Why Europe’s ‘open’ economy of innovation is exposed to global trade shifts

Last month the European Commission unveiled its new “Made in Europe” targets, tying access to subsidies in clean technology heavy industry and carmaking to local production and stricter conditions on foreign investment. The objective of the new Industrial Accelerator Act is to strengthen the industrial base and strategic autonomy of the European economy. But its impact on European Research & Development multinationals that have grown in overseas markets should not be underestimated. Evidence shows that Europe is hit harder by external shocks than its rivals because its firms depend more heavily on foreign markets and cross-border supply chains. Consider, for example, Asia accounted for 41% of German carmaker Mercedes‑Benz in 2025, while UK-headquartered drugmaker AstraZeneca generated about 43% of its 2024 sales in the US. Such exposure leaves a sizeable chunk of European multinationals particularly sensitive to shifts in trade policy: as protectionist measures proliferate, the backlash can quickly translate into weaker demand, disrupted supply chains and pressure on profits. This has already become visible as trade tensions with China and the United States have intensified and governments have moved to shield strategic industries from subsidised competition, via the Made in Europe targets. A historically overseas market-led economy European groups are often described as global champions; many expand abroad earlier than their American or Asian peers. Part of the reason is structural: Europe’s home market remains less integrated than the US or China. It also reflects a long tradition of building businesses internationally. American and Asian companies can often scale at home before expanding abroad. European firms rarely have that luxury. Their global reach is a strength, but in a more fragmented world it also creates exposure. New research I carried out on the world’s largest corporate Research & Development spenders helps explain Europe’s position. Vying for the top tiers of the global R&D landscape The global race for innovation is dominated by the Americas and Asia: firms headquartered in Asia-Pacific account for about 37% of the leading R&D multinationals and those in the Americas roughly 36%, compared with about 27% in Europe, the Middle East and Africa. Bridging the R&D spending gap The gap is even wider in spending: companies based in the Americas account for about 45% of total corporate R&D investment, compared with roughly 29% in Asia-Pacific and 26% in EMEA. Yet European firms tend to operate more globally. The research shows only about 26% of EMEA-based firms earn most of their revenues in their home region. Nearly a third operate globally, roughly twice the share of American or Asian companies. By contrast, about 76% of US firms and 75% of Asia-Pacific firms remain focused mainly on their domestic regions, supported by larger and more integrated home markets. Navigating the impacts of trade uncertainty Truly global companies remain rare. Only about 17% of these firms generate balanced sales across the Americas, Europe and Asia-Pacific. Half of them are headquartered in EMEA, compared with roughly a quarter for each in the Americas and Asia-Pacific. This makes European groups more exposed when trade relations sour. Illustrating this point, German carmaker BMW warned last month that tariffs imposed by the EU, the US and China could wipe around €1 billion from its profits this year, underscoring how quickly geopolitical shifts translate into financial strain for Europe’s multinationals. If Europe wants to reduce such vulnerability, it should look beyond protectionism. For firms that already operate globally, tighter rules at home could push them to move assets abroad. That would weaken Europe’s own industrial base at the very moment policymakers are trying to strengthen it. In other words, the end of the liberal trading era may have exposed an Achilles heel in Europe’s economic model. The continent’s multinationals are unusually dependent on markets outside Europe. In a more fragmented world, that creates two clear risks: disruption to global value chains and the gradual relocation of investment and innovation away from Europe itself. What’s the alternative? Not retreat, but reform Former European Central Bank President Mario Draghi’s report in 2024 for the European Commission set out an urgent agenda to restore Europe’s competitiveness through deeper single market integration, regulatory reform and investment. It addresses part of the challenge. But Europe must go further, strengthening its own base for research, innovation and industry. That requires action at a European level. Completing the single market is not just about harmonising rules. It is about ensuring that investment, supply chains and innovation remain anchored in Europe. As ECB President Christine Lagarde warned last year, Europe’s growth model was built for a different world. Heavy reliance on exports once underpinned prosperity. In a more fragmented global economy, it leaves Europe exposed. The lesson is clear: Europe’s problem is not so much globalisation, but too little regional integration. Until the efforts to create a single market truly pave the way for sound economic foundations, Europe’s multinationals will remain highly globalised and exposed. But such an ambition goes beyond economic goals: it is a political ambition that is at loggerheads with nationalist sentiments to achieve the right level of territorial growth, which would ultimately secure greater independence.

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Regis Coeurderoy ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.