BRUSSELS — The European Commission’s vice president Henna Virkkunen sounded the alarm about Europe’s dependence on foreign technology on Tuesday, saying “it’s very clear that Europe is having our independence moment.” “During the last year, everybody has really realized how important it is that we are not dependent on one country or one company when it comes to some very critical technologies,” she said at an event organized by POLITICO. “In these times … dependencies, they can be weaponized against us,” Virkkunen said. The intervention at the event — titled Europe’s race for digital leadership — comes at a particularly sensitive time in transatlantic relations, after U.S. President Donald Trump’s recent threats to take over Greenland forced European politicians to consider retaliation. Virkkunen declined to single out the United States as one of the partners that the EU must de-risk from. She pointed to the Covid-19 pandemic and Russia’s invasion of Ukraine as incidents that point to Europe’s “vulnerabilities.” She said the U.S. is a key partner, but also noted that “it’s very important for our competitiveness and for our security, that we have also our own capacity, that we are not dependent.” The Commission’s executive vice president for tech sovereignty swung behind the idea of using public contracts as a way to support the development of European technology companies and products. “We should use public procurement, of course, much more actively also to boost our own growing technologies in the European Union,” she said when asked about her stance on plans to “Buy European.” Those plans, being pushed by the French EU commissioner Stéphane Séjourné, in charge of European industy, to ensure that billions in procurement contracts flow to EU businesses, are due to be outlined in an upcoming Industrial Accelerator Act that has been delayed multiple times. “Public services, governments, municipalities, regions, also the European Commission, we are very big customers for ICT services,” Virkkunen said. “And we can also boost very much European innovations [and startups] when we are buying services.” Virkkunen is overseeing a package of legislation aimed at promoting tech sovereignty that is expected to come out this spring, including action on cloud and artificial intelligence, and microchips — industries in which Europe is behind global competitors. When asked where she saw the biggest need for Europe to break away from foreign reliance, the commissioner said that while it was difficult to pick only one area, “chips are very much a pre-condition for any other technologies.” “We are not able to design and manufacture very advanced chips. It’s very problematic for our technology customer. So I see that semiconductor chips, they are very much key for any other technologies,” she said.

China’s Vice Premier He Lifeng positioned his country as a champion of the rules-based international order Tuesday, in a speech at the World Economic Forum that indirectly attacked the Trump administration. “The unilateral acts and trade deals of certain countries clearly violate the fundamental principles and rules of the [World Trade Organization], and severely impact the global economic and trade order,” said He, adding that the world shouldn’t slide back into “the law of the jungle, where the strong bully the weak.” The remarks come amid unprecedented tensions between the European Union and the U.S. over Washington’s threats to annex Greenland by force. The escalation has already led President Donald Trump to threaten a group of European countries with new duties after they sent troops to the North Atlantic island. Another country caught in the middle of U.S. President Trump’s tariff onslaught, Canada, has already moved closer into China’s orbit as a response. Ottawa, a longstanding U.S. ally, signed an agreement last week that would liberalize trade in agricultural goods and electric vehicles. “Tariffs and trade war have no winners,” said He, praising the benefits of “free trade and economic globalization.” He said that the global trade system was facing its biggest challenge in years. He called on countries to not turn their back on globalization and trade liberalization that had been instrumental in helping “many countries, including China” achieve “fast development.” The vice premier did acknowledge that globalization “wasn’t perfect” but said that it would be wrong for nations to retreat into “self-imposed isolation”. He also addressed some common criticisms of China’s economic model, which generated a record trade surplus of nearly $1.2 trillion in 2025. In Europe, that enormous level of exports has stoked worries of China crushing European businesses across a range of industries, including the automotive sector. The vice premier insisted that China wasn’t only seeking to export goods abroad, but also wanted to be the “world’s market.” But, he added: “When China wants to buy, other countries don’t want to sell.” The U.S. has imposed restrictions on the sale to China of cutting-edge microchips used in AI. Beijing is trying to support domestic demand, putting it at the top of its economic agenda, He said. However, household consumption, as a share of GDP, has been on a downward trend for decades and was still less than 40 percent last year, compared to a global average of over 60 percent, according to World Bank data. Many economists arguee that an increase in household income could both help China absorb its own manufacturing surplus, dampening exports, and create more demand for goods produced abroad — for example for European luxury items. “We encourage businesses from around the world to seize the opportunities presented by our expanding domestic demand, provide more and better products and services, and further explore China’s consumer market,” said He. “China will open its door still wider to the world.”

