New laws and incentives are finally promoting large-scale residential solar installation to produce, store, and resell power back to the grid locally. In Europe, France experiences a boom in installations, both in individual homes and in urban multi-properties, explains Simon Kuper:

“What’s remarkable about Tahar Diab’s big yellow house with pool in Rognac, a town near Marseille, is the view from above. His tiled roofs are covered with 16 solar panels, strategically positioned to follow the sun through the day. The panels provide so much power that he makes about €1,000 a year reselling some of it to the electricity company, EDF. He only has to use electricity from the grid when there’s no solar available — chiefly at night.”

“Diab spent €17,000 having the panels installed. The sum was unusually high partly because his house is so big: the average cost of home installation in France is about €10,000, without a storage battery. But Diab reckons his panels will become profitable within seven years. ‘It’s green sun,’ he marvels, ‘much cheaper than fuel. The price of energy is much too high right now.” No wonder, he says, that around Rognac ‘you see more and more panels.'”

Energy production, trade relations and soft power

There’s room for growth despite the current frenzy caused by rebates and the public’s sudden interest in energy sovereignty: there are 600,000 homes with solar panels in France, or less than 2% of all households. And, in embracing residential solar installations, European consumers are quickly discovering that over 80% of the world’s solar panel production comes from China.

As the war in Ukraine and rising energy prices boosted solar panel installation across Europe in 2022, and new incentives may even speed up residential energy upgrades, Europe faces once again the paradox of relying on foreign mass production.

The energy commissioner, Kadri Simson, explains the paradox in the following terms:

“Switching from fossil fuels to renewables should not mean replacing one dependency with another.”

After sanctions on Russian oil and gas, the European Union now produces more energy using wind and solar combined than gas, the second energy source until recently. Unlike the US, which relies primarily on local production of fossil fuels, European countries depend on fossil fuel imports.

As the continent’s solar capacity could triple by 2026, the European Commission must decide on a future energy directive (binding to all members) whether to protect the local industry, prioritize affordability, and switch from fossil fuel imports to solar panels and energy storage imports.

When steel production cities hollowed out

Though solar panels aren’t the only market where American and European regulators are considering their commercial relationship with China, as former definitions of offshore production adapt to the current mood from synonyms of “competition” and free trade to the likes of “dependency” and unfair competition, a game of geopolitics is redefining the world before us.

Steel production is a metaphor for other markets: as it tripled over the last 50 years, traditional steel producers (the US, the USSR-Russia, Japan, Germany, the United Kingdom, or Italy) scaled down their domestic production in favor of cheaper imports. As a consequence, China produces today more than half of crude steel production, and India 6.1% (as a comparison, not the EU27 produces only 7.8% of the world’s steel, whereas the United States, Canada and Mexico combined produce only 7.5% of the world’s total).

More than entering an era of Cold War redux between two superpowers attracting the rest of the world as satellites, the world gets ready for a multipolar reality in which information, people and goods will experience more friction when moving between world regions.

But gestures of protectionism to encourage cultural soft power, industrial self-reliance, and more productive economies won’t change overnight a world that has come to depend on China’s industrial output and thirst for commodities or high-value products, from high-end machinery and cars to luxury, specialty foods, etc.

Most of Germany‘s exports are machinery, automobiles, chemical goods, and processed metals. In contrast, France’s exports are mainly pharmaceutical, aircraft, high-value food, and beauty products. Italy and Spain, third and fourth EU economies by size, respectively, share similarities with France, leading also in the “lifestyle” industries.

What a slowdown in China means for the rest

The slowdown in China is affecting the world in different ways, including a difficult-to-measure self-confidence eroding the current unwritten social contract within Chinese society that prioritized the country’s meteoric rise to prosperity above personal interests.

For the US, a Chinese slowdown could reduce pressure on the global hoard of raw materials, which could help reduce inflation. For the European Union, less industrial and household consumption in the world’s second economy implies worsening prospects for high-value exports; Japan faces a similar situation to the EU and braces for possible tensions in the Taiwan Strait, fearing that Chinese officials could use claims to Taiwan as public opinion distraction.

