Recent protectionist impulses in the US aim to achieve strategic manufacturing independence and cut trade deficits in goods. The US, however, maintains a substantial services trade surplus with the rest of the world, including the EU. Meanwhile, China is pursuing a strategy to transform from a low-cost manufacturing economy into a global technology leader, prioritising exports over imports, even when it faces dependencies on foreign technology in IT, biotechnology, or aerospace (Brown and Zenglein 2025).

Heightened uncertainty and forces that are reshaping multilateral trade pose challenges for the EU, the world’s largest exporter of goods and services and the primary export market for 80 countries. In this column, we argue that the EU can reposition itself by investing in two areas: deeper integration in high-value services, and accelerated investments in advanced clean and digital techs.

Context

The US administration has unveiled far-reaching plans to reshore domestic manufacturing and reduce external reliance on the dollar (Demertzis 2025). Although the US National Security Strategy recognises that “Transatlantic trade remains one of the pillars of the global economy and of American prosperity”, it marks a shift to an “America First” doctrine, which emerged under the previous administration with the Inflation Reduction Act (IRA).

A prominent expression of this new strategy is what has become known as the Mar-a-Lago Accord of 2025 – a proposed policy blueprint aimed at reducing the US trade deficit, devaluing the dollar, and aligning economic and security policy.  Going beyond the ‘baseline’ tariff in the reoriented US trade policy, the proposal envisages partners strengthening their currencies to address the perceived dollar overvaluation (Miran 2024). These ideas emerged against a backdrop of rapidly rising US public debt and a deteriorating fiscal position – developments that have raised concerns about the long-term attractiveness of dollar assets and, in some indicators, coincided with modest signs of softening dollar demand. Within this context, some view tariff revenues as key for funding the US Treasury. A policy reversal is therefore unlikely, as tariffs tend to be sticky (Barattieri et al. 2023). 

These policy changes threaten the US advantage in services, which account for 80% of the country’s value added. The US is the largest exporter of financial, digital, business, and legal services, largely driving the US–EU growth gap. Tariffs can increase costs and curb spending in leisure and hospitality, while high public debt might limit education and health investments. Tax breaks under the IRA may have disadvantaged investments in US services. H-1B visa restrictions and proposed cuts to the National Science Foundation (over 50%) and National Institutes of Health (37%) undermine access to skilled labour and fundamental research, which are critical for knowledge-intensive service firms.

At the same time, the US has signalled a broader retreat from climate commitments and clean technology investments, towards fossil fuels. The “Unleashing American Energy” Executive Order paused IRA disbursement for clean energy projects and offshore wind on federal waters, although recent developments may alter that. In July 2025, the “One Big Beautiful Bill Act” accelerated the phase-out of IRA clean energy tax credits for electric vehicles to September 2025 (originally for 2032) and for residential use to the end of 2025 (originally 2032).

Two critical areas

In response to the above developments, there are two key areas where the EU can leverage its strategic advantages.

Services

First, amidst the potential weakening of the US’s lead as global services provider, the EU is well positioned to strengthen its services sector. This could yield significant benefits and close trade imbalances with the US.

Single Market integration is crucial for services firms’ competitiveness (Piechucka et al. 2024). Trade costs within the EU fell by 40% over the past 30 years, and EU GDP is now over €500 billion higher than without the Single Market (Pasimeni and Durà 2025). EU countries could double these benefits if the full potential of the Single Market were to be realised (Fontagné and Yotov 2024). This is particularly true for services (Fontagné and Yotov, 2025), which are a key component of Europe’s economy and are essential across all industries. So far, the reduction in trade costs has materialised for goods. The European Commission (2025) underlines that further services trade liberalisation could deliver substantial benefits.

The Draghi and Letta reports identified numerous non-tariff barriers in the EU, the costliest being those that fragment the financial market. Firms and households in Romania, for example, cannot access financing on the same terms as those in Germany. Capital is locked in national patchworks of regulatory silos, and households and institutional investors lack incentives for equity and venture investments. Business financing is much lower than in the US. The Savings and Investment Union is crucial to channel EU savings to productive use (EU households save €1.4 trillion annually, compared to €800 billion in the US). Removing barriers will unlock cross-border efficiencies, including consolidations between financial institutions, with merger control preventing inefficient increases in market power.

Deeper integration of the Single Market for services will also reinforce the EU’s strategic digital objectives. Even well-funded EU digital startups cannot overcome the structural advantages that the dominant platforms derive from network effects, data access, and ecosystem lock-in. Growing markets, such as artificial intelligence, need contestability and fairness, which can be achieved through antitrust, merger control, and the Digital Markets Act. Effective competition drives investments, innovation, industrial dynamics and digital competitiveness, including for innovative EU SMEs and mid-caps.

