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Deindustrialisation or re-industrialisation? Challenges and opportunities for European industry
European industry is under pressure: rising energy costs, bureaucracy, a shortage of skilled workers and geopolitical uncertainties are threatening the competitiveness of the continent as a business location. Nevertheless, the current paradigm shift in the global economy is opening up new prospects – and Europe has more strengths than is generally assumed.
The bombshell from Cologne reverberated as far as Brussels and Berlin: at the end of January 2025, Matthias Zachert, CEO of the chemical company Lanxess, attracted a great deal of attention with his announcement that the company would in future be investing primarily in the USA instead of in Germany. Zachert complained about an ‘EU bureaucratic monster’ that slows down innovation and discourages investment. The Lanxess case is emblematic of the challenges facing European industry.
In recent years, European industry has lost a significant amount of competitiveness. According to estimates by the European Trade Union Confederation (ETUC), around 853,500 industrial jobs were lost in the EU between 2019 and 2023. Energy-intensive sectors such as the chemical, metal and paper industries have been particularly hard hit. The trend towards deindustrialisation is particularly evident in Germany, Poland, the Czech Republic and Romania.
One key factor is the sharp rise in energy prices. European companies now pay up to four times higher gas prices than their competitors in the US. At the same time, the regulatory burden is continuously increasing. Regulations such as the CSRD directive on sustainability reporting or the EU supply chain directive tie up human and financial resources – especially in medium-sized companies.
In addition, geopolitical tensions such as the Ukraine conflict, the trade conflicts between the US and China, and insecure supply chains are causing uncertainty. In Germany, the situation is exacerbated by the shortage of skilled workers: according to the Cologne Institute for Economic Research (IW), there was already a shortage of over 530,000 qualified specialists in October 2024. This figure is expected to continue to rise in the coming years: the consulting firm PwC estimates that German companies will face a shortage of around 3.5 million workers in 2030. So there are plenty of reasons for companies to worry.
Europe as an economic area – why the EU is so important for industry
In view of the daily stream of bad news – for example from the German automotive industry – the question arises: is Europe doomed as an industrial location? Far from it! A few figures make it clear why the swansong sounds too early. With around 450 million consumers and a GDP of 16 trillion euros, Europe is still one of the most important economic and industrial locations in the world – and thus a unique sales market for industrial customers. Europe's population is roughly comparable to the entire USMCA zone (USA + Canada + Mexico). The USA alone has a higher GDP than the entire EU. If Canada and Mexico are included (USMCA), North America as a whole is the largest economic area. In terms of per capita GDP, the EU is ahead of China – but behind the USA.
One of Europe's strengths is market integration: within the EU, uniform rules apply (CE marking, product liability, exemption from customs duties), making the EU a particularly well-integrated single market. In North America, on the other hand, there are many technical barriers to trade, e.g. different standards in the US and Mexico, and the Trump administration's tariff policy is exacerbating trade barriers. In addition, there is the enormous purchasing power – per capita, it is significantly higher in the EU than in China – which makes the EU particularly attractive for premium products. Although the North American market has higher incomes, it also has higher social and regional disparities.
For industry, there are three factors that speak in favour of the European market:
- The single market already mentioned, which guarantees the free movement of goods, services, capital and people. Produced goods can be sold across borders without customs duties and with harmonised standards. Companies benefit from Europe-wide supply chains in which components are manufactured where it makes the most economic sense. And Europe is not just a market, but also an integrated production area, for example through just-in-time deliveries within the EU.
- Europe offers a unique density of industrial clusters – from mechanical engineering in Germany and the chemical industry in Belgium to high-tech and electronics in the Nordic countries. These clusters form strong ecosystems in which companies work closely with suppliers, universities, start-ups and research institutions.
- Through regulatory initiatives such as the Green Deal, the Clean Industrial Deal and the Circular Economy Strategy, the EU is setting global standards. Those who produce in Europe meet the highest environmental and social standards – this is increasingly becoming a competitive advantage because these standards are also gaining in importance worldwide.
At the same time, Europe is investing an above-average amount in research and development. The EU spends around 2.2% of GDP on research – in key technologies such as hydrogen, AI or battery technology, Europe is among the world leaders. In many future technologies, Europe is among the global pioneers – particularly in areas such as the circular economy, hydrogen technology and green chemistry.
The Trump administration's restrictive science and immigration policies could cause US researchers to move to Europe.Brain gain instead of brain drain? New opportunities due to US policy
A transatlantic view reveals interesting perspectives: While companies have increasingly invested in the US in recent years, this trend could be reversed in the area of research. The restrictive science and immigration policy of the Trump administration has increasingly unsettled US researchers. According to the Max Planck Society, Germany is already seeing an increase in applications from the US. Europe could thus establish itself as a safe haven for international cutting-edge research – a significant boost for the continent's innovative strength.
But maintaining the European industrial base is not a foregone conclusion. In his 2024 report on Europe's competitiveness, former European Commission President Mario Draghi clearly identified the challenges facing Europe and presented a comprehensive strategy to counter the threat of deindustrialisation. The key points are the decarbonisation of industry, extensive investments in clean tech and the completion of the EU single market. In February 2025, the EU Commission followed up with the new ‘Clean Industrial Deal’, which focuses on a combination of lower energy costs, promoting innovation and securing strategic raw materials. A central element is the ‘Affordable Energy Action Plan’, which aims to reduce energy costs for energy-intensive industries. At the same time, financial resources are to be channelled into the transformation of energy-intensive industries – for example, into environmentally friendly processes for steel and chemical production.
And regardless of political efforts, industrial companies are also banking on Europe as a business location – as shown in a new study by the auditing firm KPMG on behalf of the German Eastern Business Association. According to the study, 55 per cent of the companies surveyed regard the eastern EU region as an up-and-coming investment location. Countries such as Poland, Romania and the Czech Republic benefit from comparatively low labour costs, a solid industrial infrastructure and a more active industrial policy stance by their governments. German companies are therefore increasingly relocating production capacities to this region. Central and Eastern Europe is developing into an ‘extended workbench area’ of Europe with increasing strategic importance.
Conclusion: optimism instead of swansong
Yes, European industry is under pressure. But those who only see the risks fail to recognise the enormous potential: Europe remains a technology pioneer, excels in cutting-edge research and attracts international talent. The new Clean Industrial Deal shows that Brussels is finally doing more than just regulating – it is actively shaping. The boom in Central and Eastern Europe is creating an industrial dynamic that can give Europe a new lease of life.
Deindustrialisation is not a matter of fate, but rather a question of making the right decisions. If Europe focuses on leaner bureaucracy, affordable energy and targeted innovation funding, the continent could emerge from the current crisis stronger than before – as a global pioneer of sustainable, resilient and innovative industry.