Europe is laying the foundation for renewed economic growth. Regulatory simplification is gaining traction. Public investment is accelerating in technology, energy and defense. Private capital is supplementing these efforts. These are meaningful steps, which, in the eyes of many, are long overdue and still need to gain pace. But an additional ingredient is required.  Our new research finds that closing the continent’s competitiveness gap requires Europe’s major companies to place a new emphasis on entrepreneurial courage: that is, the increased willingness to embrace uncertainty and take calculated risks in service of renewal and growth. Corporate leaders willing to make bold investments and engage in modern public-private collaborations, much like their American and Asian peers, stand to reap the rewards for acting decisively and with greater urgency.   Europe’s global competitiveness is ultimately a function of individual companies making a material difference, particularly large corporations and dynamic scale-ups. And it doesn’t require many acting boldly to have a disproportionate impact. In examining a sample representing about 15 percent of the U.S. economy, the McKinsey Global Institute found that more than two-thirds of productivity growth between 2011 and 2019 was driven by just 44 ‘standout’ companies. Meanwhile, 13 standout companies drove a similar proportion of the German sample’s productivity growth during the same period. These highly valued ‘outliers’, together with differences in growth and return on invested capital, underpin much of the valuation gap between European companies and their international peers, as highlighted in research we conducted on UK capital markets.   The status quo is not tenable.  Since the global financial crisis, Europe has endured a prolonged slump in private investment that has been especially pronounced in future-shaping industries. In the past five years alone, our analysis found that companies with headquarters in the United States have invested €2 trillion more in digital technologies such as artificial intelligence (AI) than their European peers. And in traditional manufacturing industries, China is out-investing Europe at a rate of 3:1.  > This investment gap not only stifles European economic growth, but prevents > the continent from inventing, developing and deploying the technologies it > needs to increase productivity and drive prosperity.  And the need to boost investments is growing: when the landmark Draghi report on European competitiveness was released in 2024, it estimated that an additional €800 billion needed to be mobilized annually to start closing the continent’s competitiveness gap. With the required additional investment in defense, that figure is now estimated to be €1.2 trillion annually for the next five years.  Of course, the regulatory landscape is also important. The positive news over the past year is that the European Commission has implemented dozens of initiatives, from regulatory simplification to streamlining and enhancing funding and market-creation mechanisms, as well as preparing to propose a ‘28th regime’ to make it easier for companies to scale across its 27 member states. Governments are also stepping up, with growth in strategic public investment in technology, energy and defense capabilities creating tailwinds for private investment. For instance, Germany amended its constitution to exempt defense spending above 1 percent of GDP from its debt brake and established a €500 billion fund to support infrastructure and climate-neutral investment. Similar programs are taking shape in France, Italy, the Netherlands and the Nordics.  But, while private sector activity shows some signs of acceleration, more is needed. Driving Europe’s economic vitality requires the emergence of standout companies, acting both individually and in close collaboration with the public sector. Without it, Europe risks another decade of ‘secular stagnation’: sluggish real GDP growth of around 1 percent annually as excess savings and a dearth of investment depress aggregate demand and push interest rates back to near zero.  > So, what does it take to show more entrepreneurial courage? Informed by our > global research and what we see standout firms doing, our research highlights > a range of actions leaders could explore.  One example is making broader ecosystem plays, such as semiconductor company ASML joining with the Dutch government and regional partners to launch Project Beethoven, a €2.5 billion public-private investment to ensure ASML’s continued presence and expansion of the broader microchip cluster in Eindhoven. Another is re-inventing potential stranded assets to position them for the industries of the future, illustrated by the range of European utilities converting or marketing former coal and gas power plant sites for hyperscale data centers. And a clear one is radical adoption of AI and automation technologies, which MGI’s research shows could add up to 3.4 percentage points to annual productivity growth globally through 2040.  > Europe has an opportunity to take steps to decisively alter its competitive > trajectory.  But while public sector leaders can lay the foundations necessary to accelerate investment and growth, the continent’s leading companies are distinctly positioned to amplify this and make a critical contribution to the continent’s prosperity, security and strategic autonomy. There’s growing consensus on what needs to be done. What’s now needed is a hefty dose of entrepreneurial courage to act.

U.S. President Donald Trump’s aggressive move to block states from regulating artificial intelligence is splitting the tech lobby — and steering its frustration squarely toward David Sacks, the president’s top AI adviser. Sacks, a San Francisco-based investor, largely wrote the executive order Trump signed last week that throws the legal and financial power of the federal government against state AI laws. A controversial move even within the GOP, it was a major win for Sacks, who also acted as its biggest promoter within the White House. Standing next to Trump last Thursday as the president signed the order, Sacks touted its importance. “You’ve got 50 states running in 50 different directions — it just doesn’t make sense,” he said. “We’re creating a confusing patchwork of regulation, and what we need is a single federal standard.” Tech companies largely agree with that view. But they and their lobbyists worry the order — and Sacks’ bulldozing style — have set their interests back by creating new friction in Congress, and derailing a national strategy that recently notched a big win in California. More than half a dozen people closely involved with the issue in Washington told POLITICO that Sacks undercut the tech industry’s effort on Capitol Hill to craft a more permanent federal solution on state AI rules, instead ramming through unilateral action that could turn AI law into a national political fight. “He’s made it a lot harder,” said Brad Carson, president of Americans for Responsible Innovation, an organization pressing Washington for new rules on AI. “Thanks to the preemption fights, you have kids’ safety groups, you have Republican governors, Republican [attorneys