goals (Blackwill & Harris, 2016;
Borchert, 2022). Other geoeconomic instruments include industrial policy for market dominance in choke
points or supply chain diversification (Aggarwal & Reddie, 2021; Bauerle Danzman & Meunier, 2024).

Authorities can also pursue their geoeconomic goals by offering “carrots” that foster economic exchanges
with particular counterparts. These economic engagement measures can be channeled through official
international assistance, humanitarian aid, development finance, access to currency, trade preferences,
preferential tariffs, and subsidies. For instance, free trade agreements (FTAs) have been framed as tools that
can “shape the web of interdependencies…to improve one’s own economic power…or to reduce the
influence and power of global rivals” (Adriaensen & Postnikov, 2022, p. 7).

Existing literature distinguishes between short‐term inducements, which focus on achieving a specific and
relatively immediate change in policy, and long‐term inducements, also termed “catalytic,” which are designed
to transform the target state’s interests and preferences (Blanchard & Ripsman, 2013; Donovan et al., 2023).
This might indicate a linkage between the type of tool implemented in geoeconomic dynamics and the goals
pursued by the initiating actor.

It takes two to tango, and the same applies to geoeconomic dynamics. Geoeconomic dynamics are based on
(asymmetrical) economic interdependence and economic networks. Thus, the relationship between the sender
or initiating states and the target or targets is pivotal. Previous studies have almost exclusively focused on
geoeconomics as a behavior belonging to big powers (Kim, 2020; Vihma, 2018), such as China and the US,
emphasizing their role as senders. The characteristics of the sender–target relation, including political regime
or ideological distance, have been taken into account in the study of the conditions under which these tools

Politics and Governance • 2024 • Volume 12 • Article 8041 3

are incorporated into foreign policy strategies (C. Lai, 2022) and in their effectiveness (Blanchard & Ripsman,
2013) as well.

Geoeconomics, however, is not a big‐powers‐only game. It has been acknowledged as a phenomenon with
global effects (Borchert, 2022). A closer look at the literature reveals some relevant works that have
analyzed the role of emerging and regional powers in these geoeconomics dynamics (Armijo & Katada, 2014;
Breslin & Nesadurai, 2023; Narlikar, 2021). This literature suggests that middle powers are not merely
recipients of big power actions but also that they could have the capacity to wield their tools for
non‐economic purposes. Breslin and Nesadurai (2023) acknowledge that the ability to generate global
effects with economic statecraft actions is limited to only a few countries. However, in agreement with
Blackwill and Harris (2016) and Wigell et al. (2018), they point out that geoeconomics can also be applied to
a more restricted geographical scope. Narlikar (2021), for instance, proposes five strategies available for
Global South countries in geoeconomic dynamics, from taking advantage of the opportunities that arise in
economic networks as the big powers clash to capturing choke points, hedging, forming coalitions to
external balancing, and developing certain narratives. Furthermore, findings of a special issue on the Pacific
Region geo‐economic dynamics show that countries in this region have developed their geoeconomic
strategies and that reducing security externalities and enhancing economic and comprehensive security
have been the aims of the last decade’s economic statecraft efforts in that area (Breslin & Nesadurai, 2023b).

In Latin American studies, this type of framework has been more unusual. Geoeconomic and economic
statecraft analysis in Latin America has focused mainly on the role of external actors. This literature has
suggested that Latin America has predominantly played a passive role in geo‐economic trends, often as a
contested territory. For example, Gardini’s (2021) work frames the dynamics of extra‐regional powers’
presence in Latin America, where the US and China are the key players. Several studies have focused on the
role of the US in the region throughout history (Berg & Brands, 2022; Santa‐Cruz, 2020). In addition, China’s
recent economic statecraft in Latin America has attracted much attention in regional and global studies
(Jenkins, 2022; Urdinez et al., 2016).

In fact, the literature regarding the antecedents and capabilities of Latin American countries to wield
economic statecraft is rather limited. Among the few studies that propose a proactive role of the region in
the geo‐economic trends, Brazil has gained interest, mainly due to its economic power as the supposed
regional leader (Schenoni & Leiva, 2021; Scholvin & Malamud, 2020). Venezuela’s Petrocaribe initiative has
also caught some attention, and it has been studied as one salient example of Latin American geoeconomics
at the beginning of the 21st century (Márquez Restrepo, 2018). Additionally, other geoeconomic dynamics
in the region have been explored through the lens of post‐hegemonic regionalism, encompassing regional
integrations, cooperation, and financial statecraft (Riggirozzi & Tussie, 2012; Tussie & Nemiña, 2021). More
recently, Fortin et al.’s (2021) research on “non‐active alignment” has triggered a fascinating discussion on
Latin American countries’ strategies in the face of hegemonic competition. While geoeconomics is not the
primary focus of that work, it briefly touches upon dynamics in which Latin American countries have acted
as senders or targets.

To the best of current knowledge, no studies have revised and discussed the engagement of various Latin
American countries in the recent decade’s geoeconomic turn as a regional phenomenon. This article seeks to
address and contribute to filling that gap by evaluating and comparing the conditions and key characteristics

Politics and Governance • 2024 • Volume 12 • Article 8041 4

of geoeconomic actions involving Latin American countries. The analysis examines the instances,
circumstances, and methodologies through which Latin American nations have utilized their economic
resources and networks in geoeconomic dynamics and the cases where other international actors have
targeted them. This type of study has the potential to contribute to interregional comparative analysis in
geoeconomic studies, which is needed to test the singularities of geoeconomic dynamics in emerging and
developing countries.

3. Data and Methods

This article applies crispy QCA. Based on Boolean algebra, this method is appropriate for dealing with small‐𝑁
and medium‐𝑁 phenomena that present “multiple conjunctural causation” (Berg‐Schlosser et al., 2009). This
is the case for the geoeconomic situation in Latin America. In a nutshell, this method allows for comparing and
contrasting the different configurations that produce an outcome. Among others, QCA is a good technique for
describing complex phenomena synthetically and systematically and building typologies (Rosati & Chazarreta,
2017). The analysis was run using Cronqvist (2019), based on Rihoux and De Meur (2009).

The QCA aims to establish a classification of the diverse situations and characteristics within the
geoeconomic dynamics deployed in Latin America. By identifying common elements across various
scenarios, the study pursues the construction of a typology that encapsulates the observed phenomenon
and contributes to a nuanced understanding of geoeconomic dynamics in the region. This method is
appropriate for evaluating the geoeconomic dynamics’ characteristics throughout the region without limiting
the study to a few typical cases, as it happens with single case studies or small‐𝑁 comparisons. By applying
QCA, this article enhances its external validity and, at the same time, can still account for the complexities
and equifinality of geoeconomic dynamics. The identification of the different configurations that this
method brings to light is a unique contribution to building a typology that relates several triggering
conditions, characteristics, and roles in geoeconomic dynamics.

The sample reunites different geoeconomic actions involving Latin American countries. As mentioned above,
this article considers geoeconomic actions to be situations where authorities weaponize economic flux to
change international actors’ behavior or preferences. In particular, the analysis focused on situations where
the pursued goal is non‐economic and geographically or strategically founded. Therefore, the article took
geoeconomics as a delimited type of economic statecraft.

The research traced situations in which there was an explicit decision by authorities to apply economic
inducements (or the promise of them) or economic coercions (or the threat of them) that modified trade,
market access, foreign direct investment, foreign official aid, credits, or loans, with political or strategic aims.
These may include coercing or persuading an international actor to change a specific policy aligned with the
sender’s strategic goals, deterring other actors from resorting to coercive economic diplomacy against them
or shaping the strategic environment in the international system by economic tools. Situations where
geopolitical tools were used for economic ends were not considered in the sample, as they did not fit the
abovementioned definition.

The analysis focused on the initial action in geoeconomic dynamics, evaluating the conditions and
characteristics of the measures applied. However, the research tool employed could not capture the entire

Politics and Governance • 2024 • Volume 12 • Article 8041 5

action–reaction dynamics between the sender and target after the first move. Additionally, the QCA did not
assess the effectiveness of the geoeconomic measures. Therefore, it is important to consider that being the
target does not necessarily imply a lack of agency in the geoeconomic turn. Rather, this label helps to
understand that the country or region presents certain conditions that make it vulnerable to geoeconomic
dynamics. Conversely, when a country or region is identified as the sender, in this analysis, this serves as a
sufficient indication of proactive behavior and clear agency in geoeconomics.

Through analyzing official documents, web scraping of news articles, observation of datasets, and review of
specific academic literature, this article constructed a sample of 18 case studies involving Latin American
countries in geo‐economic dynamics since 2017. It is worth noting that previous literature focuses on single
case studies or small‐𝑁 comparisons. This study is the first in the specific literature to trace and document a
medium‐sized set of cases of geoeconomic dynamics involving Latin American countries from 2017 onwards
due to the absence of a prior database from which to draw a sample.

Therefore, the sampling exercise was intentionally theory‐based and data‐driven. Mello (2021, p. 22) notes
that “most QCA studies base their case selection on given populations, scope conditions, or purposeful
selection.” In this case, the selected cases introduced variety in each analysis condition, including having
different roles as senders or targets and applying distinct types of tools of economic statecraft. When similar
cases were encountered, such as Taiwan’s economic diplomacy towards Paraguay and Central America, the
case that best aligned with the analysis period and had more available academic literature was prioritized in
the sample. For each of the selected cases, the scope of the action was traced and tested to ensure it aligned
with the study’s definition, considering that the primary tool was economic and that the stated goal from the
initiating actor included some political or geostrategic aim.

