China, Not the US, Is the EU’s Strategic Rival in Tech

With the European Commission’s newly released 2025 Strategic Foresight Report—its annual guide for setting long-term policy priorities—calling for an “EU values-based innovation model” as an alternative to the “market-driven” and “Chinese state-driven” approaches, the Commission clearly has its head in the sand. By focusing more on its techno-economic competition with the United States than with China, the EU signals a dangerous shift: embracing division among democratic allies, pushing costly protectionist policies, and leaving China positioned as the only real winner. The EU will come to regret such a short-sighted and wrongheaded approach.

The report’s fundamental error lies in treating the United States and China as equally problematic. While the Trump administration’s approach towards trade, defence spending, and foreign policy may be straining the transatlantic relationship, the EU should not blur the crucial line between healthy interdependence with democratic allies like the United States and risky dependencies on CCP-run China. Doing so ignores the shared democratic values, commitment to the rule of law—including WTO commitments—and market-based principles that underpin the U.S.-EU alliance. Moreover, it further erodes the transatlantic alliance at a time when both sides should be seeking unity.

China aims to gain relative global power by dominating advanced industries. As ITIF has previously documented, China has become a top innovator in key areas, including nuclear power and electric vehicles and their batteries, as well as a near-top innovator in many others, such as artificial intelligence (AI), robotics, and quantum computing. For example, China accounts for a significant share of global AI research output and patent filings.

Its lead would stem not from free-market competition but from unfair Chinese trade and economic practices. China actively uses state power to subvert international norms and rules to compete unfairly—from forced technology transfers and intellectual property theft (which costs the U.S. economy up to $600 billion annually) to state subsidies that undercut market-based competitors and regulatory frameworks designed to favour domestic champions over foreign rivals. As Liza Tobin, former China Director at the National Security Council during the Trump and Biden administrations, puts it: “the Chinese Communist Party’s ruthless pursuit of techno-economic dominance in a range of strategic sectors has distorted activities that are usually thought of as positive sum—trade and technology cooperation—into zero-sum games.”

The EU has already partially recognised these realities. In 2019, the European Commission’s EU-China Strategic Outlook explicitly designated China as a “systemic rival promoting alternative models of governance,” alongside being an economic competitor. Having correctly identified China as the systemic rival, why is the EU now treating the democratic United States as an equivalent threat?

The path to resilience lies in partnerships, not protectionism. Resilience comes from deep collaboration with trusted allies and fostering open markets for innovation, because only the combined United States-EU R&D expenditure creates an innovation ecosystem large enough to outpace China’s state-directed efforts. If China’s R&D spending continues to increase at the same rate as in recent years, neither the United States nor the EU will be able to match China’s level individually. China’s R&D expenditure has increased from roughly $135 billion in 2007 to $780 billion in 2023—nearly matching U.S. levels in just fourteen years with no signs of slowing. Only by working together can the United States and EU create the combined R&D spending needed to maintain a decisive innovation advantage over China’s projected trajectory. A divided effort allows China to surpass the United States while easily outpacing the EU.

Partnership is the path to strength; protectionism is the path to stagnation. Deeply aligning with the United States is the only course that will effectively counter China, because fragmentation allows China to pick off weakened Western competitors one by one, while coordination prevents Beijing from exploiting divisions between democratic allies. Rather than building digital walls, the United States and the EU should lead together by deepening technological integration to ensure the dominance of Western technology that can foster growth, and by building secure, ally-first supply chains. This coordination is essential because, together, Western technological leadership creates barriers that China cannot easily replicate or infiltrate, while parallel competing systems would give Beijing opportunities to exploit gaps and inconsistencies between fragmented democratic responses.

As ITIF President Rob Atkinson has previously argued, winning the techno-economic competition with China requires coordinated transatlantic approaches rather than fragmented national strategies. If China becomes the global innovation and production leader, geopolitics will change fundamentally—both Europe and the United States would be also-ran economies, with OECD nations subject to Beijing’s dictates. China could achieve sanction power over the West and threaten to cut off supplies of needed goods if Western nations do not comply with its wishes.

The stakes, therefore, could not be higher. By treating the United States as just another strategic rival, Brussels is effectively doing Beijing’s work for it. The European Commission faces a clear choice: remain a serious economic power by partnering with fellow democracies or choose the comforting illusion of “strategic autonomy” and watch China dominate the technologies that will define the next century.

There is no middle path between these futures.

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