European industry is running out of time. For decades, the continent relied on cheap energy and stable global markets to feed its massive manufacturing base. Those days are gone. Now, corporate leaders are sounding the alarm with unprecedented urgency.
Markus Steilemann, the chief executive of German chemical giant Covestro, just delivered a brutal wake-up call to Brussels. His message is simple. The European Union can no longer afford to protect everyone. It has to choose which specific sectors to save with targeted state backing, or it will watch its entire industrial core pack up and leave for the United States and China.
This isn't a vague, distant threat. It's happening right now. High energy costs, crushing regulatory burdens, and aggressive foreign subsidies are systematically dismantling European competitiveness. If European policymakers keep trying to regulate their way to a green future without protecting the building blocks of their economy, the region will face a historic industrial exodus.
The Brutal Reality of Deindustrialization
Many politicians in Brussels still think European manufacturing can survive on prestige alone. They're wrong. When energy prices skyrocketed following the disruption of Russian gas supplies, it wasn't a temporary blip. It permanently shifted the baseline cost of doing business in Europe.
Take the chemical sector as a prime example. Companies like Covestro, BASF, and Evonik produce the essential materials that go into everything from car parts and insulation to medical devices and wind turbines. They sit at the very beginning of the supply chain. If you lose primary chemical manufacturing, you lose the competitive advantage for every downstream industry that relies on it.
Right now, European companies pay several times more for electricity and natural gas than their competitors in North America or the Gulf region. No amount of operational efficiency can bridge that gap. When a factory in Texas or Shanghai can produce the same high-performance plastics at half the utility cost, the economic math becomes impossible to ignore.
Corporate boards have a fiduciary duty to their shareholders. They can't keep pouring capital into loss-making European plants when foreign expansion offers clear paths to profitability. The reality is that new investment is already flowing heavily toward the US, driven by the massive financial incentives of the Inflation Reduction Act. Europe is losing the global subsidy war because its approach is fragmented and tied down by bureaucracy.
Why Broad Protections Are Failing
The EU has historically resisted choosing winners and losers. Its antitrust and state aid rules were designed to preserve a level playing field within the single market. But that internal focus completely misses the global picture. While European regulators spend years debating state aid limits for individual factories, Washington and Beijing are handing out blank checks to entire strategic sectors.
Trying to protect every single industry across twenty-seven member states leads to diluted, ineffective policies. It spreads resources too thin. Steilemann argues that the EU must explicitly decide which industrial sectors are absolutely foundational to its strategic autonomy.
If everything is a priority, nothing is. Is Europe willing to let its basic chemical production die and rely entirely on imports for raw plastics and foam insulation? If so, the region hands its economic sovereignty over to foreign powers. We saw how dangerous that dependency was during the medical supply shortages of the pandemic and the energy shocks of recent years. Yet, policymakers are repeating the same mistakes by failing to draw a line in the sand for heavy industry.
The Regulatory Squeeze on Innovation
It's not just energy costs killing European manufacturing. The regulatory framework is actively suffocating industrial companies. European industrial leaders don't just complain about the sheer volume of rules. They point out that these rules are often contradictory and intensely punitive.
The European Green Deal aims to make the continent climate-neutral, an admirable goal that most corporate leaders support in theory. But the execution has been disastrous for competitiveness. Instead of incentivizing companies to build clean infrastructure, the system penalizes them heavily for legacy operations before viable green alternatives even exist at commercial scale.
Consider the compliance burden. A mid-sized chemical plant in Germany or France must navigate a mountain of reporting requirements, from supply chain due diligence laws to complex chemical classification systems. This administrative overhead drains capital that should be going into research and development.
Meanwhile, American and Chinese firms face far simpler regulatory hurdles. They can iterate faster, build factories in a fraction of the time, and bring products to market before European firms can even clear the initial permitting phase. The result is a widening technological and economic gap that will eventually become permanent.
What a Strategic Choice Looks Like
To prevent a massive manufacturing flight, European leaders must quickly adopt an uncharacteristically aggressive economic strategy. They need a hyper-focused industrial policy that prioritizes survival over bureaucratic perfection.
First, the EU must identify its non-negotiable core sectors. These are the industries that form the base of all other manufacturing. Chemicals, steel, primary metallurgy, and advanced semiconductors must top the list. If these sectors collapse, domestic automotive, aerospace, and renewable energy manufacturing will inevitably follow them out the door.
Second, the financial support mechanism needs a total overhaul. The current European model relies heavily on complex grant applications and strict carbon-pricing mechanisms that drive up operational costs. Instead, Europe needs to match the simplicity of the US approach. Tax credits that reward production volume and immediate energy price caps for foundational industries would keep factories running while they transition to cleaner energy sources.
Third, trade policy must become explicitly defensive. If European companies are forced to comply with strict carbon reduction goals, the EU must aggressively enforce the Carbon Border Adjustment Mechanism to ensure that cheap, high-emissions imports from regions with lax environmental laws don't wipe out domestic producers. True environmental progress doesn't mean exporting your emissions to Asia while bankrupting your local workforce.
Crucial Steps for Industrial Survival
Corporate leaders aren't just looking for handouts. They need structural predictability to justify long-term capital investments. For any company currently evaluating its European footprint, several immediate changes are mandatory to stem the tide of relocation.
- Implement Direct Energy Subsidies for Foundational Sectors: The EU must authorize long-term, pan-European electricity price caps specifically for energy-intensive industries that form the base of the industrial supply chain.
- Streamline Industrial Permitting Timelines: Cut the bureaucratic red tape by introducing an emergency fast-track approval system for industrial upgrades, especially those focused on decarbonization or efficiency.
- Harmonize State Aid Across the Bloc: Stop the internal bidding wars between wealthy member states like Germany and smaller nations. Create a unified, centralized European industrial fund focused entirely on protecting primary manufacturing.
- Enforce Strict Carbon Border Protections: Accelerate and tighten import tariffs on carbon-intensive goods to protect domestic manufacturers who are paying premium prices for green compliance.
The window for action is closing fast. Industrial infrastructure takes years to plan and build, but only months to decommission. Once a chemical cracker or a steel mill is shut down and its production capacity is transferred overseas, that economic output and those skilled jobs are never coming back. European leaders need to drop the regulatory idealism, face the harsh realities of global economic competition, and make the hard choices required to protect their industrial survival before the choice is made for them.