Complex economic instruments like FTAs, explicitly stating political or geostrategic aims by the signing
members, were considered in the sample. The sample included both individual cases and regions when these
have the capability to weaponize the economic fluxes, such as the case of the EU or MERCOSUR. When
dealing with geoeconomic strategies that involved the whole region as the target (e.g., the Belt and Road
Initiative), the focus was placed on its development in one country as illustrative of the intended dynamic.

These sampling strategies allowed for the inclusion of a variety of situations that, through the QCA, could help
bring about a classification or typology of the instances, circumstances, and methodologies through which
Latin American nations are involved in geoeconomics dynamics. Table 1 summarizes the selected cases.

For the QCA, the evaluation initially focused on how geoeconomic situations varied according to the power
dynamics triggering the action. As a salient characteristic of the geoeconomic turn in the last decade, attention
was given to how cases responded to the hegemonic power competition. Geoeconomics is heavily driven
by the hegemonic dispute and the contest of power at the systemic level (Baracuhy, 2019; Vihma, 2018).
However, some literature has also pointed to using economic statecraft in the closer region as an arena for
power disputes (Wigell et al., 2018). Therefore, a codification was built for “power competition as a challenge,”
examining whether the observed actions stemmed from hegemonic power competition—with their specific
sensitive topics—or from a regional or bilateral power dispute. Data collection for this triggering condition
involved qualitative content analysis of official documents and governmental press releases related to the
intended measure under study.

Politics and Governance • 2024 • Volume 12 • Article 8041 6

Table 1. Geoeconomic situations involving Latin American countries (2012–2023): Selected cases.
Case ID Year Sender Target Brief description
MCS_VENEZUELA 2017 MERCOSUR Venezuela MERCOSUR decided to suspend Venezuela
from the bloc for a rupture of the democratic
order, using the Democratic Clause regime.

PAN_VENEZUELA 2017 Panama Venezuela Panama’s government pledged to the US

Department of the Treasury sanctions against
Venezuela due to democratic principle
violations.

CH_BRI–PAN 2017 China Panama After recognizing the People’s Republic of China
(and ending diplomatic recognition of Taiwan),
Panama became the first country in Latin
America to join the Belt and Road Initiative.

CH_ARG–LOAN 2017 China Argentina China and Argentina established a Preferential

Buyer Credit Loan Agreement on the Jujuy
Photovoltaic Power Plant Project, which entails
purchasing goods and technologies from China
and implementing Chinese standards
(Article 2.5), enhancing China’s strategic
position in global competition.

USA_MEX–USMCA 2018 US Mexico Article 32.10 of the United

States–Mexico–Canada Agreement (USMCA)
restricts the party’s ability to enter a FTA with a
non‐market country (China).

ARG_LEBANON 2019 Argentina Lebanon Argentina designated Hezbollah as a terrorist

organization. It ordered a freeze on the financial
assets of the group.

EU_HR–NICARAGUA 2019 EU Nicaragua The EU introduced restrictive measures

(freezing assets) against targeted persons and
entities to address Nicaragua’s human rights
violations and undermining of democracy and
the rule of law.

TAIWAN_PAR–FDI 2019 Taiwan Paraguay Taiwan signed a US$150 million deal with
Paraguay regarding humanitarian and social aid,
education, housing, and infrastructure. These
agreements are part of Taiwan’s economic
diplomacy towards its allies.

USA_5G–BRAZIL 2020 US Brazil Brazil received diplomatic warnings from the

US on Huawei’s participation in 5G networks.
At the same time, the US invited Brazil to be
part of the Clean Network initiative and offered
credit operations for other companies.

BR_WTO 2021 Brazil Unspecified The government passed Law 14353, which
provides for the suspension of concessions or
obligations in the event of non‐compliance with
multilateral obligations by a member of the
World Trade Organization (WTO).

Politics and Governance • 2024 • Volume 12 • Article 8041 7

Table 1. (Cont.) Geoeconomic situations involving Latin American countries (2012–2023): Selected cases.
Case ID Year Sender Target Brief description
ARG_MALVINAS 2021 Argentina UK Argentina implemented administrative restrictions
on oil companies from the UK operating in the
Malvinas Basin in violation of Laws 26659 and
26915, which prohibit the exploration or
exploitation of hydrocarbons on the Argentine
continental shelf without authorization from the
Argentine government.

USA_CHILE 2021 US Chile Chile’s government was forced to cancel the

Chinese‐German consortium Aisino–Mühlbauer
tender to issue passports and identity cards to
continue with a visa waiver program to the US.

EU–FTACHILE 2022 EU Chile Several non‐trade issues, such as food security,

energy and raw materials, and sustainable
development, were included in the modernization
of their FTA, following the EU’s trade policy
strategy Trade Policy Review: An Open, Sustainable
and Assertive Trade Policy.

USA_HR–NICARAGUA 2022 US Nicaragua The US government applied restrictions on

international financial institutions relating to
Nicaragua and implemented targeted sanctions as
part of the Nicaragua Human Rights and
Anticorruption Act of 2018.

ECUADOR_CH–FTA 2022 Ecuador China Lasso’s government negotiated an FTA with China,
aiming for several geoeconomic strategic goals:
positioning Ecuador as an economic hub in South
America, increasing its competitiveness towards
other regional countries, and gaining leverage for
debt negotiation with China.

PARAG_ARG 2023 Paraguay Argentina Paraguay decided to restrict Argentina’s power

supply from Itaipú as a coercive measure against
Argentina’s decision to apply tolls over the
Paraná–Paraguay waterway.

USA_CHIPSAct–PAN 2023 US Panama The US entered a cooperation agreement with

Panama under the International Technology
Security and Innovation Fund, established by the
CHIPS Act. The objective is to develop “resilient,
secure, and sustainable global semiconductor
value chains” (U.S. Embassy in Panama, 2023, p. 1)
between the two economies.

EU–ECUADOR–GGI 2023 EU Ecuador Under the EU‐LAC Global Gateway Investment

Agenda, Ecuador has benefited from two initiatives,
Drinking Water and Sewerage Programmes in
Ecuador and A Green Deal for Ecuador, which
entail financing agreements and technical
cooperation while promoting European values.

Politics and Governance • 2024 • Volume 12 • Article 8041 8

Secondly, an analysis was conducted to determine whether values and identity affected Latin American
engagement in geoeconomics. According to Blackwill and Harris (2016), situations that threaten
identity‐related ideals can be perceived as salient enough to expect the use of economic statecraft. Therefore,
the study evaluated whether geoeconomics was connected to values identified with the international liberal
order (ILO). Public discourses, official documents, and press releases were traced to identify if they mentioned
values and principles that encompass liberal democratic polity and economy, free movements of goods and
capital, the rule of law, and human rights, as those typically related with the liberal order (Lake et al., 2021).
The article assesses whether these values were triggering conditions for Latin American geoeconomics or if
other priorities, such as sustainable development or autonomy, drove the observed actions.

Thirdly, an evaluation was conducted to assess how economic vulnerability affected the dynamics of
geoeconomics. Economic interdependence is considered a precondition to geoeconomics (Farrell &
Newman, 2019). In general, country A would only employ economic statecraft against country B if the latter
is economically vulnerable. How to operationalize and measure economic interdependence has been a
contested issue in academic literature (Gartzke & Li, 2003; J. Lai & Anuar, 2021). In this article, economic
vulnerability was assessed by combining the market concentration of the target country and the leverage of
the trade relations with the sender on the national economy. Initially, the Herfindahl–Hirschman index (HHI)
was examined. Subsequently, for each pair of actors involved in the selected cases, trade dependence was
evaluated as the effect of bilateral trade on the target’s GDP: (Expab + Impab ) / GDPb . Following Alvarez et al.
(2017), the economic vulnerability of a target was considered to take place when HHI was greater than 0.18
and trade dependence surpassed 5%.

Moreover, the goals pursued in each selected case were assessed considering whether the geoeconomic
situation under analysis aimed a specific policy change in the target, usually in a tit‐for‐tat dynamic, or if its
goal is to alter the other actor preferences in a medium‐long term scenario. As discussed above, these
different goals imply different dynamics in how geoeconomics is displayed. In the first scenario,
governments resort to direct actions, clearly targeted, with short‐term effects. Usually, this is a reaction to
something that happened or the target actor did that is perceived as a threat to strategic interests.
In contrast, goals such as gaining economic leverage in other countries or reducing their vulnerabilities to
third‐party coercion are the expected behavior under the latter options.

Therefore, the tool that instrumentalized the economic statecraft was traced. The study looked at the
measures implemented to exert power, analyzing whether they restricted or limited the economic flows or
created more interdependence and expanded the economic linkages between the actors involved.
The official and legal documents of the sender country on the measure under study were examined for this
purpose. In CoerciveES, 1 stands for the use of coercive economic statecraft (sticks) and 0 for the resort to
positive economic statecraft (carrots).

