14.3% manufacturing share in 2024. 20% in 2035. Europe is betting everything on directed industrialization to reverse two decades of deindustrialization. The Industrial Accelerator Act adopted by the European Commission on March 4, 2026 sets a radical objective: to increase from 14.3% to at least 20% of GDP in a decade. This bet on state interventionism tests the balance between selective protectionism and commercial openness amid fierce industrial competition with China and the United States.
The stakes go beyond simple economic statistics. Europe’s manufacturing share declined from 17.4% in 2000 to 14.3% in 2024, a regression that constitutes a strategic warning signal with potential structural impacts on the prosperity and social cohesion of the EU. Facing China, which deploys public support representing approximately 4 to 4.5% of GDP, including direct subsidies, tax exemptions, concessional credit and other forms of aid that have fueled overcapacity in sectors such as steel, electric vehicles and renewables, Europe is abandoning its traditional restraint to embrace an explicit industrial policy.
The Essentials
- The Industrial Accelerator Act aims to raise the manufacturing share from 14.3% to 20% of European GDP by 2035, an increase of 5.7 percentage points in a decade
- “Made in EU” requirements will apply to public procurement in steel, cement, aluminum, automobiles and net zero emission technologies
- Foreign investments exceeding 100 million euros will be subject to conditions in strategic emerging sectors (batteries, electric vehicles, solar, critical raw materials)
- China dedicates 1.7% to 4.9% of its GDP to industrial subsidies compared to 0.39% in the United States, creating a major competitive imbalance
The Chinese Challenge Forces Europe to Change Its Paradigm
China dedicates approximately 5% of its GDP to industrial subsidies, ten times more than the United States, Brazil, Germany and Japan. In sectors such as semiconductors, steel and aluminum, China alone accounts for between 80 and 90% of subsidies granted to these industries worldwide. This state strategy produces tangible results that call into question the European model of open competition.
Industrial electricity prices for EU manufacturers remain approximately twice those paid by American competitors and 50% above Chinese equivalents, a gap that has widened since 2019, rather than narrowed. This spiral of energy costs amplifies the competitive challenge. Production costs for a significant share of European manufacturing companies, particularly in energy-intensive sectors, are often estimated at between 15 and 30% higher than those of China, eroding their competitiveness.
Chinese overcapacity is redefining global sectoral balances. State-directed subsidies and investments in China have led to substantial overcapacity in the Chinese electric vehicle market, with a production surplus estimated in 2023 at 5-10 million vehicles, and potential growth up to 20 million in 2025. Alongside other factors such as cheaper batteries, this domestic support allows Chinese manufacturers to offer prices significantly lower than their European competitors.
The Industrial Accelerator Act Imposes Its “Made in EU” Rules
The major innovation lies in the establishment of binding European origin requirements. The IAA introduces “Made in EU” requirements in public procurement and other forms of public intervention, such as government programs supporting individuals or companies purchasing electric vehicles or renovating buildings. These new EU origin requirements would apply to sectors considered strategic, including steel, cement and aluminum, as well as technologies included in the EU’s Net-Zero Industry Act, such as battery energy storage systems, photovoltaic solar technologies, heat pumps, onshore and offshore wind technologies, electrolyzers and nuclear fission energy technologies.
These rules apply progressively with increasing technical precision. According to the draft, battery systems purchased through public procurement should, 12 months after the law comes into force, be assembled within the EU, with battery management systems and at least two other components sourced within the bloc. After two years, the requirements would be reinforced further, requiring that battery systems themselves be manufactured in Europe, alongside a larger share of core components, including battery cells.
The European approach favors commercial reciprocity. The proposal encourages greater reciprocity in public procurement by giving equal treatment to countries that offer EU companies access to their markets. Partners can be included in public procurement if they have signed the Government Procurement Agreement, which guarantees reciprocal access. This logic of conditionality marks a break with traditional unconditional openness.