general], you have Marjorie Taylor Greene denouncing it. It’s become a thing,” said Carson. “And that’s all because of, really, their efforts just to jam everyone.” Carson’s organization, funded by progressive groups like the Omidyar Foundation, is generally seen as opposed to the tech lobby. But in interviews for this article, numerous people in and around the AI industry said they agree with his claim that Sacks’ order undercuts the congressional effort to preempt state AI rules — and given its tenuous legal status, may not even protect them from state rules in the meantime. “Businesses don’t like uncertainty, OK?” said Bilal Zuberi, founder and managing partner at venture capitalist firm Red Glass Ventures. “And this is an uncertain future for any EO.” The escalating concern about Sacks’ strategy — especially his approach to Congress — shows how the hard-charging, maximalist ethos of the tech billionaires surrounding Trump continues to clash with the cautious give-and-take that has historically led to major legislative wins in Washington. In a statement to POLITICO, a senior White House official framed the executive order as a strategic play to spur Capitol Hill into action. “As the President said, if Congress didn’t act, he would,” said the official, granted anonymity to discuss the administration’s strategy candidly. The official called the order “a big step forward for AI in the United States from facing a patchwork of regulations” — but also said that the administration still wants to work with Congress and that it “incorporated significant feedback in the last few weeks” on the order. TWO WINS, AND A QUICK BACKLASH Sacks is an Elon Musk confidant who had spent little time in Washington before snagging a top White House job overseeing AI and crypto policy. His work as a Silicon Valley investor has also raised concerns about potential conflicts of interest. He serves as a special government employee, a distinction that caps his work at 130 days over a year-long period. He has previously notched two major wins in Washington, helping push through a pro-crypto law and weakening restrictions on microchip sales to China, which benefited the California chipmaking giant Nvidia. But on state AI laws, Sacks’ push for an executive order interrupted the political momentum that industry had been building for a compromise approach. Most notably, Big Tech had hashed out a victory in California, where Gov. Gavin Newsom signed an AI safety law largely supported by the industry, its Democratic critics and pro-business Republicans. Many in the AI lobby had hoped to ride that current into Washington with a new strategy to cut a deal for a federal law that both Democrats and Republicans could support. But that era of good feelings ended when Trump signed the order last week, threatening to deploy the Department of Justice directly against California and other states moving to regulate AI, some of them Republican-led. Within minutes of the order’s signing, Newsom shot back: “President Trump and Davis [sic] Sacks aren’t making policy — they’re running a con.” Other Democrats also piled on, with some on Capitol Hill pledging to introduce bills that would repeal the order. Florida Gov. Ron DeSantis, a Republican, said Monday that his state “has a right” to regulate AI and predicted Florida “would be well positioned to be able to prevail” in any legal challenge. Carson said the order is “only going to embolden a lot of people more on the other side of this question, Republicans included, to do something.” “Do you think Gavin Newsom is going to say, ‘I’m not going to push AI?’ Carson asked. “He may be more eager to do it now than ever.” WHAT WENT WRONG The political breakdown threatens to further undermine the tech lobby’s preferred approach to blocking state AI laws — a deal, passed by Congress, that could bring skeptical lawmakers on board by preempting state regulations in exchange for new federal rules on kids’ safety and frontier AI models. An effort to craft such a deal and insert it into a must-pass defense bill fizzled earlier this month. In looking at what went wrong, six people familiar with the negotiations — industry representatives, AI experts and others involved in talks on Capitol Hill — identified the White House’s aggressive and uncompromising posture. And they pinned that approach largely on Sacks, who the Trump administration has entrusted with the AI acceleration portfolio in Washington. Like many others in this report, these people were granted anonymity to speak candidly about sensitive discussions on a top industry priority. “This was the best opportunity, possibly in the entire Trump administration, to get [state AI] preemption done,” said one person familiar with the defense-bill negotiations. “Most people thought a compromise on policy would be necessary to make it happen. David was unwilling to make that compromise, so we are where we are — and for now, preemption is on life support.” A Trump administration official also told POLITICO that there is “frustration” at multiple agencies over Sacks’ effort to “rush” state AI preemption. Sacks “was very successful in the private sector, [but] he doesn’t understand how government works,” said another person familiar with talks around the AI preemption push. “He doesn’t understand how to build coalitions. He doesn’t understand how to concede on minor things in order to get a win, and he just tries to bulldoze everybody.” A WINDOW OPENS — AND SLAMS SHUT Since AI began its meteoric recent growth, Congress has done little either to rein in the technology or promote it. States, however, have stepped into that gap: Legislators in both parties have introduced AI bills in all 50 states, and this year adopted dozens of new laws in states as diverse as California, Texas, New York and Utah. The industry has been pushing for a moratorium on state laws until a streamlined national regime can be put in place. This summer, a Republican attempt in Washington to insert such a provision into the One Big Beautiful Bill Act crashed and burned in a 99-to-1 Senate vote. In the wake of that failure, tech lobbyists began pulling together the contours of a deal on preemption that they believed could attract Democrats and some concerned Republicans on Capitol Hill. The tech lobby would get its ban on most state AI laws, while Democrats and tech-skeptical Republicans would receive new child safety protections as well as rules on frontier AI models. The defense bill eventually emerged as the most likely vehicle for that compromise. “Right before Thanksgiving, there really was, in an odd way, an aperture for negotiation,” said one top representative for the AI industry. But that representative, as well as other people familiar with the preemption talks, said Sacks’ reluctance to pressure House Majority Leader Steve Scalise (R-La.) or other lawmakers to compromise helped sink a major opportunity for the AI sector. In fast-moving legislative maneuvers like this one, the White House often plays a key role by pressing Congress to compromise. But people familiar with the talks said Sacks had little interest in granting concessions to Democrats or skeptical Republicans — preferring instead to jam Congress by unilaterally preempting