Lastly, the role that Latin American countries adopted in the launch of these geoeconomic situations was
evaluated, either as senders (1) or targets (0). As discussed above, this is a sort of “smoking gun test”: Being the
sender sufficiently proves a proactive behavior in geoeconomics, but being a target does not necessarily imply
a passive attitude or being merely a rule‐taker. Latin American countries were the senders on seven occasions,
while on 11 occasions, they were the target. In three instances, intra‐regional geoeconomic dynamics involved
dual roles as sender and targets. Those cases were coded as “senders.” This variable served as the outcome in
the QCA. Table 2 summarizes the conditions, codes, and values applied in the QCA.

Politics and Governance • 2024 • Volume 12 • Article 8041 9

Table 2. Conditions, codes, and values.
Condition Code Value
Power competition as a Trigger_PC 1: Governments respond to hegemonic power competition
challenge
0: Governments respond to regional/local power competition

ILO values involved in Trigger_ILO 1: Defiant situation involves violation of ILO values such as
triggering situation democracy and human rights
0: Defiant situation does not involve violation of ILO values

Economic vulnerability Econ_Vulner 1: Target’s exports or imports are highly concentrated on a few
products, with HHI greater than 0.18 and trade between target
and sender surpassing 5% of target GDP
0: Target’s exports or imports are not concentrated on a few
products, with HHI below 0.18 and trade between target and
sender being below 5% of target GDP

Defined policy change Policy_Change 1: Economic statecraft pursues a specific policy change in target
0: Economic statecraft aims to alter the target’s preferences in the
medium‐long term

Coercive Economic CoerciveES 1: Economic statecraft is channeled through sanctions or threats

Statecraft
0: Economic statecraft is channeled through positive economic
engagement or promises

Latin American country LA_Sender 1: A Latin American country is the initiating actor in the
as initiating actor geoeconomic dynamic
0: A Latin American country is the target of the geoeconomic
dynamic

4. Mapping the Landscape of Latin American Involvement in the Geoeconomic Turn:

A Typology

Although not the central arena of hegemonic dispute, Latin American countries have not remained strangers
to the geoeconomic turn. The data covering the second decade of the 21st century shows—as expected—
that the region is still a disputed territory by external powers. At the same time, our data introduces a novel
narrative showing that Latin American countries have also developed some geoeconomic action against other
countries in the region and some extra‐regional powers.

The analysis of the different initiatives reveals seven configurations of geoeconomic dynamics involving
Latin American countries (Table 3) out of 64 logical possibilities. The Boolean minimization, which stands
with the parsimony principle in QCA, allows us to synthesize the results in six types of observed situations:
(a) local geopolitical‐driven economic statecraft, (b) Latin American value‐driven economic statecraft,
(c) extra‐regional sanctions, (d) economic inducement strategy, (e) coercive strategy for strategic assets and
technologies, and (f) precautionary defensive economic statecraft. The first three relate to traditional ways in
which geoeconomics and economic statecraft have been used during the 20th century. Conversely, the last
three are connected explicitly to 21st‐century geoeconomic dynamics.

Politics and Governance • 2024 • Volume 12 • Article 8041 10

Table 3. Table of truth.

Policy_Change

CoercivePES
Econ_Vulner
Trigger_ILO
Trigger_PC

LA_Sender
(Outcome)
Case ID Typology

PARAG_ARG, ARG_MALVINAS 0 0 0 1 1 1 Type 1: Local geopolitical‐driven

economic statecraft

MCS_VENEZUELA, ARG_LEBANON, 0 1 0 1 1 1 Type 2: Latin American value‐driven

PAN_VENEZUELA economic statecraft

USA_HR–NICARAGUA, 0 1 1 1 1 0 Type 3: Extra‐regional sanctions

EU_HR–NICARAGUA

USA_MEX–USMCA, CH_BRI–PAN, 1 0 0 0 0 C Type 4: Economic inducement

EU–ECUADOR–GGI, strategy
CH_ARG–LOAN, TAIWAN_PAR–FDI,
ECUADOR_CH–FTA

USA_CHIPSAct–PAN, EU–FTACHILE 1 0 1 0 0 0

USA_5G–BRAZIL, USA_CHILE 1 0 1 1 1 0 Type 5: Coercive strategy for

strategic assets and technologies

BR_WTO 1 1 0 0 1 1 Type 6: Precautionary defensive

economic statecraft

The first type of geoeconomic dynamic revealed in the analysis is local geopolitical‐driven economic statecraft.
Under this dynamic, Latin American countries have resorted to coercive strategies to exert pressure on third
actors’ policies that are perceived to be against strategic geopolitical territorial interests. This goal is closer to
the traditional use of economic statecraft and is not specifically linked to the last decade’s geoeconomic turn,
as it does not involve power competition.

In the sample, Argentina has applied administrative restrictions over companies that do not recognize
Argentina’s sovereignty rights over the Malvinas Basin in the context of the longstanding conflict over the
Malvinas/Falklands Islands with the UK (Ministry of Foreign Affairs, International Trade and Worship of
Argentina, 2021). As the literature shows, this has been a variable policy—sometimes coercive and other
cooperative—and has also affected fishing licenses on other occasions (Míguez, 2022). More recently,
Paraguay has tried to weaponize power supply to Argentina from Itaipú powers station as a coercive
measure against Argentina’s decision to apply tolls over the Paraná‐Paraguay waterway (“Conflicto en la
hidrovía,” 2023).

The cases involve strategic geopolitical disputes, making a solid case for one of the possible reasons a Latin
American country could resort to weaponizing its strategic assets. In this reasoning, it is notable that
economic vulnerability, derived from market concentration, does not emerge as a necessary condition.
On both occasions, Latin American countries resort to their control of strategic natural resources—energy
exports and access to the exploration and exploitation of hydrocarbons—to exert power.

Politics and Governance • 2024 • Volume 12 • Article 8041 11

A different type of involvement in geoeconomic dynamics is the Latin American value‐driven economic
statecraft, under which governments resort to economic sanctions and coercive measures to punish human
rights violations and protect liberal freedoms and democratic rights. The trigger is closely tied to the values
of the international liberal order and, consequently, to the Western identity of countries in the region, who
behave both as targets and senders. The tools involved include financial restrictions, freezing assets, and
suspending concessions and rights, even though the targets are not economically vulnerable to these actions
from the senders. It is possible to assume that these actions use geoeconomics mainly as a signaling strategy.
The Democratic Clause, incorporated in the MERCOSUR regional process and other Latin American
mechanisms, has been put in force twice (Henriques Ferreira & Alves Cunha Paiva, 2022). This mechanism
suggests a deeply rooted predisposition in Latin American governments to resort to collective mechanisms
and economic cooperation to protect certain values. The imposition of sanctions by Panama on Venezuela is
a less studied case that draws attention to its unique rationale: it not only aims to penalize Venezuela’s
actions but also aligns with the US package of financial restrictions (Government of Venezuela, 2018).
Finally, a case was identified in which a Latin American country, Argentina, implemented targeted financial
restrictions on an extra‐regional actor, Hezbollah, identified as a terrorist organization (Unidad de
Información Financiera de la República Argentina, 2019).

In turn, Type 3 introduces extra‐regional sanctions, referring to the weaponization of trade, investment, and
foreign aid implemented by big powers pursuing a certain policy change from a government in the region on
liberal values‐related issues. In particular, the US has sustained a surveillance attitude against the violations
of human rights and democratic values in the region during the last decade, being a frequent sender under
this type of geoeconomic dynamics (Kirilakha et al., 2021). The EU has applied unilateral sanctions against
countries in the region, although with less frequency.

As mentioned above, geoeconomics dynamic Types 4, 5, and 6 are directly related to the geoeconomic turn
and its particularities, as all of them relate to the global power competition. We found that the economic
inducement strategy is the most common dynamic in the sample. Under this logic, Latin American countries
are mostly “on the menu” in a territory where big powers compete for leverage. According to the data, during
the last decade, the US, China, Taiwan, and the EU have deployed geoeconomic strategies to create a strategic
environment for their interest in Latin America in the face of global power competition. FTAs that include
non‐trade issues obligations, conditional loans, or merely economic aid have been weaponized as strategic
means to gain regional influence and preference. These measures have gained prominence, especially since
2017, in correlation with the rise in hegemonic competition.

On some occasions, the tools displayed by the big powers, such as the CHIPS Act and the USMCA, explicitly
mention the competition between the US and China (U.S. Embassy in Panama, 2023). The “anti‐non‐market‐
economy” included in the USMCA is a typical example of how a big power, such as the US, can leverage
its economic power and, through the design of the agreement, condition Mexico’s (and Canada’s) relationship
with China as theorized by Adriaensen and Postnikov (2022). Taiwan’s financial aid and investment have a very
similar dynamic: They are given under the condition that the counterpart/target keeps diplomatic relations
with the Republic of China and not with Beijing (Maggiorelli, 2019). Other situations, such as the Belt and
Road Initiative, are subtler regarding the conditionality implied (Jenkins, 2022). Chinese loans to Argentina
show how conditioned credits can be implemented to enhance China’s strategic position in global competition
by promoting the adoption of Beijing’s standards and technology. In the case of the EU, the rationale behind

Politics and Governance • 2024 • Volume 12 • Article 8041 12

the different economic engagement efforts is traceable through their strategic policy papers. For example, the
EU’s Global Gateway Initiative explicitly acknowledges that this is a geoeconomic action intended to promote
“European values of good governance, transparency, and sustainability” (European Commission, 2022, p. 1).