Joe Biden’s G20 visit to India and a layover in Vietnam tries to reassure the country’s stand in the region, though tensions are already visible. In China, Tesla or Volkswagen are losing ground against heavily subsidized Chinese manufacturers producing EVs, while Chinese official reports talk about Apple devices being banned in government offices, causing the company’s stock price to fall from historic highs.

Such gestures are the other side of the trade wars that, for example, prevent companies like Huawei from selling new generation cellphone infrastructure in the US or ban exports of high-end chips to China. At the same time, car manufacturers like BYD or Geely must pay higher taxes than Japanese, South-Korean or European car imports. In digital entertainment, while US companies like Elon Musk’s X aim at building an “everything app” like WeChat, a pervasive integrated service in China, Byte Dance’s TikTok is also perceived as a threat by American officials (and competitors) for arguably accessing to user data that’s been reportedly mismanaged by US-based companies.

World relations and the technological race

So far, the European Union has decided against banning or increasing import fees to Chinese telecommunications infrastructure or solar panel manufacturers, but the US has increased the pressure in the last years for European regulators to ban Huawei and ZTE 5G equipment.

After agreeing to let countries decide by themselves on such matters, 10 EU countries have restricted or outright banned Chinese 5G networks over the risk of potential data backdoors. Germany, Italy, and Spain, among others, are willing to allow Chinese companies to install 5G technologies, arguing that they operate sophisticated networks at better prices than competitors, and banning them would ultimately create even more dysfunctional markets that would ultimately trickle down to higher prices for consumers with no upfront benefits, limiting the incentive of competition.

The American influence over Europe has played an important role in increasing tariffs and bans on Chinese high-value imports. However, EU officials highlight what they consider a double standard among American officials, who “strongly recommend” against Chinese technological reliance in markets deemed strategic when American corporations such as Apple and Tesla produce their strategic products (the iPhone, car batteries) in China and seem to operate their own international policy.

Officials in Beijing grow uneasy with record young unemployment, an economy that has stopped growing as meteorically as it did for decades, and a sizable percentage of local governments and private borrowers caught in the consequences of a real estate bubble and credit implosion, Chinese companies can’t rely as much in growth prospects at home.

At home, Government-promoted campaigns in social media urge young people to accept any job prospect, deeming most applicants unpatriotic. And prospects abroad don’t look as bright as they used to either. Chinese officials are undoubtedly growing frustrated with the new bans and trade barriers, such as higher import fees in several sectors.

Strategic autonomy: protectionism and transnational companies

Are the new commercial tensions building up into a multipolar Cold War, transforming the laisser-faire of post-Soviet global neo-liberalism into a world of regional markets? What will transnational giants’ position be in US-led information technology, Taiwan-led advanced chips, EU-led heavy machinery, and luxury (including “lifestyle” industries such as tourism), or China-led renewable energy and electric car components?

European officials are wary of the US Administration of government meddling in Chinese companies to favor them at home and overseas. However, France and Germany have insisted on the need for European autonomy when it comes to trade deals, especially given the prospects of a potential return of a more volatile and unpredictable US overseas if Trump were to come back to the White House —and, to the European Commission, the odds are higher than zero.

But relationships among friends are always difficult, and Washington and Brussels are interested in keeping a precarious equilibrium that tries to set new standards for a new era away from post-World War II dynamics, with grievances going both ways.

On the one hand, US spy agencies tapped European chancelleries and reportedly traded technological information from companies like Airbus; on the other hand, the US is still funding most of the international apparatus that has guaranteed international agreements, relative peace and economic integration, which in turn made possible China’s rise.

Europe tries to navigate uncertainty

Since Donald Trump openly manifested the American desire to get more economic help from European and Asia-Pacific partners funding self-defense agreements such as NATO, the EU, Japan, South Korea and Anglo-Saxon partners like post-Brexit Britain, Canada or Australia.

