The EU's 'Made in Europe' Plan Will Fuel Internal Divisions, Transatlantic Tensions

(Getty Images)

A digital illustration shows energy and power icons set with the EU flag.

Brussels' forthcoming Industrial Accelerator Act, as currently drafted, is set to embed "Made in Europe" criteria into procurement and subsidy instruments to boost industrial resilience and competitiveness, but its final scope will determine whether it will help strengthen Europe's manufacturing base or drive higher costs, internal divisions and renewed transatlantic trade tensions. The European Commission is set to present its Industrial Accelerator Act on March 4. According to leaked drafts, it will introduce "Made in Europe" local-content requirements for products receiving support through public procurement and manufacturing subsidies, alongside "low-carbon" eligibility thresholds for key industrial inputs. The proposal would require electric, hybrid and fuel-cell cars benefiting from public support falling within the scope of the regulation to be assembled in the European Union and to contain at least 70% of components by value, excluding batteries, sourced within the bloc. Separate origin requirements would apply to defined core battery components. It would also establish minimum EU-origin and low-carbon criteria for materials, including steel, aluminum, cement, concrete and plastics used in subsidized projects, including a 25% low-carbon requirement for steel and aluminum and specific EU-content quotas for selected construction inputs. Beyond procurement and public support schemes, the draft also outlines conditions for foreign investments exceeding 100 million euros ($118 million) in strategic sectors such as batteries, solar, wind, hydrogen and nuclear, including restrictions on majority ownership and intellectual property licensing obligations where investors originate from countries controlling at least 40% of global production capacity.

The draft proposal limits application to defined strategic sectors, including automotive and battery value chains, renewable energy technologies, hydrogen, nuclear, semiconductors, advanced materials and selected construction inputs such as steel, aluminum and cement. Origin and low-carbon conditions apply where public support schemes or procurement procedures concern these sectors, rather than across all state-aid measures.

Amid rising concern that the European Union's industrial base is eroding relative to global peers due to high energy costs, regulatory burdens and subsidized competition, Brussels is seeking to leverage the bloc's public procurement capacity and subsidy framework to strengthen domestic production, secure supply chains and retain intellectual property while accelerating decarbonization across strategic industries. The push comes as part of a broader effort to reorient the European Union's economic model toward greater strategic autonomy in manufacturing as policymakers seek to counter deindustrialization pressures and narrow a widening competitiveness gap with China and the United States. By embedding local content and low-carbon criteria into procurement and state-aid frameworks, the commission aims to ensure that public funding directed toward clean technologies, advanced manufacturing and digital sectors supports domestic industrial capacity rather than foreign producers, with the stated objective of raising manufacturing's share of EU GDP from roughly 14% today to 20% by 2035. These conditionalities are therefore meant to influence private capital allocation decisions toward production located within the bloc in sectors deemed critical to long-term growth and resilience, including semiconductors, automotive, chemicals and renewable energy, as well as emerging technologies such as quantum computing, advanced batteries and hydrogen. The "European preference" principle is intended both to shield European firms from subsidized Chinese overcapacity and to mirror aspects of U.S. industrial policy that increasingly encourage reshoring and local production. The scope and intensity of these measures, however, remain subject to internal debate. While there is broad agreement on the need to reinforce supply-chain resilience and protect strategic industries, member states diverge over how protectionist these new policies should be and how far to depart from the bloc's traditional pro-market approach. France has advocated robust EU-preference rules across a wide range of sectors, including automotive, steel, advanced technologies and renewable energy, whereas Germany, several northern and Baltic countries and, increasingly, Italy, favor a more targeted framework focused on clearly defined strategic areas such as semiconductors, critical raw materials and defense-related industries. They warn that overly restrictive local-content rules could deter investment, raise costs and inadvertently strengthen external competitors. The scope of the proposal is therefore likely to be adjusted ahead of its formal presentation in March. Further revisions are likely during negotiations among member states and the European Parliament before it enters into force.