Latin American countries have seldom involved themselves as senders or initiating actors in this type of
geoeconomic dynamic. Ecuador’s case study is one of the few exemptions in the sample. Ecuador’s
president, Guillermo Lasso, announced his intention to pursue an FTA with China as part of his electoral
campaign, differentiating himself from former president, Correa, who had previously rejected this idea
(Herrera‐Vinelli, 2021). In 2022, negotiations were launched with mixed goals: debt renegotiation but also
balancing Ecuador’s relationship with the US, positioning Ecuador as a hub in South America while also
increasing its competitiveness towards other countries in the region (Chile, Peru, and Costa Rica) that had
already signed an FTA with Beijing (Alden & Mendez, 2023).

Meanwhile, coercive geoeconomic strategies related to hegemonic competition have been rare in Latin
America. Only two cases were found in which these strategies were used against countries in the region in
the context of hegemonic competition. This study’s fourth type of geoeconomics is “coercive strategy for
strategic assets and technologies.” In both cases, these were actions sent by the US aimed to achieve a
specific policy change by Latin American governments concerning the acquisition of strategic Chinese
technology. On both occasions, previous economic interdependence with the US also existed and both
targets had some degree of economic vulnerability since either imports or exports were concentrated.
The US combined diplomatic threats with strongly conditioned access to economic inducement tools such as
visa waivers or loans. The sender threatened to exclude the target from certain benefits unless the target
revised its policy.

Brazil granting Huawei access to the 5G network was a worrisome scenario for Trump’s government. In 2020,
the US government launched Clean Networks, a global strategy to persuade allied countries to ban Huawei
from 5G tender. Brazil received an official mission that warned about the risks perceived by the US and, at
the same time, was extended an invitation to be part of the Clean Network initiative, conditioned to banning
Huawei (Krach, 2020). In addition, companies in Brazil were offered credit operations for 5G networks (Della
Coletta & Wiziach, 2020). The coercion was rather subtle, and direct economic inducement prevailed.

In the case of Chile, the government was forced to cancel the Chinese‐German consortium Aisino–Mühlbauer
tender to issue passports and identity cards to continue with a visa waiver program to the US (Fundación
Andrés Bello, 2021). As in the Brazilian case, coercive diplomatic threats were reinforced by inducements.
In this case, the visa waiver granted Chilean travelers access to the US.

Finally, this research yields only one case where a Latin American country, Brazil, displayed a geoeconomic
strategy in the face of transforming the global order. This is the sixth type, “precautionary defensive economic
statecraft.” In 2021, Brazil passed a law (number 14353) that provides for the suspension of concession or
obligations in the event of non‐compliance with its multilateral obligations by a member of the WTO in the
context of the blockade of the WTO Appellate Body. This measure has no specific target and aims to deter or
prevent other countries from “appealing into the void” trade disputes with Brazil. The text is very similar to the
EU’s 2019 and 2020 Enforcement Regulation revisions, directed to empower the EU’s capabilities to protect
its interests when a trade dispute is blocked (European Commission, 2021).

Politics and Governance • 2024 • Volume 12 • Article 8041 13

Despite this antecedent, the study did not find other equivalent measures in the region. However, it has
identified two potential additional instances of the precautionary defensive economic statecraft dynamics,
which have not been included in the analysis due to being in very preliminary stages. In 2022, the Brazilian
vice president proposed creating a “food security OPEC‐like organization” (“El vicepresidente de Brasil
propuso,” 2022). In 2023, Bolivia’s president called for a joint Latin American lithium policy (Ramos, 2023) to
gain leverage in worldwide geoeconomics. While none have succeeded in constructing a collective
mechanism to weaponize food or lithium, these instances serve as relevant antecedents for potential future
examples of this type of involvement in geoeconomics.

5. Conclusion

Latin American countries engage in different dynamics of the evolving 21st‐century geoeconomic turn.
The research has shown that these experiences are not isolated situations but that the whole region
participates either as initiating actors or targets. Furthermore, this research has illuminated that each role
entails a distinct set of conditions and characteristics in the geostrategic utilization of economic statecraft.

Three different dynamics refer to locally oriented and value‐driven geoeconomic actions. Coercive tools
were implemented in these situations to achieve a specific policy change. In these dynamics, Latin American
countries served as both senders and targets. Local geopolitical disputes, the defense of human rights, and
democratic values were the main triggering factors. Regarding the enabling conditions in these cases, the
study noticed some interesting outcomes regarding how Latin American countries exploited economic
interdependencies. When performing as senders of geoeconomics dynamics driven by values or local
geopolitical disputes, the economic vulnerability of the target does not appear to be a necessary condition
for the action. However, when Latin American countries face extra‐regional sanctions, economic
vulnerability becomes present in the observed dynamics. Further research on the involvement of developing
and emerging powers from the Global South as senders in geoeconomic dynamics is needed to assess the
specific conditions and external validity that this initial finding on the Latin American experience suggests.

The analysis has also delved into three particular 21st‐century geoeconomic dynamics in which Latin
America was involved. According to the data, countries in the region often found themselves as targets in
extra‐regional power disputes. When the US, the EU, and China sought leverage through economic means in
these dynamics, they primarily resorted to positive economic statecraft. Therefore, Latin American countries
can expect positive economic statecraft to occur as global power contestation rises. Conversely, coercive
tools were employed when a policy change was the desired outcome. This dynamic tended to focus on
specific strategic assets.

While infrequent, Latin American countries have occasionally engaged in power disputes within the
international order transformations, as seen in cases like Brazil and Ecuador. In these situations,
governments tried to modify or weaponize their economic interdependence as a means of power for
strategic means. Similar to the first three geoeconomic dynamics, the research did not identify explicit
economic vulnerability among the counterparts involved in these cases. While the concerns about China’s
rise and the consequences of hegemonic competition observed in these situations are similar to the ones
presented in previous studies on emerging and developing countries (Breslin & Nesadurai, 2023), the lower
involvement in derisking strategies found in Latin America differentiates this region from others such as Asia

Politics and Governance • 2024 • Volume 12 • Article 8041 14

Pacific. It remains uncertain whether this is a structural characteristic or a temporary behavior. The article
identified potential additional emerging cases of precautionary defensive strategies in which Latin American
countries strive to become proactive participants in the 21st‐century geoeconomic turn by weaponizing
food security or lithium. Future research can further illuminate the enabling conditions for the success of
such endeavors and compare them with other regions’ experiences.

The article’s contributions are both theoretical and empirically significant. The analysis has unveiled a greater
significance of political and ideological motivations in utilizing geoeconomic tools, contrasting with the
anticipated emphasis on economic vulnerability as a determining condition. Moreover, the analysis has
contributed to distinguishing how the type of goal pursued can relate to the tool implemented, casting light
on the choice of coercive measures or economic inducements. Finally, the article has contributed to
updating and complementing the empirical knowledge on Latin American countries’ use of geoeconomic
power, their potential upcoming geoeconomic strategies, and the threats and risks faced in the
global dynamics.

Acknowledgments
I thank the anonymous reviewers and the editors of the thematic issue for their excellent comments and
suggestions. I also thank Fernando Parts for his collaboration during the initial data collection and Patricio
Yamin, Esteban Actis, and Maximiliano Barreto for their comments on previous drafts.

Funding
The research was supported by the National Scientific and Technical Research Council (CONICET) and the
National Agency for the Promotion of Research, Technological Development and Innovation (AGENCIA I+D+i),
through the Fund for Scientific and Technological Research (FONCyT), which allocated Grant No. PICT 2020
Serie A 02976 “Argentinean Foreign Policy and External Trade Insertion: Analysis of the “Costs” of Conflict in
Times of Globalization Crisis.”

Conflict of Interests
The author declares no conflict of interests.

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About the Author

Julieta Zelicovich is an associate researcher at the National Scientific and Technical

Research Council (CONICET) of Argentina and an associate professor at the Department
of International Relations at the National University of Rosario. Her research focuses on
international trade, global governance, geoeconomics, and regional integration.

Politics and Governance • 2024 • Volume 12 • Article 8041 19

Politics and Governance
2024 • Volume 12 • Article 8217
https://doi.org/10.17645/pag.8217

ARTICLE Open Access Journal

The Geoeconomic Turn in EU Trade and Investment Policy:

Implications for Developing Countries
Clara Weinhardt 1 and Ferdi De Ville 2
1
Department of Political Science, Maastricht University, The Netherlands
2
Department of Political Science, Ghent University, Belgium

Correspondence: Clara Weinhardt ([email protected])

Submitted: 2 February 2024 Accepted: 17 April 2024 Published: 19 June 2024

Issue: This article is part of the issue “The Geoeconomic Turn in International Trade, Investment, and
Technology” edited by Milan Babić (Roskilde University), Nana de Graaff (Vrije Universiteit Amsterdam),
Lukas Linsi (Rijksuniversiteit Groningen), and Clara Weinhardt (Maastricht University), fully open access at
https://doi.org/10.17645/pag.i383

Abstract
The so‐called geoeconomic turn in global trade policy‐making has changed the context in which the
European Union positions itself as a trade actor. However, there is little scholarly attention paid to how the
geoeconomic turn affects the EU’s relations with developing countries. This article analyses the potential
implications of new EU autonomous trade and investment instruments for developing countries, and how
the EU has taken these consequences into account when designing them. We rely on a combination of desk
research of official documents, trade data, and secondary literature complemented with expert interviews.
We find that a trade‐off between geoeconomic and development objectives is more pertinent in
sustainability‐related than in competitiveness‐ and security‐oriented instruments. In these sustainability
instruments, differential treatment of developing countries rarely features in the design—despite some
proposals having been made. The geoeconomic turn has thus made it more difficult to align the different
objectives in the EU’s trade and investment policies, and development concerns are sometimes relegated to
the background.