state rules with an executive order. The industry representative said the message Sacks delivered to Congress — that Republicans shouldn’t negotiate, but instead just ram preemption through — caused the effort to fizzle out. “He has been probably more intransigent, with people saying to him, ‘No, David, we actually have a chance here,’” the representative said. “‘It’s so hard to pass bills in Washington. We actually have a moment. Let’s just go and figure this out.’” Several people stressed that the failure to preempt state AI laws via the defense bill wasn’t Sacks’ alone. They said Scalise was already wary of a compromise on state AI preemption, as were influential AI safety groups and some Democratic lawmakers. A senior official in Scalise’s office said the House majority leader was open to some kind of a defense-bill compromise on preemption, but that key Democrats failed to engage. Washington Sen. Maria Cantwell, the top Democrat on the Senate Commerce Committee, disputed that characterization, telling POLITICO that her office “had talks all summer” about preemption and “even met with David Sacks.” “We were like, here’s what we need to do,” Cantwell said in early December. “And then all of a sudden, out of nowhere, comes this push to put it in the [defense bill].” One person familiar with the defense-bill negotiations said Sacks and the White House could have pressed both sides to make a deal — but chose instead to pull away from Congress and pursue an executive order. “Everyone was looking for leadership here,” the person said. “We’re in one of those situations where we’re asking, ‘Who’s in charge?’” AN UNWELCOME ORDER If Sacks’ reluctance to compromise weakened the congressional effort to find common ground on preemption, his drafting of a new executive order — one that mostly circumvents Congress and promises to turn state preemption into a court battle — finished it off earlier this month. Multiple people said they believed Sacks saw the order as leverage over Congress, and expected it would force the hand of AI-skeptical lawmakers to approve state preemption. “I think his calculus was, ‘We should show that we’re going to take action unless Congress does,’” said one AI policy expert familiar with the negotiations. But the plan backfired. In late November, a draft of the order leaked — and its brute-force approach sparked a flood of public pushback from Democratic legislators and state governors, including Republicans. The AI expert said the draft order caused both sides to “dig in their corners, double down on the positions they were holding.” It was a predictable outcome for Washington veterans, who had believed that any White House attempt to strongarm Congress would sabotage a compromise. The executive order signed by Trump last Thursday is meant to help industry by limiting states’ ability to regulate AI. But most tech lobbyists believe the order is on shaky legal ground, providing scant relief from state rules even as it puts a congressional compromise further out of reach. “I welcome the consistency of having one single rulebook,” said Dorna Moini, CEO of Gavel, an AI and automation suite for lawyers. “But the reality is that the uncertainty isn’t reduced. It’s whiplash, and now there is this chaos as to whether the preemption is going to be valid.” “This needs to be done by Congress,” said one tech lobbyist last Thursday, predicting legal challenges to actions taken under the executive order. After POLITICO contacted the White House for this report, two tech firms reached out to praise one aspect of the order, its call for Congress to preempt state AI laws. “The EO helps underscore the urgency of getting this done correctly,” said Luther Lowe, head of public policy at San Francisco-based venture capitalist firm Y Combinator. Lowe expressed a desire to “work with Congress to make sure this is done correctly.” In a statement, Chris Lehane, head of global affairs at OpenAI, said his company is “aligned with the Executive Order’s clear language about the need for federal legislation to establish a national framework as an important step towards helping to set up the much needed federal legislation in 2026.” Neither Lowe nor Lehane addressed the meat of the executive order, which directs federal agencies to target states that pass AI laws. CAN THE WHITE HOUSE GET TO ‘YES’? A handful of lobbyists and industry-friendly experts defended Sacks for this report. “I’m not worried about Sacks’ chops in terms of his ability to navigate Congress and get things done,” said Collin McCune, head of government affairs at venture capitalist firm Andreessen Horowitz, which has close ties to the Trump White House. McCune noted that Sacks “pushed through an incredibly complicated, historic crypto bill — that was his first thing out of the gate.” But others are now wondering if Sacks has become a liability in the AI industry’s quest to preempt state AI rules. And if Sacks refuses to bless a viable legislative deal on preemption, some say he should be sidelined. “He either does have to go, or he has to do the world’s biggest PR campaign,” said one person familiar with the preemption talks in Washington. “He will have to do a real tour across town, and really change his attitude in a way that would surprise me if he were able to pull it off.” There are some early signs that Sacks may moderate his take-no-prisoners approach to a state AI moratorium. Sacks recently convened a special meeting with GOP governors and staff where he sought to assuage their concerns that the executive order would undermine states’ ability to protect kids online, according to one person familiar with the conversation. The final order was slightly softened from its earlier draft, including a carveout that lets states regulate AI’s impact on kids. And at the signing ceremony for the order, Sacks pledged to “work with Congress” to “define [a] framework” for AI. Still, many in industry remain unconvinced that Sacks — or Trump — are ready to compromise. At a White House holiday party earlier this week, the president indicated that he hopes Congress will codify his executive order on state AI laws. “But even if we can’t, it’s good for three years and two months,” Trump added. As the new year approaches, the AI industry is watching the White House closely. “Can they reach a deal on a legislative framework, and can they keep the aperture for a deal open?” the top industry representative asked. “Or does the administration continue to do things that poison the well?” Cheyenne Haslett contributed to this report.

