European industry is doing better than you may think

European industry faces high energy costs and Chinese competition, but damage is concentrated and adaptation is under way. VW and four other carmakers issued profit warnings; the EU–China goods surplus has more than doubled since 2019 to $420bn; EU car production is 17% below pre-Covid levels; French and German industrial power costs about twice US/China levels. Yet manufacturing’s EU share of value added is still ~16%; employment fell only ~2% since early 2023 to 28m (Germany ~four-fifths of the drop) while high-skilled engineering/technician jobs rose 7%. Pharma, aerospace and electronics are growing; AI data-centre demand lifts Schneider Electric, Siemens and Prysmian; defence lifts Rheinmetall and Leonardo. Trade data suggest the China threat is often overstated: only 11 German imports combined >25% volume growth with >10% price falls since 2023, and about three-quarters of China’s export growth is in intermediates (batteries, robotic arms) that can cut European costs. ECB research found Chinese intermediate exposure raised industrial-production growth 0.6pp a year (2000–22) while finished-goods exposure cut it by ~1pp. Firms are relocating to cheaper power (Spanish investment doubled 2021–25), hedging energy, exporting more services ($460bn in 2024, +21% in two years) and buying software. The article’s strategic warning is falling further behind America and China in AI—not inevitable deindustrialisation.