Keywords
development; differential treatment; European Union; geoeconomics; investment; trade

1. Introduction

Over the past years, we have witnessed a significant shift in the European Union’s trade discourse and
policies. This shift is the consequence of a confluence of inter‐related trends and events including the China
shock and the discontent of losers of globalization, the Covid‐19 pandemic and concerns about the fragility

© 2024 by the author(s), licensed under a Creative Commons Attribution 4.0 International License (CC BY). 1
of globalized value chains, and the Russian invasion of Ukraine and the weaponization of interdependencies.
Scholars have captured these trends and events under the concept of a “geoeconomic turn” (cf. Adriaensen
& Postnikov, 2022; Roberts et al., 2019). While the term remains fuzzy, it is commonly used to indicate that
states increasingly intend to use economic instruments to pursue foreign policy objectives or to protect
domestic policies against unwarranted interference by third countries. While states still value economic
interdependence, they have become more proactive in managing its externalities and security risks.

The context of a geoeconomic turn led the European Commission in early 2021 to present a review of its
trade strategy under the banner of “open strategic autonomy,” which aims to reconcile the goals of efficiency,
sustainability, and security (European Commission, 2021). This strategic review has been accompanied by
the introduction of a significant set of new autonomous trade and investment policy instruments that aim to
(a) increase reciprocity in the EU’s trade relations, (b) avoid or remedy negative sustainability effects of trade
and investment flows, and (c) protect the EU’s security interests against exploitation of interdependencies
by hostile governments. These changes in the EU’s trade and investment policies are in line with President
of the Commission von der Leyen’s 2019 call for a “geopolitical commission,” while scholars see “Europe’s
geoeconomic revolution” unfolding (Matthijs & Meunier, 2023).

While existing literature on the geoeconomic turn initially focused on US–China relations (Farrell & Newman,
2019), scholarship on the EU’s role in a geoeconomic context is on the rise (Meunier & Nicolaïdis, 2019;
Weinhardt et al., 2022). A key concern in these studies has been the trade‐off between the EU’s defence of
the principle of economic openness on the one hand, and the desire to increase its autonomy and
sovereignty in economic policy‐making to minimize perceived security risks on the other (Gehrke, 2022;
Herranz‐Surrallés et al., 2024). What has received scant attention so far, however, are the implications of the
ongoing geoeconomic turn for the EU’s objectives of eradicating poverty and integrating developing
countries into the world economy. Considering effects on developing countries, also known as “policy
coherence for development,” is a Treaty obligation of the EU under Article 208(1) of the Treaty on the
Functioning of the European Union. Yet, scholars of development policy have pointed out that the EU has in
recent years become more likely to (re‐)integrate, and perhaps subordinate, development goals into the
wider foreign policy system (Bergmann et al., 2019; Hackenesch et al., 2021).

Examining whether this trend also holds for the EU’s new autonomous trade and investment instruments
allows us to re‐evaluate the EU’s role as a global actor. Against the backdrop of rising tensions between China
and the US, the EU seeks to position itself as a more “strategically autonomous” actor amongst major powers
(Gehrke, 2022). Yet, doing so also depends on relations with Global South countries as it seeks to diversify
its supply chains to “friendly” partner nations. Whether or not its geoeconomic turn takes the interests of
developing countries into account thus matters not only from the perspective of “decentering” EU external
relations (Onar & Nicolaïdis, 2013) but also for what Ikenberry (2024, p. 123) describes as the competition
between the three worlds of the West, East and South. According to his view, Europe (as part of the West) is
increasingly competing with the East, and in particular China, for “support and cooperation of the global South.”

Empirically, this article critically reviews the implications of the recent geoeconomic shift in EU trade and
investment instruments for developing countries. We focus on a set of recently initiated autonomous
instruments, which we introduce below. We examine their likely impact on developing countries, and
whether the EU has considered development goals in the design of these instruments to limit potential

Politics and Governance • 2024 • Volume 12 • Article 8217 2

negative impact. Our analysis is based on desk research of official documents, trade data, and secondary
literature complemented with and corroborated through six expert interviews: (a) interview with two
officials from the Directorate‐General (DG) for International Partnerships of the EC dated 5 December 2023;
(b) interview with two officials from the DG for Trade on 13 December 2023; (c) interview with one official
from the DG for Trade on 14 December 2023; (d) interview with one official from the DG for Trade on
22 December 2023; (e) interview with one official from the DG for Trade on 19 January 2024; and
(f) interview with one counsellor of the EU Mission to the World Trade Organization in Geneva (European
External Action Service) dated 24 January 2024.

We find that while not all of the EU’s recent geoeconomic instruments are likely to have significant negative
implications for developing countries, such trade‐offs are particularly pertinent in sustainability‐related
instruments. Perhaps surprisingly, differential treatment of developing countries rarely features in the design
of these instruments. These findings allow us to re‐assess the recent geoeconomic turn in EU trade and
investment policies by shedding new light on implications for developing countries. In doing so, we
complement existing scholarly debates on the capabilities of the EU as a geoeconomic actor (Meunier &
Nicolaïdis, 2019; Olsen, 2022; Weinhardt et al., 2022). Our findings indicate that the geoeconomic turn has
made it more difficult to align the different objectives in the EU’s trade and investment policies and that the
EU has become more willing to relegate development concerns to the background.

2. The Geoeconomic Turn and the EU’s Response

While scholarship on the strategic use of economic policies, so‐called economic statecraft, has existed for
decades (Luttwak, 1990), attention to geoeconomics has increased significantly in the past years. Roberts et al.
(2019) prominently speak of an emerging geoeconomic order. While scholars disagree on how to precisely
define geoeconomics, most adhere to the understanding that it entails the use of economic policies to pursue
foreign policy goals or to protect one’s domestic policies against foreign interference (Blackwill & Harris, 2016,
p. 8; Olsen, 2022). The role of the US as a geoeconomic actor, in particular vis‐à‐vis China, has received the
most attention (Blackwill & Harris, 2016; Farrell & Newman, 2019; Roberts et al., 2019). Recently, scholars
have also turned their attention to the EU as a geoeconomic actor, including in energy, trade relations, and
the field of investment (Babić et al., 2022). They note an increasing willingness to use economic policies for
strategic purposes, as evidenced by the unprecedented turn towards unilateral trade instruments (De Ville
et al., 2023; Gehrke, 2022). Given these new instruments, scholars have become interested in analysing the
EU’s capabilities as a geoeconomic actor (Meunier & Nicolaïdis, 2019; Weinhardt et al., 2022).

Others are more interested in unpacking changes and continuities at the paradigmatic level that underpin
the EU’s recent trade and investment instruments. Most scholars acknowledge the increasing prominence
of security and other foreign policy goals in economic policy initiatives (Weinhardt et al., 2022), but also
acknowledge the continuity of liberal market policies (Jacobs et al., 2023) and point out that struggles between
neo‐mercantilists and neo‐liberals have a long tradition within the EU (Lavery et al., 2022). In the realm of
trade, the EU’s proclaimed goal to pursue “open strategic autonomy” captures these competing poles, given
the tensions between economic openness and the more defensive and neo‐mercantilist stance that strategic
autonomy entails. Similarly, in energy, scholars note that the EU is shifting from a liberal to a strategic approach,
which gives rise to tensions and inconsistencies (Siddi & Kustova, 2021). Some critically dissect how the EU
justifies its geopolitical turn in trade policy discursively by contrasting it with presumably “bad” geopolitical

Politics and Governance • 2024 • Volume 12 • Article 8217 3

trade actors and its own previous “naïve” normative trade discourse (Couvreur et al., 2022). Others unpack
the role of think tanks in contributing to the geoeconomic turn by facilitating an “ideas shift” (Schmitz & Seidl,
2023; Veselinovič, 2022).

What has received scant attention, however, is the impact of the EU’s (partial) geoeconomic turn on its
relations with developing countries. While some policy‐oriented studies highlight that individual new trade
and investment instruments of the EU are likely to have negative implications for developing countries
(African Climate Foundation & The London School of Economics and Political Science, 2023; Komba et al.,
2023), there is so far no comparative assessment that looks comprehensively at the EU’s new unilateral
trade toolbox. Most academic studies concentrate on the carbon border adjustment mechanism and the
deforestation regulation and highlight potential negative implications for developing countries (Magacho
et al., 2024; Partzsch et al., 2023).

3. Conceptualising the EU’s Geoeconomic Turn in Economic Policies: Implications for

Developing Countries

This section develops a conceptual framework that allows for the comparative assessment of the implications
for developing countries of the EU’s new trade and investment instruments. We propose two main steps for
the comparative analysis: (a) an assessment of the potential impact of the instrument on developing countries
and (b) an analysis of the extent to which the design of a given instrument takes development concerns into
account. For this step, we make use of the concept of “differential treatment” of developing countries.