BRUSSELS — The EU is scrambling to redo its homework on building a secure supply of microchips after it was forced to accept it has made little progress on tackling its dependence on the U.S. and China. The EU recently dodged a bullet for the second time this year when a weeks-long disruption fueled by trade tensions between the U.S. and China saw European carmakers warn in October that their assembly lines could grind to a halt. That left the bloc reckoning with the reality that its first EU chipmaking plan — launched in 2022 to huge political fanfare in the wake of pandemic supply-chain disruptions — has had little impact on the bloc’s exposure to foreign production. The European Commission announced it would accelerate a planned review of its chipmaking efforts, with a new proposal expected by the first quarter of 2026. The latest crisis centered on Dutch-based, Chinese-owned chipmaker Nexperia — a key supplier to European carmakers. In late September, the Dutch government seized control of Nexperia due to concerns that its technology was being leaked to China. The U.S. and China imposed export controls on the company. With chips essential for everything from electric cars to artificial intelligence, both the U.S. and China showed a willingness to weaponize microchip supply chains to gain an advantage in the development of new technologies. Industry insiders say it was a reality check for Brussels. The EU’s first chipmaking effort was “like a band-aid” and now the patient — the bloc’s microchip economy — needs a “full, general operation,” said Alison James, a senior director at the Global Electronics Association, which represents the electronics industry globally. Among the criticisms are that the EU failed to properly address geopolitical realities in its 2022 plan, and that it also targeted the wrong type of chips, dazzled by hype about the most advanced microchips. Most industries function on basic microchips, with each car produced in Europe needing hundreds of these. WHAT WENT WRONG? The bloc’s first chipmaking plan had a clear goal: It wanted to boost the region’s market share, which had been in decline for decades, to 20 percent of the global industry by 2030. In reality, it has hardly moved the needle from the 9 percent share it held three years ago. The plan, in the form of a Chips Act, introduced the possibility of designating some factories as “first-of-a-kind” if they introduced new technology to the bloc, with manufacturers to be offered extra encouragement such as more flexibility on permitting and subsidies. Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. | Robert Michael/picture alliance via Getty Images Much of the political headspace went into efforts to convince leading manufacturers, such as U.S.-based Intel and Taiwanese TSMC, to build factories for high-end chips in Europe. Initially, Intel pledged €30 billion for a factory in the east of Germany, but canceled the plans after landing in financial trouble. TSMC is building a factory in Germany, but on a much smaller scale than its projects in the U.S. In parallel, Europe’s remaining chip assets have become further entangled in a geopolitical tit-for-tat. The U.S. piled pressure on the Dutch government to block exports to China from Dutch company ASML, the world’s leading manufacturer of high-end chipmaking machines. In the final week of the Biden administration this past January, the U.S. restricted the supply of AI chips to certain EU countries. That led to calls from both EU countries and European Parliament lawmakers for a second go-around at a chipmaking strategy. “This new chips proposal should feature a long-term strategy rooted in current geopolitical realities,” read a March letter sent by dozens of lawmakers. BORING IS FINE The Nexperia case served as an example of how the chips war is now being fought through export controls and national security tools, which aren’t yet part of Brussels’ repertoire. It also reinforced the importance of “boring” chips after a year-long craze about AI chips, which are built to handle tasks such as machine learning and language processing. Yet in announcing plans for the second effort, the EU’s tech sovereignty commissioner Henna Virkkunen said: “We are now preparing Chips Act 2, to make sure that Europe will be able to design and manufacture AI chips.” She later hinted it might also focus on stockpiling. Experts argue Brussels needs to examine the entire chip industry, rather than focusing on providing billions of subsidies for factories that produce advanced AI chips. “Up until a few weeks ago, the conversation on chips was really driven by advanced chips, AI chips,” said Chiara Malaponti, the geoeconomics program coordinator at the European Council on Foreign Relations. “But then you also have the case of Nexperia, which isn’t really about that, but about mature semiconductors,” she argued. “You saw the consequences of the events of past weeks, and how they had a huge impact on our industry.” Malaponti advocated for a comprehensive mapping exercise as part of Brussels’ second effort. “[The first chips act] put an emphasis on manufacturing, which is cool, of course, but there are also other parts of the supply chain,” she said, adding that it will be important to understand Europe’s strengths. “How we can cultivate those niches and how we leverage them is something that needs to be discussed as well,” said Malaponti. The industry is also a proponent of examining the full chain of production from beginning to end, rather than just focusing on the front-end manufacturing. “The chain is only as strong as the weakest link,” said James. “You’ve seen the chokepoints. There are many other chokepoints in the back-end of the electronics supply chain.”

The Chinese government has agreed to resume exports of key chips for the European auto sector, according to Dutch Prime Minister Dick Schoof. “We were informed by China that they will enable the resumption of supplies from Chinese factories from Nexperia,” Schoof told Bloomberg Friday on the sidelines of the COP30 climate summit in Brazil. The crisis was sparked in October when the Netherlands seized control of the Dutch-based chipmaker, a subsidiary of Chinese chip giant Wingtech, prompting Beijing to impose retaliatory export restrictions. Schoof told the newswire that the resolution was the result of cooperation between the Netherlands, Germany and the European Commission, as well as recent Dutch-Chinese diplomatic talks, alongside a trade detente between the U.S. and China. German auto firm Aumovio disclosed on an earnings call on Friday that it had been informed that it had received the necessary permissions to begin importing Nexperia’s chips.

An emerging U.S.-China detente gives European leaders breathing room to find a strategy on trade, raw materials and the war in Ukraine — but the thaw between the two great powers risks pushing European interests to the side.   President Donald Trump and his counterpart Xi Jinping agreed to a significant de-escalation in their trade spat during a head-to-head Thursday in South Korea, pausing export controls on rare earth magnets and other critical raw materials for 12 months.   While the move is good news for European companies that have been caught in the crossfire, other sticking points in the Europe-China relationship will be harder to resolve, even with the gift of time.  Brussels, under pressure from Trump and in pursuit of its own strategic interests, is trying — without notable success — to sway Beijing from supporting Russia in its war on Ukraine.   At the same time the EU is doing its best to keep the temperature down in its longstanding trade standoff with China, whose intensity has ratcheted up recently with the imposition of limits on exports of critical raw materials and microchips. Both measures have had an immediate negative impact on European industry, particularly automakers which were already struggling prior to the restrictions.  