Energy transition

Second, while the US is shifting away from decarbonisation, clean tech investments remain a particularly valuable strategy, in line with the EU’s Clean Industrial Deal. Europe’s heavy reliance on liquefied natural gas (LNG) – the US accounts for 50% of the EU’s LNG imports – exposes the EU to significant price volatility and vulnerabilities. Electricity prices twice as high as in the US and natural gas prices three times higher present a competitive disadvantage. By strategically investing in domestic clean energy, the EU can transform dependencies into greater autonomy, affordability, and competitiveness. Unlike imported LNG, with its unpredictable prices, renewable energy brings domestically produced power at increasingly competitive costs.

By accelerating its energy transition, the EU would attenuate its exposure to price shocks from fossil fuels due to geopolitics, shipping disruptions, or producer decisions. As renewable technologies have matured and benefitted from economies of scale, levelised costs have fallen dramatically (BloombergNEF 2025). Onshore wind and solar are now among the most cost-effective electricity sources. Europe would reduce its import bills and trade deficits, and households and industries would benefit from a single market for energy with effective competition, ensuring predictable and stable prices.

The public good component of clean technologies creates suboptimal incentives for business investments, hindering scalability. An efficient European industrial policy that promotes clean technologies and decarbonises energy intensive industries can generate substantial benefits for the EU. Competition is equally essential to drive the development and adoption of clean technologies and decarbonise industry. Synergies between both will be particularly effective to nurture adequate investment incentives for a robust EU leap in clean tech, as underlined by Arjona and Sauri (2025).

The stakes are high: coming investments will determine the future EU energy system. While the transition to clean tech promises reduced costs, immediate bills for EU firms risk impairing their global competitiveness during the scaling phase. Industrial policy interventions should bridge this temporal mismatch and enable firms to undertake investments whose benefits will materialise over ‘investment journeys’ that exceed typical private planning cycles. The new Clean Industrial Deal State Aid Framework (CISAF) supports this.

In this context, Piechucka et al. (2023) outline a set of economic principles for state aid control. First, the public good nature of clean technologies results in suboptimal private investment incentives, as firms cannot fully appropriate the social returns from innovation and deployment. Second, public support should crowd-in private investment, catalysing additional activity that would otherwise not occur. The third principle relates to regulatory predictability. Contractual instruments should allocate risks efficiently between public and private actors, reducing premia and limiting aid to that needed for the desired incentive effect. Finally, aid must not entrench dominant positions or foreclose markets to new entrants. Applying these principles consistently across the EU faces a structural asymmetry, as member states have vastly different fiscal capacities. Coordination among them and centralised EU funding are therefore essential.

Important Projects of Common European Interest (IPCEI) pool companies from multiple member states to finance breakthrough innovations and infrastructure with cross-border spillovers. They boost competitiveness as they enable knowledge, expertise, financial resources, and economic participants across the EU to be combined. Financed by state resources, IPCEIs remain subject to the Commission’s state aid scrutiny. Such projects mobilised €25 billion in public funding for clean technology, expected to unlock a total of €66 billion. The battery value chain received €6.1 billion in state aid across two IPCEIs (2019 and 2021) with 59 companies. Hydrogen attracted even greater investments, with four IPCEIs and €18.9 billion in state aid to 99 companies across 16 member states, for 3.2 GW of electrolysers and 2,700 km of hydrogen pipelines.

While IPCEIs ensure disciplined use of public resources, budgetary differences across member states mean a good project in a key technological area may not get access because of its location. The EU Innovation Fund addresses this. Launched in 2020 and financed through revenues from EU Emissions Trading System allowances, it has allocated around €13 billion across more than 220 projects spanning renewable energy, decarbonisation, hydrogen, and storage. It operates as a direct EU mechanism, and member states can additionally co-finance.

Scaling up centralised EU funding is strategic for European industrial policy. EU-level competition ensures that resources flow to the most promising initiatives, regardless of location. It reduces distortions between member states, facilitates economies of scale, and enables cross-border value chains for sectors that require pan-European coordination. This is critical when optimal sites for clean tech may lie in member states with limited budgetary resources. The European Competitiveness Fund, proposed for the 2028-2034 EU budget with €409 billion, provides a unified investment vehicle that targets strategic sectors such as clean technology. The new Competitiveness Coordination Tool acts with member states on common priorities in key areas of strategic importance, to curb structural asymmetries.

Conclusion

The US is taking deliberate actions to reshore manufacturing while largely abandoning decarbonisation. With broad tariffs, it is reshaping global trade. In response, the EU stands to gain from leveraging its strategic advantages.

We have identified two areas for this. First, the EU should capitalise on the potential weakening of the US role in global services and strengthen its own services sector, with deeper Single Market integration and contestable and fair digital markets. Second, the EU must remain firmly committed to decarbonisation by supporting clean technology with strategic investments and a strong business case for clean industry.

Europe can turn its current vulnerabilities into future strengths. Pan-European instruments such as IPCEIs, the Innovation Fund, and the European Competitiveness Fund will be decisive. Deepening the Single Market for services, accelerating investments, preserving and enforcing competition, and implementing efficient industrial policies are also essential.

Authors’ note: The opinions expressed are those of the authors only and should not be considered as representative of the European Commission’s official position.

References

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