To facilitate the comparative assessment of the set of new EU geoeconomic instruments, we categorize
them into three groups (cf. De Ville et al., 2023; Erixon et al., 2022; Gehrke, 2022):
(a) competitiveness‐related instruments that seek to address market distortions and establish a “level playing
field” for EU businesses; (b) security‐related instruments that allow for the use of economic instruments to
further security goals; and (c) sustainability‐related instruments that want to mitigate negative
environmental externalities related to trade and investment. This leads us to select eight recently introduced
geoeconomic instruments (see Table 1) that aim to improve EU competitiveness and security and to protect
its sustainability measures from being undermined by competition from or policies in third countries.
Our selection does not include other potential measures that are at the time of writing (April 2024) at an
early stage in the legislative process, like the proposal for an instrument to monitor EU outbound investment.
We also do not include the revised Trade Enforcement Regulation, which allows the EU to adopt
countermeasures when the other party in a dispute appeals a ruling into the void or fails to cooperate on the
adjudication of the dispute. While the revised Trade Enforcement Regulation is also a response to
geopoliticisation, in contrast to our selection it does not regulate trade substantially but only sets the
procedures under which the EU can respond to third countries’ policies.

Note that we assume that not only security‐ but also competitiveness‐ and sustainability‐related
instruments have a geoeconomic dimension to them (cf. Gehrke, 2022; Goldthau, 2021; Matthijs & Meunier,
2023, p. 175). Competitiveness‐related instruments follow a geoeconomic logic because they tend to be
based on a perception of economic exchanges as zero‐sum rather than positive‐sum games in relation to
rivals. Similarly, sustainability instruments have a geoeconomic dimension as states fear that being greener
than competitors will hurt their relative economic strength. Moreover, states increasingly perceive the

Politics and Governance • 2024 • Volume 12 • Article 8217 4

Table 1. Three categories of new EU trade and investment instruments.
Competitiveness‐related Security‐related Sustainability‐related
International procurement Investment screening regulation Carbon border adjustment
instrument Anti‐coercion instrument mechanism
Foreign subsidies regulation Deforestation regulation
Corporate sustainability due
diligence directive
Forced labour regulation

sustainable transition as a green technology race that may leave some states overdependent on third
countries for critical technologies or materials. Yet, motives behind sustainability‐related instruments are
likely to be mixed. In the case of EU attempts to undermine “carbon leakage,” for instance (see Section 4.3.1),
the EU aims both to halt climate change and prevent deindustrialization, given that EU‐based firms could in
the absence of these instruments consider relocating to countries with less stringent climate policies. While
there may be an overlap between the three types of instruments, we nonetheless find this distinction helpful
for analytical purposes (De Ville et al., 2023, p. 25).

In the first step of our analysis, we assess the “potential impact” of these instruments on developing
countries. To identify who counts as a developing country—a highly contested category in global politics
(Farias, 2022; Schöfer & Weinhardt, 2022)—we use the World Bank classifications of “low‐income” and
“lower‐middle‐income country” as a proxy. Conversely, “upper‐middle” or “high‐income” economies count as
developed countries. We conceptualize potential impact as the extent to which a country’s exports or
investments are exposed to the new EU instruments. This exposure is a function of (a) the importance of the
EU as an export or investment destination for a developing country, (b) the overlap between the sectoral
scope of the EU instrument and the export structure of a country, and (c) the relationship between the
practices regulated by the EU instrument and the domestic practices or policies in a developing country.
Where possible, we use quantitative data to analyse the exposure of developing countries to the EU’s new
unilateral instruments. However, relevant quantitative evidence is not always available. We currently lack
detailed data on the participation of different countries in EU procurement markets, on the countries of
origin of inward investment into the EU, or on the amount of subsidies provided to exporting firms by
developing countries. Consequently, for some instruments our analysis of potential impact is based on a
more qualitative assessment of available knowledge about developing countries’ trade and investment flows
and domestic policies.

Second, these instruments may also vary in the extent to which the EU has considered development
concerns when designing them. Here, we consider the extent to which the instruments allow for the
differential treatment of developing countries to address development concerns in light of the respective
instrument’s goals. This principle of differential treatment is prevalent in many global regimes (see
Dingwerth et al., 2024) and is particularly central to the global environmental (common but differentiated
responsibilities [CBDR]; cf. Farias & Roger, 2023) and trade regimes (special and differential treatment [SDT],
cf. Ukpe & Khorana, 2021). In the context of the EU’s new instruments, we expect that differential
treatment can either be highly formalized, e.g., in the form of legal provisions, or take on a more informal
nature (Dingwerth et al., 2024). Concerning the latter, thresholds that limit the application of the
instruments could de facto exclude developing countries, or discretion given to the EC may allow it to spare

Politics and Governance • 2024 • Volume 12 • Article 8217 5

Table 2. Formal and informal options to include the differential treatment of developing countries in new
instruments.
Formalised differential treatment Legally codified explicit differential treatment provisions (e.g., exemptions
from regime obligations, or direct access to financial assistance)

Informal differential treatment Legally codified thresholds that limit the application of a given instrument
and may de facto facilitate the exclusion of developing countries
Instrument grants discretion to the EC to apply it selectively, with the
possibility to exclude developing countries

developing countries in pursuit of policy coherence for development (see Table 2). Thresholds remain
informal, however, as long as they do not explicitly target countries classified as “developing” or are not
based on indicators that measure a country’s level of development. For this research step, we rely on the
analysis of legal texts of the instruments at stake, and how they evolved.

Taken together, this conceptualization allows us to comparatively assess the implications of the EU’s new
trade and investment instruments for developing countries. High‐impact instruments that lack formal and
informal differential treatment provisions are most likely to have a negative impact; conversely, high‐impact
cases that include differential treatment can—depending on the specific design—potentially facilitate
coherence for development and mitigate trade‐offs.

4. EU Trade and Investment Instruments: Implications for Developing Countries

The following section presents the empirical analysis of the new trade and investment instruments of the EU.
We start with discussing instruments that have a potentially limited impact, before turning to those with a
potentially high impact on developing countries.

4.1. Instruments With Potentially Limited Impact: De Facto Differential Treatment

4.1.1. Foreign Subsidies Regulation

The foreign subsidies regulation (FSR) aims to counter unfair advantages enjoyed by subsidized third‐country
firms when acquiring a company or winning a public contract in the EU. If the EC finds that a foreign distortive
subsidy exists and the overall impact on the EU market is negative, it can prohibit a merger or acquisition
(M&A) or award of a public contract, or can ask for redressive measures and commitments, like divestment of
certain assets. While larger lower middle‐income countries like India are regularly targeted by EU anti‐subsidy
measures against imports, we expect this new instrument in the domains of M&A and public procurement to
affect developing countries only to a limited extent. According to the United Nations Conference on Trade and
Development data, developing countries are responsible for 30.8% of global foreign direct investment (FDI)
outflows (United Nations Conference on Trade and Development, 2023, p. 6). But, following the classification
of the United Nations Statistical Office, this includes China, which assumes a major share of this volume. Least
developed countries only take up less than 0.1% of global FDI outflows. While we lack data on the countries
of origin of companies or consortia winning public procurement bids in the EU, it is reasonable to assume that
these will source only to a limited extent from developing countries (interview 3; see Section 4.2.1). The first
couple of investigations done by the EC under the FSR—against Chinese firms participating in public tenders

Politics and Governance • 2024 • Volume 12 • Article 8217 6

for delivering trains, solar parks, and wind turbines to EU member states—show that this instrument will mostly
be used against subsidized firms from large countries in sectors that the EU considers strategic for security or
sustainability reasons.

The FSR does not contain an explicit exemption of developing countries. However, several thresholds
relating to the value of the transaction and the volume of subsidies involved for the activation of the
investigation apply, further limiting the probability that (small) developing countries will be affected. Even if
a developing country’s firm would be found to have profited from a distortive foreign subsidy, the EC has
discretion in deciding which redressive measures to apply to M&As and public procurement bids, which
leaves room for the preferential treatment of developing countries (European Union, 2022a, articles 25, 26,
30 and 31; interview 5).

4.1.2. Anti‐Coercion Instrument

The anti‐coercion instrument (ACI) aims to avoid or remedy economic coercion—when countries (threaten to)
use trade or investment restrictions to unduly influence policy decisions in the EU—by third countries applied
to the EU or member states. When the EC finds that a third country is applying economic blackmail to the
EU, it can in cooperation with member states decide on a response measure, like the suspension of tariff
concessions or the exclusion of the right to participate in public procurement tenders.

The ACI does not include the formal exemption of developing countries but can be expected to be applied only
exceptionally to developing countries. The ACI’s aim is to deter or remedy coercion by geoeconomic rivals of
the EU, which are rarely developing countries. Moreover, to be able to apply economic coercion to the EU, a
third country needs to hold economic leverage over the EU. This is less likely for developing countries than for
developed or emerging economies. The ACI allows for discretion both at the stage of determining economic
coercion and when deciding on appropriate countermeasures (European Union, 2023a, articles 3, 7 and 9 of
the regulation). Lastly, in an ideal‐case scenario, these countermeasures will never have to be applied, given
the ACI’s primary aim is to deter economic coercion (Interview 3).

4.1.3. FDI Screening Regulation

The FDI screening regulation—in force since October 2020—establishes a mechanism for
information‐sharing and cooperation between the EC and member states on incoming investments that may
threaten security or public order in the EU. It enables the EC or member states to issue opinions on threats
of inward investments and sets certain requirements for national investment screening mechanisms.
Member states keep the autonomy to decide on inward investments and are so far not obliged to do
investment screening.