Fears of lasting, irreversible damage to Europe’s industries have led the EU to take a more conciliatory stance in its trade standoff, emphasizing engagement and dialogue rather than punitive measures.  Yet Chinese officials have balked at the slow and uncoordinated pace of discussions with the EU, leading Beijing to drop Europe down its list of priorities, according to Jeremy Chan, a senior analyst at Eurasia Group.  “The EU is a secondary at best, maybe a tertiary or a non-consideration for both Washington and Beijing in these negotiations,” Chan told POLITICO.  ‘LET THEM FIGHT’ The top political priority for the EU is ending the war in Ukraine — something that Trump while on the campaign trail promised to do within his first 24 hours in office. Almost a year into his term, the fighting continues, aided by China propping up Russia’s economy through investments and oil purchases.  At the urging of the White House, the EU included Chinese banks and refineries in its two latest rounds of sanctions targeting Russia, arguing the entities were helping Moscow evade sanctions. This prompted an angry response from top Chinese officials including Prime Minister Li Qiang, who branded the sanctions “unacceptable” during a meeting with European Council President Antonio Costa in Asia this week, per an EU official.  European Commission President Ursula von der Leyen and the bloc’s top diplomat, Kaja Kallas, have both called out Beijing’s support for Moscow in explicit terms, with the former saying in July that it has a “direct and dangerous impact on European security.”  The EU’s latest sanctions prompted an angry response from top Chinese officials including Prime Minister Li Qiang, who branded them “unacceptable” at a meeting with European Council President Antonio Costa, per an EU official. | Pool photo by Vincent Thian via AFP/Getty Images Ukraine had hoped Trump would pressure Beijing to stop buying Russian oil, but the American president told media on Air Force One that the issue was not on the table — although he did say the war in Ukraine “came up very strongly,” with both sides hoping to find an end to the fighting.   “He’s going to help us and we’re going to work together on Ukraine,” Trump said, referring to the Chinese president. INDUSTRIES HELD HOSTAGE While China’s export controls were not directed at the EU, the bloc’s companies faced long delays and sharp price hikes in contending with the subsequent shortage of raw materials and magnets. China accounts for 98 percent of the EU’s rare earth permanent magnets.  The geopolitical firestorm sent the European Commission into overdrive to secure its own supplies of the magnets and launch a plan to diversify Europe’s supply chain by the end of the year.   But the EU has been here before. Just two years ago it passed the Critical Raw Materials Act to solve this exact problem, and yet all the deals that have been signed have failed to deliver actual products. Its latest scheme is big on ideas and short on specifics.   The one-year pause on export controls agreed between Trump and Xi affords the EU some time to put that plan into action and leverage its other alliances — including efforts unfolding at the G7 this week with Canada, along with the U.K., Italy, France and Germany seeking to diversify away from China’s grip.  But for companies looking for clarity, the catch is that none of the agreements made between Trump and Xi are binding.  “As long as we don’t see any details hammered out and put on paper it leaves a lot of room for both sides backtracking and applying various other conditions, so I don’t think that this is really settled,” said Alexander Gabuev, director of the Carnegie Russia Eurasia Center.  SECURITY CONCERNS  In the U.K., pressure is expected to build for policymakers to use the temporary U.S. truce to minimize the risks from China.  British PM Keir Starmer has thus far failed to resolve longstanding tensions between “securocrats” in parliament and Whitehall, who want to see a tougher stance toward Beijing, and those who argue for a closer embrace in order to boost inward investment. Prominent members of the government have traveled to Beijing in pursuit of strengthened ties since Starmer took office, despite his overriding foreign policy aim of cleaving close to Trump.  China has become a particular sore point for Starmer in recent weeks due to the collapse of the prosecution of two men accused of spying for Beijing, while ministers have yet to decide the fate of a planned Chinese “super-embassy” in London.  Back in the EU, divisions among member countries over how to counter China’s power — and any subsequent retribution — make a unified stance toward Beijing on trade or dumping measures unlikely.   Brussels got a glimpse of its internal factions when it slapped duties on made-in-China electric vehicles following an anti-subsidy investigation. Automakers and their political benefactors fear Chinese brands will dump their overcapacity in the European market, bringing a severe price war to Europe’s shores.   Yet for all the handwringing over how to protect domestic automakers, the votes of EU capitals on the duties revealed how economically exposed each is to China, with Germany launching a last-minute appeal to stop the duties.  The Netherlands is the latest EU member on the outs with China after Dutch authorities seized control of chipmaker Nexperia, prompting Beijing to hit back with export controls on Nexperia’s Chinese-produced chips. The shortage could halt production lines across Europe in less than a week, showcasing just how economically dependent Europe has become on China.  LET’S BE FRIENDS From the jump, Trump framed his sojourn to Asia as a “G2” summit, stoking fears that any deal would sideline other countries or that “British and European trade priorities could be overlooked or traded away without consultation,” said David Taylor, director of policy and programs at Asia House.  Sensing its declining influence in the Trump-Xi bromance, the EU is looking to bolster its trade ties elsewhere.  Trade chief Maroš Šefčovič is traveling to Australia in late November to chair an inaugural dialogue between the EU and the 12 members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership bloc, two diplomats told POLITICO. The dialogue is meant to deepen economic and political ties between the EU and countries keen to maintain established global trade rules.  Brussels, under pressure from Donald Trump and in pursuit of its own strategic interests, is trying to sway Beijing from supporting Russia in its war on Ukraine. | Jim Watson/Getty Images Brussels will have a chance to do just that when it hosts a delegation of high-level Chinese officials on Friday. They’re expected to meet with the Commission’s trade deputy-director general, Denis Redonnet, and other senior officials.  Experts caution that Europe will need to maintain pressure on Beijing to get any movement on its priorities.   “Europe cannot just simply be waiting to see what happens on talks between [the] United States and China,” said Ignacio Garcia Bercero, a former director at the Commission’s trade department. “It needs to develop its own channel of dialogue with China.” 

