From Green Energy to AI: How China and the US Are Outpacing Europe

In the fight for digital and green technology, Europe is falling behind the United States and China.

Europe is in the grip of a severe industrial slump, with diminishing output, unwillingness to invest, and fierce global competition dictating the economic environment. Many businesses and their employees are confronting fundamental issues, such as rising energy costs and large investment risks.

At the same time, there are rising concerns about an increasing innovation gap between Europe, China, and the United States. A technical deficit, notably in crucial technologies for the green and digital transition, poses substantial difficulties to Europe. It is all about safeguarding its industrial basis, which will lead to prosperity and excellent jobs.

As a result, the short- and medium-term economic outlook for Europe is fraught with uncertainty. However, fear is a lousy advisor—it has frequently led to disaster rather than safety. A forward-looking and cautious economic policy is especially important in these times: it must assure short-term stability while also laying the groundwork for a healthy, resilient, and inventive economy in the long run.

In contemporary economic and industrial policy discussions in Europe, traditional prescriptions are seeing a resurgence: tax cuts, bureaucracy reduction, and wage restriction are being advocated as the “new” remedy for economic stagnation.

However, these beliefs do not reflect a forward-thinking shift; rather, they are outmoded ideas from the 1990s, a period with vastly altered geopolitical, economic, technical, and social conditions. They surely cannot solve the issues of the twenty-first century, which range from digital transformation and green structural change to the reorganisation of global supply lines and geopolitical power blocs.

Instead of using out-of-date tools, ambitious, forward-thinking methods centred on innovation, training, and sustainable location policies are required.

Europe’s industrial environment is changing dramatically as a result of global megatrends such as digitalisation and decarbonisation, demographic difficulties, and present geopolitical developments. Rapid advancements in robotics and artificial intelligence are fundamentally altering industrial processes: machines are increasingly doing complicated jobs and interacting with one another, and production chains are becoming more streamlined.

China is investing extensively in this area, with completely automated manufacturing, humanoid robots, sophisticated logistics systems, and a leading position in drones and air taxis. While European industrial clusters are currently debating pilot programmes, China is already putting several technologies into regular use in urban areas.

The United States is also defining new norms, notably in the field of digital platform technology and artificial intelligence. With billions of dollars invested in generative AI, cloud infrastructure, and semiconductor research, American corporations are establishing benchmarks by which European industry must be compared. NVIDIA, Google, and OpenAI are generating breakthroughs that have long been integrated into industrial applications, ranging from production planning and digital twins to predictive maintenance.

If Europe fails to keep up with these advancements, it risks becoming reliant on technology, digital infrastructures, and data skills. In the global competition for digital technologies, wealth creation, and jobs, Europe risks slipping behind and becoming a plaything for foreign interests.

At the same time, the transformation to a climate-neutral industry is no longer an option but an ecological and economic necessity. Investments in green energies, the circular economy and sustainable production processes not only contribute to climate protection and help conserve resources – they are also a key factor in the resilience and attractiveness of the business location.

While Europe is pursuing ambitious goals with the Green Deal and the Net-Zero Industry Act , European companies are coming under increasing pressure. This is because countries like China and the USA are investing strategically and at a rapid pace in green technologies. China already dominates large parts of the global supply chain for solar technology and batteries , while Europe continues to struggle for strategic sovereignty in key technologies.

The Inflation Reduction Act (IRA) was the United States’ attempt to address these problems. Tax breaks, subsidies, and investment incentives were designed to encourage the manufacture of hydrogen, batteries, wind, and solar technologies, as well as the development of climate-neutral industrial processes, and to entice enterprises to relocate to the US.

The incoming administration’s ability to prevent or reverse these trends remains to be seen. So far, Texas—a Republican political stronghold—has emerged as a pioneer in the growth of renewable energy. Texas currently generates more wind and solar electricity than any other state.

The Inflation Reduction Act (IRA) was the United States’ attempt to address these problems. Tax breaks, subsidies, and investment incentives were designed to encourage the manufacture of hydrogen, batteries, wind, and solar technologies, as well as the development of climate-neutral industrial processes, and to entice enterprises to relocate to the US.

The incoming administration’s ability to prevent or reverse these trends remains to be seen. So far, Texas—a Republican political stronghold—has emerged as a pioneer in the growth of renewable energy. Texas currently generates more wind and solar electricity than any other state.

Investments in personnel, education, training, and research are consequently critical for a viable industry. It is not surprising that Mario Draghi emphasised in his report to the Commission on a Competitive Europe that Europe’s main concern is not unit labour costs, but rather the current innovation gap with the United States and China. Only with highly qualified professionals and multidisciplinary competence will Europe be able to compete globally in the long run while also successfully shaping ecological and social transformations.

Economic policy in Europe need a goal rather than just responding to crises or managing locations. A mission-oriented economic strategy not only targets short-term growth goals, but also focusses on future societal concerns such as climate neutrality, technology sovereignty, and social stability in times of significant change.

The primary requirement for this is not less, but greater collaboration. Joint industrial initiatives, coordinated investments in strategically important technologies and infrastructure, the strengthening of the European internal market, and a consistent emphasis on people’s skills, competencies, and knowledge are all essential components of a confident and resilient European economic and industrial strategy.

A mission-orientated economic strategy is no longer simply about the “how much” and “who”, but also about the “why”. The objective is a collaborative economic policy endeavour to address specific difficulties, foster technical and social advances, and diverge from well-trodden pathways.

Clear political boundaries for the intended direction of growth are critical: they give protection during stormy periods, decrease investment risks, provide guidance, and boost confidence in the selected path. Technological openness, which is frequently cited in political discourse, must not be used to justify stagnation. What the industry requires is clarity—consistent messages about where the journey is going.

Regulation, subsidies, public procurement, and other mechanisms can all help to bring about change if they are coordinated and aligned with a single aim. At the same time, the social component of change must be acknowledged since every change results in both victors and losers. This requires a fair distribution of transformation burdens—the costs and impacts of change—through targeted assistance for structurally weak regions, effective continuing education systems, and social security systems in welfare states.

The state’s strategic presence, willingness to influence things, and cooperation are what make a durable economic strategy, not its absence. It is past time to reiterate this truth – and align our economic strategy and the institutions that administer it properly.