The FDI screening regulation does not foresee any exemptions or specific treatment for firms from developing
countries in inward investment screening. But as (small) developing countries are only a limited source of
incoming investment into the EU (see Section 4.1.1) and they are rarely considered geoeconomic rivals, the
impact of this instrument on them is presumably limited. Here, discretion in applying the instrument lies with
the member states.

Politics and Governance • 2024 • Volume 12 • Article 8217 7

4.2. Instrument With Moderate Impact and Formal Exemption of Least Developed Countries

4.2.1. International Procurement Instrument

The international procurement instrument (IPI) allows the EU to restrict access to its procurement markets
for companies based in countries that do not reciprocate the EU’s liberalization of public procurement. Public
procurement is an increasingly important sector, accounting for 15–20% of global GDP. The EU holds the
view that it has liberalized its procurement market to third‐country bidders significantly more than most other
countries have opened their procurement markets to EU companies. The IPI aims to level this playing field.

The impact of the IPI on developing countries varies depending on the economic size of developing countries.
There are three modes of public procurement: (a) a company based abroad wins a bid in the EU; (b) a subsidiary
of a foreign company based in the EU wins a bid; and (c) a foreign company participates indirectly in a bid by
providing intermediate goods and services to a firm winning the bid (Cernat & Kutlina‐Dimitrova, 2016, p. 2).
For most developing countries, with few large companies, only the last category is likely to be potentially
affected by the instrument. Conversely, larger developing countries are more likely in a position to access the
European procurement market through their own firms or subsidiaries in Europe. They could therefore be
negatively affected by the IPI in several ways. Judging from official EU documents and press coverage, the
IPI seems to target primarily high‐income or upper‐middle‐income countries such as China or the US. Yet, as
EC officials themselves acknowledge, it is difficult to assess which countries will be affected by the IPI and to
what extent (interview 2). This is because existing databases on public procurement only cover the first mode
of procurement, which is least important in economic terms. No database exists on the second or third modes,
which are the most important ones (Cernat & Kutlina‐Dimitrova, 2016, p. 2).

In terms of design, the IPI is unique among the instruments studied in this article in that it holds formal
differential treatment provisions in place that explicitly exclude the group of least developed countries from
the scope of the instrument. Article 4 of the regulation states that “the Commission shall not initiate an
investigation in respect of least developed countries…unless there is evidence of circumvention of any IPI
measure” (European Union, 2022b). Such an explicit exemption is the strongest way to ensure that new
unilateral instruments take development concerns into account, and this is only done in the IPI. This
exemption is “easy” to make for the EU in the sense that it is unlikely to affect the first and second modes of
international procurement. Yet, for selected products such as cotton, the exemption could matter for least
developed countries (interview 3). For a relatively simple textile product, e.g., used for work clothing in the
public sector, the cotton that the firm within the EU relies upon could be sourced from a least developed
country. The value of cotton imported into the EU could be up to 50% of the good if there is very little
processing (interview 3). While least developed countries thus potentially benefit from this exemption, the
IPI’s design does not foresee differential treatment of economically more advanced developing countries.

4.3. Instruments With Potentially High Impact: No Differential Treatment of Developing Countries

4.3.1. Carbon Border Adjustment Mechanism

The EU’s carbon border adjustment mechanism (CBAM) aims to preserve the integrity of the EU’s climate
policies by preventing “carbon leakage,” that is when EU‐based companies move production to third countries

Politics and Governance • 2024 • Volume 12 • Article 8217 8

with less stringent (and costly) climate policies or when EU production gets displaced by imports from these
countries. Through CBAM, a price must be paid—through the purchase of emission permits—for the emitted
CO2 embedded in imports equivalent to the price paid for CO2 emitted when producing in the EU under
the EU’s emissions trading scheme. CBAM will initially apply to imports of upstream energy‐intensive sectors
exposed to the risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
CBAM will gradually be phased in over the period 2026–2034 in parallel to the phasing out of free emission
allowances for the covered sectors.

In terms of absolute impact (value of exports falling under CBAM), the most affected countries are—except
for India—upper‐middle income or high‐income countries: Russia, China, Turkey, Korea, and the US. Yet, what
matters from the perspective of third countries is the share of countries’ exports that is potentially affected by
the EU’s CBAM. Put this way, the country that is most exposed to CBAM is from the group of least developed
countries: Mozambique. Around one‐fifth of Mozambique’s total exports consist of exports of aluminium to
the EU. When we calculate the exposure of all countries according to their World Bank classification, we
see that low and lower‐middle income countries are relatively more exposed to CBAM than upper‐middle and
high‐income countries (see Figure 1). It is important to note that the final impact depends not only on exposure
but on other dynamic variables like carbon intensity of production, demand and supply elasticity of covered
products, trade diversion, the question if CBAM will incentivize other countries to adopt similar measures,
etc. (see also Magacho et al., 2024). World Bank staff (Maliszewska et al., 2023), who in their “relative CBAM
exposure index” integrate the carbon intensity of exports in the calculations, arrive at very similar findings to
the ones presented here. EU officials confirmed that they have received disapproval from some developing
countries on CBAM (interviews 3, 4). Opposition, however, is not uniform, as other developing countries
have already moved towards practical discussions about implementation (e.g., question on traceability and
integration with existing schemes; interview 4).

CBAM does not include an exemption of developing countries, although this was a point of debate in the
EU’s legislative process. This was seen as inopportune given the aim of the mechanism of avoiding carbon
leakage, as a ton of CO2 leaked to a developing country is as bad for the global climate as a ton leaked to a
developed economy. As additional justification, an EU official argued that there were legal concerns that a
“least developed country exemption” would not be possible under World Trade Organization rules
(interview 2). Moreover, EU officials were sceptical that this exemption would have made sense even in
terms of development objectives: It could create the wrong incentives and lead to “carbon sinks,” as firms
with high levels of CO2 emissions may relocate to least developed countries. This would, in turn, be

Exposure to CBAM per World Bank group

Percentage of exports to the EU of CBAM covered sectors of countries in the category divided by
the sum of all exports of countries in the category between 2017 and 2021

Low income 1.36

Low middle income 1
Upper middle income 0.85
High income 0.39

Figure 1. Exposure to CBAM per World Bank group. Source: Authors’ own calculations based on WITS data.

Politics and Governance • 2024 • Volume 12 • Article 8217 9

detrimental to the long‐term transformation of least developed economies towards a green economy
(interviews 3, 4). Lastly, EU officials argue that CBAM applies at the company level and that it is mostly large
multinational firms that are affected. These firms, however, are considered to have the means to comply
with CBAM. For instance, South Africa—a country opposed to CBAM—exports steel to the EU. Yet, as an EU
official argued, its largest exporter, the firm ArcelorMittal, already has the technology for green steel
production (interview 4). To compensate developing countries for the potential economic losses because of
the instrument, the European Parliament had proposed in its position on CBAM to “finance least developed
countries’ efforts towards the decarbonisation of their manufacturing industries with an annual amount
corresponding at least to the level of revenues generated by the sale of CBAM certificates” (European
Parliament, 2022, recital 55 and article 24a). This has not been included in the final regulation as this was
seen as impossible under the EU’s budget rules (interview 6). The relevant recital now only commits the EU
to “continue to provide financial support through the EU budget” (European Union, 2023b, recital 73).

4.3.2. Deforestation Regulation

The deforestation regulation aims to avoid that EU consumption of certain goods contributes to
deforestation and forest degradation worldwide. This should in turn help reduce greenhouse gas emissions
and global biodiversity loss. The regulation bans imports (as well as EU‐based production) of products
sourcing from land that has been subject to deforestation or forest degradation after 31 December 2020.
The regulation applies to the commodities cattle, cocoa, coffee, oil palm, soya, and wood, as well as relevant
products that contain, have been fed with, or have been made using these commodities. The prohibition is
enforced by obliging operators to follow due diligence procedures, thereby ensuring that only commodities
and products for which the risk that they contributed to deforestation is negligible can be placed in the EU
market. A key feature of the regulation is the country benchmarking system, through which the EC will
assess the risk that countries produce relevant commodities and products that are not deforestation‐free,
resulting in three possible levels of risk: low, standard, or high. Obligations on operators are more stringent
when they import commodities or products from countries with a higher risk assessment.

The regulation does not contain any exemption for developing countries. The regulation may affect
developing countries disproportionally in two ways: A significant number of developing countries—and
within them in particular smallholder businesses (cf. Zhunusova et al., 2022)—are specialized in the covered
products and have a higher probability of being qualified as “high risk” countries for deforestation (at the
time of writing, this country classification is still being drawn up by the EC). For several least developed
countries and developing countries, exports to the EU of commodities covered by the regulation represent a
very significant share of their total exports. An extreme example is São Tomé and Príncipe, a lower‐middle
income country, whose exports consist mostly of cocoa, the bulk of which goes to the EU. Other
least‐developed countries and developing countries like Ivory Coast, East Timor, Honduras, Cameroon,
Sierra Leone, Ethiopia, Uganda, Burundi, and Ghana are significantly exposed to the deforestation regulation.
When we again calculate the exposure according to World Bank income categories, we see that
lower‐middle and low‐income countries are relatively more exposed to the deforestation regulation than
upper‐middle and high‐income countries (see Figure 2). It is thus no surprise that, similar to CBAM, the
deforestation regulation has created a lot of friction with developing countries (interview 3). An EU official
acknowledged that the regulation could be more detrimental for developing countries compared to CBAM
because (a) it affects smallholders rather than large multinational companies, (b) there is a very short

Politics and Governance • 2024 • Volume 12 • Article 8217 10

 Exposure to EU deforestaon regulaon per World Bank group
Percentage of exports to the EU of EUDR covered sectors of countries in the category divided
by the sum of all exports of countries in the category between 2017 and 2021

Low middle income 1.22

Low income 1.16
Upper middle income 0.74
High income 0.37

Figure 2. Exposure to deforestation regulation per World Bank category. Note: EUDR stands for the EU
deforestation regulation. Source: Authors’ own calculations based on WITS data.

transition period (2 years) compared to CBAM, and (c) it relies on a benchmarking system that could impose
a classification of “high risk” on developing countries from the outside (interview 4).

