While Brussels debates cutting red tape, lowering energy prices, and speeding up approvals, the real power shift is happening elsewhere. The US and China have become systemic powers, fusing technology, capital, data, and infrastructure into closed innovation ecosystems. Europe risks falling behind in this new systemic rivalry — not because of isolated locational disadvantages, but because it lacks the ability to weave its strengths into a functioning system of its own.

Why the relationship between the US, China and Europe will determine competitiveness in the 21st century

There is intense debate in Brussels about how Europe can regain its competitiveness. The usual answers are: less regulation, lower energy prices, more investment, faster approvals. All of this is correct. And yet it may miss the actual problem. Europe’s competitiveness has not declined merely because individual locational conditions have worsened. Rather, Europe risks losing touch with the technological and economic systems in which 21st-century value creation will take place.

This also shifts the geopolitical perspective. The competition between the US, China, and Europe has long since become more than a race for market share, investment, or trade surpluses. It has become a systemic rivalry. The decisive question is no longer simply who has the most efficient companies, but who can combine technologies, infrastructure, capital, data, energy, knowledge, and political power into a functioning overall system. In this sense, the US and China have become systemic powers. Europe has, so far, become one only to a limited degree.

From Trading Partner to Systemic Rival: How Globalization Is Changing

The globalization of recent decades rested on a relatively simple idea: countries and companies specialize along global value chains, technologies diffuse across borders, and capital flows to wherever it can be used productively. Geopolitical and economic order could largely be considered separately.

That world is disappearing. Technologies today are no longer merely products but components of comprehensive ecosystems. Artificial intelligence requires semiconductors, data centers, cloud infrastructure, data, energy, and specialized talent. Electric mobility requires batteries, raw materials, charging infrastructure, software, and power grids. Decarbonization, in turn, depends on grids, storage, hydrogen infrastructure, industrial processes, and new financing models.

Controlling individual components is therefore far from controlling the system. Conversely, dependencies at just a few strategic nodes can constrain the capacity to act of entire economies. This is precisely where the new geopolitics originates. Economic interdependence has not disappeared, but its character has changed. Efficiency relationships become strategic dependencies. Supply chains become power structures. Technological standards become geopolitical spheres of influence.

Against this backdrop, the relationship between the US, China, and Europe must be understood anew.

The US: How Venture Capital, Research, and Platform Power Fuse Into an Innovation System

The particular strength of the United States does not lie in the state being less economically active there. Rather, private and public structures interlock in a specific way. The US combines basic research, top universities, defense research, venture capital, major technology corporations, and an enormous capital market into a single innovation system. This allows new technologies to move relatively quickly from research into scalable business models.

What matters is institutionalized risk-taking. Market-oriented research and startups are financed with private capital even though their success is highly uncertain. Failure is part of the innovation process. At the same time, the state assumes strategic risks — historically through defense and research programs, and today increasingly through industrial policy as well. The US thus combines market and state in a way that increasingly departs from the European notion of a clear separation between horizontal competition policy and selective industrial policy. Above all, though, it possesses powerful platforms. Cloud, AI, digital communication, software, and financial markets form infrastructures on which companies from around the world operate. Technological strength thereby generates structural power.

China: How State-Coordinated Scaling Becomes a Competitive Advantage

China follows a different path. While the American system distributes risk heavily through capital markets, China can politically absorb strategic risks and concentrate resources. Industrial policy, infrastructure, financing, research, and market development are more tightly coordinated. This enables enormous speed in scaling new technologies. In batteries, solar energy, electric mobility, and increasingly in digital technologies as well, one can see what effect emerges when production, infrastructure, demand, and financing are developed simultaneously.

The Chinese model has significant problems of its own: misallocation, overcapacity, political interference, and high debt levels are among them. But what matters for international competition is that China does not view technological development in isolation. New industries are understood as components of strategic systems. China is therefore not merely competing with European automotive, machinery, or chemical companies. It is developing alternative value-creation architectures. That is precisely where the real challenge lies.

Europe in the Systemic Rivalry: Strong Research, Fragmented Execution

Europe finds itself in a fundamentally different position. Its traditional strengths have by no means disappeared: a broad industrial base, excellent basic research, a highly skilled workforce, innovative mid-sized companies, and a large internal market. But these strengths increasingly fail to translate into advantage within the emerging systems.

Europe has outstanding research but too little scaling. It has innovative companies but a fragmented capital market. It is expanding renewable energy but does not everywhere have the necessary grids, storage, and digital control systems. It regulates digital markets but has hardly any global digital platforms of its own. It supports startups but frequently loses successful companies to American capital markets at the latest by the growth stage. The problem therefore runs deeper than individual locational disadvantages. Europe suffers from systemic fragmentation.

And this economic fragmentation generates geopolitical dependency. Europe relies on the United States for security, depends on American companies for key digital infrastructure, and is closely intertwined with China for numerous industrial intermediate goods and raw materials. This creates a strategic triangle with highly divergent positions: the US holds technological and security power, China holds industrial scaling and production power, and Europe holds mainly market and regulatory power. In the long run, the latter is not enough.