It’s a delicate equilibrium that will be influenced by voters on both sides of the Atlantic but also by the realpolitik succinctly imposed by transnational corporations facing monopoly and privacy scrutiny (US technology corporations in the EU) that hold their own soft power and international policy strategies, as Musk’s ability to single-handedly decide when to turn on and off Starlink satellite communications demonstrates.

Similarly, the EU’s reach over all members’ industrial and regulatory policies seems to have limits when regulations may affect strategic exports from their biggest economies. Thanks to its integrated market of hundreds of millions of people, EU regulations influence standards across the world, from food safety to used chemicals and fertilizers to the way digital devices should be charged: Apple unveiled on Tuesday the iPhone 15, which now includes a USB-C charger due mainly to EU regulations.

Cynics attest that, on top of promoting regulations thanks to the so-called “Brussels effect,” the EU should promote more aggressive ways of creating wealth and promoting innovation, and regulation should come after.

The same European harmonized framework fostered technological standards such as GSM mobile telephone networks and Bluetooth. Two decades ago, European car manufacturers dominated the EU’s internal market, and German automakers led in several strategies, from Volkswagen’s integrated production to leadership in high-end cars and heavy trucks, where margins are bigger. In the emerging mobile telecom market, Nokia was the world’s leader in telephone terminals and Ericsson led in equipment for mobile networks.

European stagnation

Internet services changed everything in consumer and industrial markets. For example, the iPhone and Google’s bet on Android devices transformed the cellphone market into one of smartphones dominated by software and hardware, not telecommunication companies. Overall, and in just a few years, US firms such as Amazon, Microsoft, Apple, and Google have come to dominate the European technological landscape. And AI won’t change this landscape in the short term, as investment in the field is dominated by American and Chinese companies.

Like Japanese companies, European ones fell behind in key technological sectors, dominated by US-led software, South-Korean, and Chinese devices and components, and Taiwanese advanced chips over previous advances and standards often started in Europe and Japan:

“In 1990, Europe made 44 percent of the world’s semiconductors. That figure is now 9 percent; compared with 12 percent for America. Both the EU and the US are rushing to build up their capabilities. But while the US is expected to see 14 new semiconductor plants come on stream by 2025, Europe and the Middle East will add just 10 — compared with 43 new facilities in China and Taiwan.”

The evolution of economies since the housing crisis of 2007 shows that Europe has fallen behind economically, writes Gideon Rachman in the Financial Times:

“In 2008 the EU’s economy was somewhat larger than America’s: $16.2tn versus $14.7tn. By 2022, the US economy had grown to $25tn, whereas the EU and the UK together had only reached $19.8tn. America’s economy is now nearly one-third bigger. It is more than 50 per cent larger than the EU without the UK.”

Knowing what one’s playing at

Europeans are trying to turn their dependence around. On one side, the continent depends on US consumer technology, and, on the other hand, Chinese products arrive in the continent at subsidized prices, stifling any possible local innovation, as competition is encouraged. Venture capital firms have a more sensitive risk tolerance than their Silicon Valley counterparts.

Heritage and lifestyle industries, from tourism to Europe’s cultural influence in popular sports, are still led by European companies and institutions, though many of them are partially or totally owned by Asian, Middle Eastern, or American investors. And, so far, the continent’s bet on the green energy and circular economy transitions have proven sluggish.

Europe’s solar industry tries to survive by making highly efficient and personalized solar panels, but its industry trade group, SolarPower Europe, recently warned the European Commission that price drops caused by the flooding of cheaper Chinese panels compromise the future of local industries. Prices of PV modules have dropped in Europe by more than a quarter since the beginning of the year.

While the EU mandates that in 2030, 45% of all produced electricity will need to come from renewable sources, solar panel manufacturers warn of potential bankruptcies if they keep being undercut by cheaper rivals. How much the transformation will depend on others is something in which European voters, through their representative governments, have one thing or two to say.