4.3.3. Corporate Sustainability Due Diligence

The corporate sustainability due diligence directive (CS3D) aims to stimulate sustainable and responsible
behaviour by companies with a large presence in the EU market throughout their supply chains. Companies
will be required to monitor and, where necessary, prevent, end, or mitigate the negative impacts of their
activities on human rights and the environment. This obligation applies to relatively large companies.
The original proposal by the EC has been amended throughout the legislative process, and its scope has
been reduced within the Council of the EU after difficult negotiations. The new version of the text, which at
the time of writing still must be approved by the Council and the European Parliament, will only apply to a
small number of very large companies with at least 1,000 employees and a turnover of 450 million euros.
Moreover, while the original proposal lowered the threshold further in sectors with a “high risk” of human
rights and environmental violations, this has now been eliminated.

The directive does not include any exemption of developing countries. To the extent that human rights and
environmental violations are more frequent in lower‐income countries, the CS3D may de facto have a higher
impact on developing countries. Scrapping the “high risk” provision lowers the probability that developing
countries will be disproportionately affected by the directive, as they are more specialized in the sectors that
were considered of high risk in the original proposal. Still, while many civil society organisations welcome
the CS3D, some experts are concerned about the potential negative impact that the directive may have on
developing countries and smallholders in particular (e.g., Ellena, 2023).

4.3.4. Forced Labour Regulation

In March 2024, a year and a half after the proposal by the EC, the EU institutions reached a provisional
agreement on a regulation to ban products made with forced labour on the EU market, applying to domestic
products, exports and imports alike. The number of people in forced labour is estimated by the International
Labour Organisation to be 27.6 million. The EC, which is responsible for implementing the ban on forced
labour taking place outside the territory of the EU, would apply the ban through a risk‐based enforcement
approach, identifying in a database specific economic sectors in specific geographic areas for which there is
reliable and verifiable evidence that there exists forced labour imposed by state authorities. These data will

Politics and Governance • 2024 • Volume 12 • Article 8217 11

be used to inform the decision to open an investigation into the existence of forced labour. If forced labour is
found, the EU can ban these products from entering the EU market until the violation is eliminated.

The regulation does not include any exemption or special treatment of developing countries. It also does not
include de minimis thresholds, nor exemptions for small firms, as the aim of the regulation is to ban all goods
produced with forced labour from the EU market. Because of the risk‐based enforcement approach, it is
plausible that the instrument will de facto have a relatively strong impact on developing countries. According
to the International Labour Organisation et al. (2022, p. 17), state‐imposed forced labour is much more
prevalent in low‐income countries (2.1 per 1,000 inhabitants) than in lower‐middle (0.1), upper‐middle (0.7)
and high‐income countries (0.1).

The results of our comparative analysis are summarized in Table 3. Instruments with a potentially high
impact and no differential treatment are likely to have the most significant negative implications for
developing countries.

5. Conclusion

The EU’s trade discourse and policies have recently shifted significantly. We have seen the creation of new
trade and investment instruments that seek to re‐position the EU in a context of geoeconomic competition,
coupled with an accelerated climate crisis. This article has examined the implications for development.
We find that the potential impact varies as a function of both the overlap between the instruments’ scope
and developing countries’ economic and political practices and policies, as well as the extent to which
design features allow for the differential treatment of developing countries to offset, or alleviate,
negative implications.

As a result, the differential potential impact varies between the three categories of new instruments.
Competitiveness and security instruments tend to have potentially limited impact on developing countries.

Table 3. Mapping of instruments: Implications for developing countries.

No flexibility for Possible flexibility for Explicit flexibility for
developing countries developing countries developing countries
(no differential treatment) (informal differential (formal differential
treatment) treatment)
Limited impact FSR
FDI screening regulation
ACI

Medium impact IPI (developing countries IPI (least developed

other than least countries)
developed countries)

High impact CBAM

Deforestation regulation
CS3D
Forced labour regulation

Politics and Governance • 2024 • Volume 12 • Article 8217 12

They rarely include differential treatment, but this is not too problematic, as developing countries present
only a limited threat (or attractive export market) to EU firms or national security. Instead, these instruments
target primarily high‐income or upper‐middle‐income countries such as the US, Japan, Canada, Brazil, and
China. One notable exception is the lower middle‐income country India, which as the fifth largest economy
in the world may also be exposed to the EU’s new unilateral security and, especially, competitiveness
instruments such as the IPI. Sustainability instruments are likely to have the most significant negative impact
on developing countries. These instruments tend to target specific high‐risk products and/or countries and
developing countries will often come into these instruments’ focus. Giving developing countries no
preferential treatment, or even implicitly treating them less preferentially through risk assessments, is seen
as necessary to make the EU’s sustainability policies effective. There seems to be a hope amongst EU
policy‐makers that the fears about negative impacts on developing countries will be overblown and that the
market will help these countries adapt, and perhaps even benefit from the EU’s new policies. Yet, developing
countries often disagree with this positive take (Guillot & Kijeweski, 2023).

Our findings complement existing debates that tend to focus on the capabilities of the EU as a geoeconomic
actor (Meunier & Nicolaïdis, 2019; Olsen, 2022; Weinhardt et al., 2022). We find, first, that coherence for
development seems to be relegated to the background. This echoes research on financial assistance that
finds that development concerns have increasingly become integrated into wider foreign policy goals
(Bergmann et al., 2019). Yet, this may undermine the EU’s attractiveness as a partner for Global South
countries, also in light of increasing competition with countries from the “East” (Ikenberry, 2024). Second,
our findings indicate that the geoeconomic turn has made it more difficult to align the EU’s different foreign
policy objectives. Under the previous (neo‐liberal) paradigm, claiming to pursue a coherent trade policy was
easier. Trade liberalization could be presented as a silver bullet that would bring global prosperity, peace, and
sustainability all at once. The new geoeconomic paradigm recognizes that trade and investment liberalization
come with significant (risks of) negative development, ecological, and security externalities. In this more
complicated exercise of reconciling different objectives under the shifted paradigm, new trade‐offs between
different goals may thus arise. This confronts the EU with difficult questions. Is the EU sacrificing
development on the altar of sustainability and geopolitics in its new trade and investment policy
instruments? How to ensure that mitigating climate change or biodiversity loss does not result in
burden‐shifting on developing countries? If compensation is not integrated into the design of the
agreements themselves, does the EU pursue this sufficiently through other means, such as the EU–Africa
Green Energy initiative, the Global Gateway, or bilateral initiatives and funding instruments?

Our analysis has some limitations. First, we discuss, based on their design, the potential impact of new
instruments that the EU only begins to apply at the time of writing, or that are even still to be formally
adopted by the EU institutions. In the coming years, future research will be able to analyse more directly the
actual effect of these instruments on developing countries. Second, our analysis suffers from a lack of
precise data on some of the instruments. The implementation of these instruments will produce new
detailed data, which can be tapped in future research. Finally, our analysis also did not consider how
developing countries themselves perceive and react (economically and politically) to these new instruments.
This provides a fascinating avenue for future research, which will also shed interesting light on the question
of how effective the EU’s geoeconomics turn will eventually turn out to be, and how this will affect its future
(bilateral) relations with developing countries.

Politics and Governance • 2024 • Volume 12 • Article 8217 13

Acknowledgments
We would like to thank Daniel Mertens and the three anonymous reviewers for constructive and insightful
comments.

Conflict of Interests
The authors declare no conflict of interests.

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About the Authors

Clara Weinhardt is an assistant professor in international relations at Maastricht University

and a non‐resident fellow at the Global Public Policy Institute. Her research focuses
on global trade governance and North–South relations in light of global power shifts.
Her work has been published in International Studies Quarterly, International Affairs, Review
of International Political Economy, Journal of Common Market Studies, and others, and she
has (co‐)authored books on EU–West Africa trade negotiations (Routledge) and differential
treatment of developing countries (Edward Elgar).

Politics and Governance • 2024 • Volume 12 • Article 8217 16

 Ferdi De Ville is an associate professor in European political economy at Ghent University.
His research focuses on European political economy and EU trade and industrial policies in
particular. He has published extensively in peer‐reviewed journals, including the Journal
of Common Market Studies, Journal of European Public Policy, British Journal of Politics
and International Relations, and New Political Economy, and has written books about the
Transatlantic Trade and Investment Partnership and the trade and monetary dimensions
of the euro crisis.

Politics and Governance • 2024 • Volume 12 • Article 8217 17

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