WHEN EU foreign policy chief declared at a conference in Estonia that China’s economic model and dominance in strategic sectors such as batteries and chemicals was the “lesion” making Europe “sick” and that Europe needed to treat it with “chemotherapy”, she was probably unprepared for the backlash triggered by her unprecedented, factually and logically flawed rhetoric.
Her remarks prompted internal criticism within the EU, with at least five member states reportedly voicing objections. The European Commission quickly clarified that this did not represent its official position.
Reactions from social media commentators offering independent analyses of the economic crisis facing some European countries were even harsher.
One commentator pointed out that she is part of a generation of weak leaders “living in a bubble” and driving Europe “into the abyss” with their obsession on confronting Russia and China.
When Kaja Kallas was prime minister of Estonia in 2024, her approval rating reportedly stood at 19% in a country of just 1.3 million people. Her appointment to a senior position, speaking on behalf of a continent of approximately 450 million people, has been attributed to her virulent anti-Russia stand and evidence of the “train wreck” of incompetence in Europe built around inefficient bureaucracies and a system resistant to change, ideologically blasé and cut off from reality.
China’s response to the Kallas’ speech is interesting. There was no official response. However, news articles characterised Kallas’s statements as “labelling” and “distorting a sovereign state as a “cancer”. Others have noted that sticking labels is not the right medicine to alleviate competitive pressure.
It is obvious that Europe falling behind cannot be resolved by political posturing. Europe needs to enhance its competitiveness, foster its technological innovation system and increase spending on research and development.
As many in Europe’s social media put it: don’t blame China for our strategic failures.
It is also important to check out other less reported pressure points on the European economy.
The American pincer
Under the Trump administration, the US has acted as an even more powerful pincer movement on the EU’s economy than China’s, squeezing it from several strategic directions.
US strategy combines external pressure with the exploitation of internal EU vulnerabilities to advance “America First” at Europe’s expense.
Trade and industrial policy: The external squeeze
The US administration has fundamentally weaponised trade and industrial policy against the rest of the world with no exceptions.
In Europe, it is creating a web of policies that are squeezing the EU’s industrial core and competitiveness harder than China.
Direct tariff walls: The US imposed a baseline tariff of around 15% on about 70% of EU exports, with key sectors like steel, aluminum and automotive facing higher duties of up to 50%. This raised average tariffs from 1.47% in 2023 to nearly 10%.
Asymmetric “deal”: The “Turnberry Deal” avoided full-scale war but forced the EU into an asymmetric agreement that critics call a “capitulation”. In exchange for tariff caps, the EU is effectively financing US domestic growth and fossil fuels through a commitment to buy US$750 billion (RM3.95 trillion) in American energy and invest US$600 billion in the US.
Subsidy war: The prior Inflation Reduction Act (IRA) pulled EU clean tech investment to the US with generous subsidies. The Trump administration now plans to dismantle the IRA entirely. This “reverse IRA” hurts European green-tech companies already heavily invested on past IRA promises as well as future demand for EU green tech products.
Energy and security dependency: The internal lever
A second prong of the pincer weaponises Europe’s critical dependencies to tighten US control over its economy.
From Russia to US energy dependency: By shifting from Russian pipeline gas to US LNG, the EU has reduced energy security, allowing the US to use energy as a “strategic lever”. The promised US$750 billion deal locks the EU into higher-cost fossil fuels, undercutting its climate goals.
Security blackmail for trade concessions: The US has exploited Europe’s military dependence to extract trade concessions. The “Turnberry Deal” was a direct result of this imbalance, where the threat of tariff and security withdrawal forced the EU to agree to unfavourable terms.
Economic fallout from a forced peace: A potential peace in Ukraine would saddle the EU with an immense financial burden, estimated at well over €500 billion (RM2.5 trillion) for reconstruction. This would divert funds from economic development, especially as the US plans to cut aid drastically from over US$19 billion in 2024 to just US$400 million in 2026.
American pincer of digital hegemony
Europe relies on non-EU providers for over 80% of its digital products, services and cloud infrastructure. The upper layer of the modern economy – artificial intelligence, quantum computing, cloud architecture and data platforms – is almost entirely dominated by American hyperscalers (Microsoft, Google, Amazon and Meta).
The capital and innovation drain
Europe struggles to scale its own tech companies. Between 2008 and 2021, nearly 30% of European “unicorns” (startups valued over US$1 billion) relocated their headquarters abroad – the vast majority moving to the US to access venture capital.
Pincer on a vulnerable Europe
The Trump administration pincer is especially effective because it catches the EU at a moment of structural weakness. Since 2008, US GDP has grown 87%, compared to just 13.5% in the EU. Europe lags in energy, productivity and innovation. The latest squeeze is likely to lead to an even greater marginalisation of the European economy.
Summary
Europe’s economy is at a crossroads. Trapped in a structural squeeze by dual economic pincers, with the US dominating the digital, financial and frontier technology spheres and China moving up the value chain into high-end manufacturing, it needs a non-ideological and clear eyed understanding of how and why its economy is in its current position while pushing for the strategic autonomy to forge a more independent and resilient future in a fragmenting global order.
More than a few analysts are of the opinion that this is impossible with the present political leadership.
Lim Teck Ghee’s Another Take is aimed at demystifying social orthodoxy. Comments: letters@thesundaily.com
The Sun Malaysia