BRUSSELS — The geopolitical war around Dutch-based, yet Chinese-owned, chip supplier Nexperia is terrifying Europe’s carmakers that they’ll be hammered by a chip shortage that could wreak havoc with supply chains and shutter production lines. The car industry’s supply of crucial chips from Nexperia is dwindling just weeks after the Dutch government seized control of Nexperia and both the U.S. and China imposed export controls on the company.  “We will see production stops and slowdowns in short order globally because a lot of suppliers don’t have the depth of stock of the chips,” said a senior automotive official who spoke on condition of anonymity because of the issue’s sensitivity. “The auto sector is at the heart of the storm.”  Nexperia chips are used throughout the automotive value chain in everything from airbags to entertainment systems. The shortage threatens a replay of 2022, when pandemic-era microchip shortages similarly brought car plants to a halt. Yet automakers have done little to shore up their supply chains against geopolitical shifts, and an EU plan to reshore some chip manufacturing is falling far short of its targets.  The Dutch-based chipmaker warned its customers of an “unforeseen development that may affect the availability of certain products,” according to a force majeure declaration issued on Oct. 9, reported on by several media and seen by POLITICO.  The notice lit a fire under automakers and their suppliers to get their hands on any available chips, provoking a run on the materials. “It’s like the pandemic when people went on toilet paper buying sprees,” said a second auto industry insider. TOP OF THE LIST Following the 2022 shortage, the EU passed the Chips Act to alleviate the sector’s dangerous reliance on other regions for advanced or “mature” chips. Fast forward three years, and seemingly not much has changed.  This time, mayhem kicked off when the Dutch government decided at the end of September to invoke a 1952 national law to seize control of Nexperia, which was acquired by Chinese company Wingtech in 2019. The Dutch government feared that Nexperia’s CEO, who founded Wingtech, was transferring the chipmaker’s technology and production assets out of the country. Its decision came a day after the U.S. extended export controls on Wingtech to its subsidiary Nexperia. Four days after the Dutch seized control of Nexperia, the Chinese Commerce Ministry imposed export controls on Nexperia China, prohibiting the export of components manufactured in China.  Chips are ubiquitously used in modern manufacturing, driving the green and digital transition. While Nexperia’s chips are not the most advanced ones, they are critical to automakers: A traditional car contains up to 500 of the company’s chips — an electric vehicle as many as 1,000. China’s export clampdown on the chips, coupled with its control of rare-earth magnets — an equally important vehicle component — have sent the Nexperia crisis to the top of Brussels’ list of priorities. “The issue of chips is one of big importance, for many aspects of our policy, most notably the energy transition,” European Commission chief spokesperson Paula Pinho said on Monday. She added that Industry Commissioner Stéphane Séjourné raised the issue in a meeting with industry leaders on the same day, “to hear from the companies whether there are shortages.”  The companies’ input fed into a call between EU trade chief Maroš Šefčovič and his Chinese counterpart Wang Wentao on Tuesday. Next up is an anticipated visit by Chinese officials to the EU to discuss the export controls. Companies have already begun publicly discussing the potential impact of what’s happening at Nexperia.  Car lobby group ACEA said last week that it was “deeply concerned by potential significant disruption” to manufacturing if there was no quick resolution of the interruption of Nexperia’s supply of chips.  The group argued that the chips coming from Nexperia could be sourced elsewhere, but shifting would take longer than the current stock of Nexperia chips would last.  Volkswagen has warned its workers that potential production stoppages are imminent, German outlet Bild reported.  “Nexperia is not a direct supplier of the Volkswagen Group. However, some Nexperia parts are used in our vehicle components, which are supplied to us by our direct suppliers,” a VW spokesperson told POLITICO. “At this time, our production is unaffected. However, given the evolving circumstances, short-term effects on production cannot be ruled out.” SECOND CHIPS ACT The Nexperia case and possible shortages have put the EU’s dangerous microchip reliance back on the political map.  The European Commission announced this week that it plans to introduce a second Chips Act in the first quarter of next year, following a scheduled review due by September 2026.  Currently, the bloc is nowhere close to reaching the goal of the first Chips Act, which was to boost the bloc’s market share in the global microchips value chain to 20 per cent by 2030 — about double its current share.  Both lawmakers and EU countries want a second Chips Act.  “The European Chips Act 2.0 is in the making. But the Nexperia case shows the time is short,” Herman Quarles van Ufford, senior policy fellow at the European Council for Foreign Relations, said in a blog post on Wednesday.

BRUSSELS — The Dutch government has granted itself the power to intervene in company decisions at Dutch-based Chinese-owned chipmaker Nexperia. The highly unusual step, announced late Sunday, grants the country the power to “halt and reverse” company decisions — meaning Nexperia cannot transfer assets or hire executives without Dutch government approval, according to national media. The move is a significant escalation in relations between the Netherlands and China and could inflame wider trade tensions between Beijing and the European Union, with Europe caught in the middle of a tit-for-tat chips war between the U.S. and China. Nexperia is headquartered in Nijmegen, in the northeast of the Netherlands, and has been controlled by Wingtech since 2019. Recently there have been “signals” of “serious administrative shortcomings” at Nexperia, the Dutch government said Sunday. These shortcomings could “threaten the continuity and safeguarding of crucial technological knowledge and capacity on Dutch and European soil,” the government said, confirming it took the decision to intervene in company operations Sept. 30. While it didn’t outline the shortcomings in detail, the government cited concerns over Nexperia’s future as a Dutch and European-based company — hinting at possible fears of tech leakage, meaning property and know-how are transferred to China. Regions are increasingly seeking to bring production of chips — an important geopolitical asset — to their home shores. Nexperia is a vital chip supplier for Europe’s car industry. The order is meant to safeguard the availability of Nexperia’s products in an emergency situation, and doesn’t affect regular proceedings, according to the government. Wingtech slammed the Dutch intervention in a statement quoted by the Financial Times as “an act of excessive interference driven by geopolitical bias, not by fact-based risk assessment,” and said it had appealed to the Chinese government for assistance. A Nexperia spokesperson declined to comment further to POLITICO. “Nexperia complies with all existing laws and regulations, export controls and sanctions regimes,” the spokesperson said. “For the same purposes, we remain in regular contact with relevant authorities.” Wingtech said Sunday in a filing that company executive Zhang Xuezheng was already suspended as a director at Nexperia by a Dutch court in early October. Nexperia has had run-ins with several European governments in recent years. It was in 2022 forced by the U.K. to divest a chip manufacturing plant in Wales based on national security grounds. U.S.-based manufacturer Vishay Intertechnology eventually bought the factory. In 2023, the Dutch government scrutinized Nexperia’s acquisition of the Dutch chips startup Nowi under an investment-screening law, eventually waiving it through. Dutch liberal European Parliament lawmaker Bart Groothuis welcomed the move while noting it was an unusual move by the Dutch government. “The Chinese management of chip maker Nexperia is being discharged, and the direction is back at the company,” he said. Wingtech shares tanked by more than 10 percent on Monday morning.

