Heavy industry is Europe’s Trump card

Whether or not the United States now qualifies as Europe’s adversary, it’s clear that its postwar role as guarantor of Europe’s security is over. Friedrich Merz has already called for European strategic independence from Washington—a watershed declaration for a likely incoming German chancellor.

For European leaders, meeting this historical moment will mean preparing to defend their national interests on their own—including, potentially, against the United States. And in any future strategic competition with Washington, Europe has an overlooked trump card: manufacturing prowess.

Led by Germany, Europe collectively outproduces the United States in steel, vehicles, ships, and civil aircraft. European Union member countries, on average, also pay less to service their debts than the United States. This gives the EU the industrial heft and financial firepower to support Ukraine and embark on domestic rearmament as U.S. President Donald Trump abandons Kyiv and NATO. But it will require the bloc to invest in its defense and defend the manufacturing base that underpins it against China’s trade dumping and US tariffs.

Many European leaders look with envy on the U.S. tech sector. But manufacturing plays a far greater role in the EU economy than in the United States. On average, manufacturing accounts for 16.4 percent of the EU’s gross value added compared to just 11 percent in the United States. The EU’s manufacturing sector employs 30 million people versus just 13 million in the United States. While U.S. tech is highly profitable, the industry employs just 6.5 million people.

The stagnant EU economy has fueled calls for Europe to prioritize high-tech sectors over its “old” industrial base. But while new technologies matter, this is a false dichotomy. There are three reasons why maintaining Europe’s manufacturing edge is critical not just for its growth, but also for its security.

First, manufacturing drives the little productivity growth that Europe still generates. While digital technologies have propelled U.S. productivity growth, in the eurozone’s five largest economies, so-called mid-tech manufacturing—such as cars and machine-building—has dominated the top 10 sectors, with some of the fastest productivity growth since 2012.

If the EU is to fund large and immediate increases in defense spending, it will need the income created by its industrial sector to generate tax receipts and keep its debt levels sustainable. These sectors are far from a lost cause. For example, ASML, widely seen as Europe’s most important tech company, is a machine-builder. Exports of clean technology account for 4 percent of Germany’s GDP, a figure unmatched in any other G-7 economy or even China.

Second, industrial production is a precondition for Europe to rearm quickly. Not only does Europe produce more vehicles than the United States and 50 percent more steel, but Airbus also produced twice as many planes as crisis-stricken Boeing in 2024. And Europe maintains critical upstream industries for defense production, such as steel and chemicals, although they are reeling from high energy costs.

Today, supply chains for modern industry double up as defense supply chains. The United States serves as a warning of the risks of letting them etiolate: It maintains a military shipbuilding industry that struggles with cost overruns and inefficiencies, partly because of the small number of commercial ships it produces, eroding its supply chains. In contrast, Europe still produces a significant number of highly specialized ships each year.

Third, even as Europe aims to catch up with the United States in advanced technologies, its comparative advantage in the trans-Atlantic relationship will continue to lie in manufacturing. Because U.S. industrial capacity cannot match domestic demand, EU has long run a surplus in goods trade with the United States, dominated by machines, cars, and chemicals. Much of its advanced manufacturing is outsourced to Europe and Asia. On the flip side, Europe is mainly reliant on the United States for its tech and software services.

Washington is aiming to reindustrialize and rebalance the trading relationship. But in an economy already operating above full capacity, with a tight labor market and planned controls on immigration, there will be constraints on expanding domestic supply. Manufacturing can ensure that the EU remains an indispensable partner to a more transactional U.S. administration.