At a Feb. 12 leaders' retreat in Belgium focused on advancing EU economic priorities — including accelerating progress toward completing the single market, reducing strategic dependencies and enhancing competitiveness — member states reached a provisional compromise reportedly around a "proportional and targeted" European preference principle. This signaled a shift toward limiting preferential treatment to clearly defined critical sectors rather than applying broad-based protection across the industrial base. Final decisions on which sectors will qualify are expected at the next formal EU Council summit on March 19-20.
Commission President Ursula von der Leyen, who has herself expressed caution on a European preference principle, indicated in a statement following the Feb. 12 retreat that the Industrial Accelerator Act would propose preferential treatment for strategic sectors grounded in "solid economic analysis."

While the act could strengthen Europe's industrial base and supply-chain resilience, it also risks raising costs in the short term while increasing regulatory complexity and triggering renewed trade frictions with the United States. In its current form, the act could redirect a substantial share of state-backed demand toward EU-based production in automotive, steel and clean-tech supply chains, reinforcing domestic industrial capacity and potentially catalyzing new investment within the bloc. Conditioning access to public-purchase schemes and tenders could deepen upstream integration in batteries, hydrogen and advanced materials, supporting the energy transition and strengthening supply-chain resilience. However, the European Union's continued dependence on globally sourced inputs — including battery cells, advanced semiconductors and specialized components — means costs would likely increase, potentially raising end prices and compressing margins for export-oriented manufacturers. Moreover, in sectors where domestic capacity remains limited, rigid local-content thresholds would risk creating supply bottlenecks, delaying project timelines and complicating decarbonization objectives. This suggests that cost-differential and availability exemptions will likely be incorporated or actively used during implementation to soften the most disruptive effects, at least in the short to medium term. The legislation could also interfere with a parallel push for regulatory simplification in Brussels, as additional origin verification, certification and investment-screening requirements may increase administrative burdens and regulatory complexity. Moreover, differential industrial capacity across EU member states could exacerbate asymmetries within the single market, as larger economies would be better positioned to comply with origin thresholds. The proposal may also increase trade tensions, as strict local-content provisions could strain relations with key partners. The United States has already warned against measures that would restrict U.S. firms' access to EU procurement and defense-industrial programs. Washington has signaled possible reciprocal retaliation, arguing such steps would undermine the spirit of the July 2025 EU-U.S. trade framework agreement, potentially destabilizing an already fragile trade truce and resulting in renewed tariff escalation. Once formally proposed, the regulation will enter a legislative phase in which the council and European Parliament could significantly narrow sectoral scope, adjust thresholds or broaden exemptions, meaning its ultimate economic impact remains contingent on negotiations.

Clean-tech manufacturers and automotive suppliers have broadly supported stronger local-content requirements as a means of securing demand and stimulating investment within Europe. Automakers remain divided, however, with BMW cautioning that rigid thresholds could increase costs and administrative burdens, while Volkswagen and Stellantis have generally endorsed incentive-based EU-preference frameworks. Several manufacturers are also calling for a more expansive definition of origin that would include major production hubs such as the United Kingdom, Turkey and Japan.
Under the latest draft, "Made in Europe" criteria would reportedly cover production within the European Union's 27 member states, the European Economic Area, possibly also designated "trusted partners" — third countries whose economic ties and strategic alignment with the bloc meet defined security and resilience objectives. It remains unclear whether this category would extend to major non-EU economies such as the United Kingdom or the United States and on what legal or political basis they would qualify as "trusted partners."
U.S. officials have stepped up warnings as Brussels prepares to embed EU-preference criteria into industrial and procurement policies. In a Feb. 19 interview, U.S. Ambassador to the European Union Andrew Puzder argued that expanding "Made in Europe" provisions would weaken allied defense integration and contradict the July 2025 trade framework agreement. In parallel, the U.S. Department of Defense cautioned in a written submission that proposed revisions to the European Union's 2009 defense procurement directive could trigger reciprocal countermeasures, including a review of procurement waivers that permit European firms to compete for U.S. contracts, raising stakes for transatlantic industrial and security cooperation given Europe's heavy reliance on U.S. defense suppliers. EU-funded programs, including the 150-billion-euro SAFE loans facility, already include minimum European content requirements. Washington has also previously criticized similar rules as part of the European Competitiveness Fund, the European Union's forthcoming long-term investment vehicle for strategic sectors that is planned to be part of the bloc's next long-term budget.