Warning signs from an obscure part of the financial markets have got policymakers rattled, and one of their oldest and most profound fears may be about to get very real. As the world’s top central bankers and finance ministers descend on Washington for the annual meetings of the International Monetary Fund and World Bank, signs are increasing that the next bout of financial instability may be around the corner. The most worrying signs are arguably not from the foreign exchange market, where confidence in the dollar — the global system’s anchor — is gradually eroding, nor from the stock market, where the AI frenzy has driven equities to record highs in the U.S. and Europe. Rather, it’s what’s happening in the credit markets that’s sending a shiver down the spine of all those who remember 2008. The collapse of U.S. auto loan dealer Tricolor and parts supplier First Brands Group hints that something may be wrong in the world of private credit. Private credit refers to loans that are neither issued by banks nor publicly traded on an exchange like corporate bonds. It’s a broad description, and it can refer to anything from the aforementioned car loans issued by special credit suppliers to private funds lending money to help buy a family-owned company or financing for a new apartment block. It’s a young market, but has grown at breakneck speed. Goldman Sachs estimates it’s worth $2.1 trillion, and private equity companies, in particular, have made a fortune from it, helped by a vast amount of leverage. Because the money isn’t lent by banks, and because it’s structured as a private deal off the public markets, it’s a corner of the financial ecosystem that’s particularly hard to oversee — even when, as with Tricolor, the loans are then repackaged into tradable bonds. That means that if something is going disastrously wrong, it might only be detected once it’s too late. Officials are alarmed that something like that might be happening. For years, banking regulators have congratulated themselves on stamping out the kind of excessive risk-taking, questionable ethics and shoddy governance that caused the last financial crisis. But all along, they have fretted that, far from being dead, such behavior had just moved to other parts of the financial system outside their reach. In a speech last week, European Central Bank President Christine Lagarde warned that it was “imperative” to improve transparency in the non-bank financial sector, whose assets are now bigger than those of the regulated banking sector. “Policymakers must do so sooner rather than later,” she said. The Bank of England also took up the theme earlier this week, its Financial Policy Committee warning that “the risk of a sharp market correction has increased.” It said the defaults in the U.S. “underscore some of the risks the FPC has previously highlighted around high leverage, weak underwriting standards, opacity, and complex structures.” THE WHEELS COME OFF Texas-based Tricolor was an auto loan provider that lent to riskier clients, notably undocumented migrants. First Brands, meanwhile, is a car parts supplier that used opaque and complex financing schemes to pay its suppliers — until it wasn’t able to anymore. One of its creditors, Raistone, alleges that some $2.3 billion that it was owed “simply vanished.” Shares of investment bank Jefferies tumbled this week after it declared it had $715 million in exposure to First Brands. Swiss giant UBS, meanwhile, says it has $500 million at risk. The big question is whether the twin bankruptcies — concentrated in an inherently riskier segment of the market — are just two accidentally similar one-offs, or whether they are the first signs of a broader crisis brewing. Credit rating agency Fitch said defaults in the private credit market rose to 5.5 percent in the second quarter of the year, up from 4.5 percent in the first quarter. Meanwhile, in January, Fitch said auto loan payments that were 60 or more days late among the least creditworthy (subprime) borrowers were at the highest level on record, at 6.6 percent. A growing body of academic literature has found extensive links between non-bank financial institutions (NBFIs) — a category that includes hedge funds and private equity, as well as private credit — and the traditional banking sector. “Through these linkages, shocks can propagate rapidly across entities, sectors, or jurisdictions, especially when multiple institutions respond simultaneously to market stress,” said the authors of a paper at this year’s ECB research conference in Sintra, Portugal. They wrote that nearly one tenth of banks’ assets in the European Union were claims on NBFIs, and that 10-15 percent of banks’ deposits also came from non-banks. Loriana Pelizzon, deputy scientific director at the Leibniz Institute for Financial Research and one of the authors of the paper, said she wasn’t overly concerned about the two bankruptcies, given the relatively small size of the auto financing market. However, she said that interlinkages between European NBFIs and the U.S. financial system needed to be monitored, given the scale of the investments. “There’s a significant amount — trillions and trillions invested — in the U.S.,” she said, noting that investment chains are often long and complex, and that regulators lack insight into them. “The question is whether this is just a couple of rotten apples,” said Davide Oneglia, director at economic consultancy TS Lombard. He said that the risk in the private credit segment will grow further if U.S. interest rates don’t fall as quickly as expected, for example, due to high inflation. That would put a further squeeze on private credit providers. IN PLAIN SIGHT But it’s not just private credit that has policymakers on tenterhooks. The benchmark U.S. stock index S&P 500 is now trading at nearly 30 times the expected earnings of its components, far above its long-run average, and closer to the freak levels seen during the Dotcom boom and the pandemic. Over the last three years, the S&P has risen over 80 percent, largely powered by the performance of U.S. tech stocks on the back of a boom in AI investment. Companies have invested some $400 billion to build out the infrastructure — microchip factories and data centers — that powers AI. Should that money turn out to be misspent, for example, if AI doesn’t provide the productivity gains that investors are betting on, that bubble will burst with painful consequences. In parallel, unbridled government spending throughout the developed world, from the U.S., to Europe and Japan, have pushed market interest rates higher, amid growing doubts that governments can ever repay the debts they are building up. That has also helped push the price of gold — seen as a safe asset that won’t lose value — higher, with some investors piling into both gold and Bitcoin to avoid the debasement of their investments through inflation. It’s not clear which of these — if any — will light the wick of the next global financial meltdown. But what is clear is that policymakers will have no shortage of threats to obsess over next week.