Why Sovereignty Is Becoming an Economic Category

Europe has long tried to treat competitiveness and sovereignty as separate matters. Competitiveness belonged to economic policy; sovereignty belonged to foreign and security policy. In the new systemic rivalry, this separation can no longer be maintained. Sovereignty is itself becoming an economic category.

Whoever lacks access to critical technologies can become economically vulnerable to coercion. Whoever does not control their data loses room to maneuver. Whoever lacks sufficient energy or defense infrastructure must make economic policy decisions under geopolitical constraints. This does not, however, mean autarky. A sovereign Europe does not need to produce every technology itself. Such a strategy would be neither geopolitically realistic nor economically sensible. Sovereignty instead means having choices: being able to substitute dependencies, control strategic nodes, and enter into partnerships from a position of one’s own agency.

This also changes the relationship with the US and China. Europe’s goal can be neither equidistance between Washington and Beijing nor a naive notion of complete strategic autonomy. In terms of security policy, the transatlantic partnership remains central. Economically, China remains an important market and production location. But partnership is not the same as dependency.

Four Principles for a European Systemic Policy

A European response to the systemic rivalry would therefore need to break with four outdated assumptions.

First: think in systems. Technologies only unfold their productivity through complementary technologies and infrastructure. The energy transition does not consist of wind turbines, digitalization does not consist of fiber-optic cables, and electric mobility does not consist of batteries. Policy must therefore think more from the perspective of future systems: what technological, infrastructural, financial, and institutional complementarities are needed for new value creation to emerge?

Second: allow disruption. Transformation is often understood as though existing companies, structures, and business models could be gradually carried over into a new world. But technological upheavals rarely function so harmoniously. The companies of the future are not necessarily the transformed companies of the past. Many of them are only being founded today. Europe therefore needs not only transformation support for existing structures, but better conditions for their creative destruction.

Third: reduce complexity. The more complex technological systems become, the less policy can dictate their development in regulatory detail. Systemic change requires coordination at the macroeconomic level, but the greatest possible openness at the microeconomic level. The state must provide infrastructure, enable standards, and define strategic goals. Which technologies and business models ultimately prevail, by contrast, should be decided as decentrally as possible.

Fourth: enable risk. Knowledge about the future only emerges by trying the future out. Whoever waits to permit investment until all risks are known and regulated will systematically arrive too late. The US mobilizes private venture capital; China can absorb state risk. Europe needs its own mechanism: deeper capital markets, more institutional venture capital, and above all greater trust in independent science, responsible research, and innovative entrepreneurship.

Cybernetic Transformation Policy: A New Approach for Europe’s Economic Policy

From this, a new understanding of European economic policy could emerge. Classical industrial policy often tries to promote specific sectors. Competition policy tries to limit market power. Regulation sets rules for companies. Infrastructure policy provides public goods.

In technological systemic rivalry, however, these categories interlock. Europe therefore needs something like a cybernetic transformation policy. Its task would not be to steer the economy centrally. On the contrary: it would need to create the conditions under which decentralized actors can bring forth new systems. This policy would be cybernetic because it accounts for feedback loops: between research and capital, energy and industry, digitalization and administration, security and technology, regulation and innovation. It would plan fewer individual outcomes and instead increase the adaptability of the overall system.

This would be a genuinely European approach. Europe can and should copy neither the American nor the Chinese model. It has a different institutional tradition: decentralized market economy, social embeddedness, federal structures, independent science, and the rule of law. Precisely from this, a distinct systemic model could emerge.

Europe’s Third Position Between the US and China

The coming systemic rivalry does not therefore have to lead inevitably into a bipolar world of the US and China. Such a development would, however, threaten Europe if it continues to understand its role predominantly as that of a market, a regulator, and a geopolitical junior partner. The strategic task is not to choose between America and China. It is to create the conditions that would even allow such a choice to be made at all.

Europe does not need complete technological autarky for this. But it does need its own capabilities in the areas that will determine future value creation and political capacity to act: artificial intelligence, energy, semiconductors, quantum technologies, defense, digital infrastructure, biotechnology, and capital markets. The competition between the US, China, and Europe will therefore not be decided by growth, productivity, or export shares alone. It will be decided by the ability to combine technological, economic, and political resources into new systems. Europe continues to possess exceptional conditions for this. What is missing is less knowledge or capital than the ability to recombine existing resources in new ways. The decisive question for Brussels is therefore not how to restore the competitiveness of the past. It is: in which system does Europe want to be competitive in the future?

For new competitiveness does not arise from defending old growth paths. It arises where new growth paths become possible in the first place. And it is precisely there that Europe’s sovereignty will ultimately be decided as well.

Note on the use of AI: This text was revised and finalized with ChatGPT with regard to structuring and outline.