Foreign Investments Under Enhanced Surveillance
The IAA establishes a new foreign direct investment control regime for “strategic emerging sectors”. The investment value must exceed 100 million euros, and the foreign investor must be a national or company from a third country that holds more than 40% of worldwide manufacturing capacity in the sector concerned. This double threshold substantially reduces the scope and signals that the regime is targeted rather than generalized, with a practical focus on investors from countries with dominant global production shares.
The input requirement mandates that the foreign investor publish a strategy to strengthen EU value chains and endeavor to source at least 30% of inputs for products marketed in the EU from within the EU. This condition reveals Europe’s determination to extract tangible added value from foreign investments rather than to passively accept them.
The covered sectors reflect current dependency challenges: battery technologies, electric vehicles, photovoltaic solar technologies and the extraction, processing and recycling of critical raw materials. This list can be expanded by the Commission, but such acts could not cover digital technologies, artificial intelligence, quantum technologies or semiconductors.
Industrial Acceleration Zones Reorganize Territory
Within one year of the IAA coming into force, each member state must designate at least one “industrial manufacturing acceleration zone” on its territory for projects in one or more strategic sectors listed in an annex of the proposed IAA. This includes energy-intensive industries such as paper manufacturing, the automotive industry and net zero emission technologies listed in the NZIA, such as heat pumps, battery and energy storage technologies, and climate and energy biotechnological solutions.
These clusters benefit from preferential treatment: projects located in acceleration zones would benefit from simplified administrative procedures and streamlined “basic permit” processes, with the objective of facilitating faster deployment of industrial manufacturing capacity. The aim is to create an integrated industrial ecosystem that rivals Asian and American gigafactories.
Administrative simplification addresses a recurring obstacle. The International Monetary Fund calculated that internal European barriers weigh like 45% tariffs on manufactured products and 110% on services. These “internal tariffs” handicap European competitiveness as much as external competition.
The Energy Challenge Conditions the Project’s Viability
37 million tonnes of European chemical capacity have been permanently closed since 2022, aluminum foundries have lost more than half their active capacity, and German industrial production is lower than it was ten years ago. This accelerated deindustrialization reveals the fragility of the European model in the face of energy shocks.
Europe faces a structural challenge. An energy-intensive manufacturer in Europe faces higher electricity costs, higher gas costs, higher carbon costs, higher regulatory compliance costs, longer permit delays, and a more fragmented investment support framework than its competitors in the United States, China or the Middle East.
This unfavorable economic equation raises a fundamental question: the key question is not whether European industry has weakened—it has—but whether the cost structure has changed in a way that permanently reduces Europe’s viability as a location for energy-intensive and large-scale manufacturing. If so, the implications extend well beyond GDP growth toward supply chain dependence, strategic autonomy and reassessment of a wide range of industrial assets.
Europe Tests Its Model of Political Capitalism
The Industrial Accelerator Act constitutes a full-scale test of Europe’s capacity to reconcile industrial dirigism and market economy. For the first time, the EU explicitly leverages the size of its single market as a tool of industrial policy. This is a major, and necessary, change. Public procurement represents approximately 15% of EU GDP.
Europe is betting on its specificity: the alliance between public power and technological excellence. The EU still has global leaders in clean technology manufacturing, in domains such as wind equipment, heat pumps, next-generation batteries and electrolyzers. This existing industrial base differentiates the European approach from Asian catch-up strategies.
Success will depend on political coherence among member states. Europe’s approach is fragmented across 27 member states, each with different fiscal capacity, different state aid frameworks and different industrial priorities. This leads to a competition of subsidies within Europe and slower mobilization at smaller scale of capital. This fragmentation constitutes the Achilles’ heel of the European project when faced with unified Chinese and American economic giants.
The Industrial Accelerator Act ultimately interrogates the possibility of a third European way: neither unbridled liberalism nor Chinese statism, but advanced and democratic interventionism. The decade 2025-2035 will tell whether this European synthesis can compete with the sheer force of Chinese subsidies and the federal simplicity of America. The stakes go beyond the manufacturing share in GDP: it concerns Europe’s capacity to define its own terms in the twenty-first century world economy.