Europe's Competitiveness Crisis: Squeezed Between Washington and Beijing

For decades, Europe operated on a comfortable dual dependency: the United States provided its security umbrella, while China supplied a steady stream of inexpensive manufactured goods. That arrangement is now under unprecedented strain.

The continent finds itself lagging behind both powers economically, caught in a vise between an increasingly transactional American ally and a Chinese economic machine that dominates the critical supply chains and raw materials Europe still requires. The questions raised by this predicament go to the heart of Europe's future role in the global order.

The latest installment of Al Jazeera's "Counting the Cost," a 28-minute program published on October 1, 2026, examines whether Europe can still compete with the United States and China — or whether it risks becoming an economic relic of a bygone era.

The transatlantic relationship, long the cornerstone of European security and trade policy, is showing significant cracks. Tensions with Washington have risen sharply over a trio of contentious issues: tariffs, defence spending obligations, and Greenland — the semi-autonomous Danish territory that has attracted unwelcome attention from American policymakers.

These disputes have collectively placed the alliance under a level of strain rarely seen in the post-World War II era. For European capitals accustomed to a predictable American partner, the shift represents a fundamental recalibration of assumptions that have guided policy for generations.

Meanwhile, the economic challenge from the East is arguably even more structurally entrenched. Beijing has secured commanding positions in key supply chains and raw materials that European industry continues to depend upon. From rare earth minerals essential to green energy technologies to the manufacturing capacity underpinning consumer markets, China's leverage over European economic lifelines is substantial and growing.

The continent's vulnerability was starkly illustrated when Presidents Donald Trump and Xi Jinping met last week. Europe was not in the room for those discussions — yet the decisions taken between the two leaders will inevitably land on the continent's doorstep regardless of its absence from the table.

This dynamic — being subject to the outcomes of great power negotiations without participating in them — encapsulates Europe's current dilemma. The continent possesses significant leverage of its own, most notably a single market encompassing 450 million consumers, one of the world's largest and wealthiest integrated economic zones.

That market remains a powerful bargaining chip. Any external power seeking meaningful access to European consumers must reckon with Brussels' regulatory authority and the collective purchasing power of its member states. The challenge lies in translating that latent leverage into concrete strategic advantage.

Closing the competitiveness gap with the US and China, however, demands far more than clever diplomacy. It requires deep structural reform across multiple fronts — from energy markets and labour regulations to innovation ecosystems and industrial policy — alongside massive investment that many European economies are ill-positioned to generate domestically.

The programme's framing suggests that Europe's window for decisive action may be narrowing. Each year of relative decline makes the necessary reforms more difficult to finance and politically more contentious, as member states guard national prerogatives against collective solutions.

The timing of this discussion reflects a broader global pattern. Recent episodes of "Counting the Cost" have examined oil shocks, resurgent worldwide inflation, rising borrowing costs, and the race between the US and China for AI supremacy — all topics that underscore how economic power is consolidating around the two superpowers while middle powers struggle to maintain relevance.

Europe's situation is further complicated by internal divisions. The European Union's 27 member states often pursue divergent economic interests, making unified responses to external pressures difficult to orchestrate. Northern creditors and Southern debtors have clashed repeatedly over fiscal policy. Eastern members remain acutely focused on security threats from Russia, while Western capitals prioritise trade and industrial concerns.

The energy transition adds another layer of complexity. Europe has committed to ambitious decarbonisation targets, but achieving them requires precisely the critical minerals and green technologies where China holds sway. The continent risks trading dependence on Russian gas for dependence on Chinese supply chains.

Defence spending presents yet another tension. Washington has long pressed European NATO members to increase military budgets, and the current environment has intensified those demands. Yet every euro directed toward defence is a euro unavailable for the industrial modernisation and technological investment Europe needs to remain economically competitive.

Greenland's unexpected emergence as a flashpoint illustrates how rapidly the geopolitical landscape is shifting. The territory's strategic location and resource wealth have attracted American interest, creating awkward tensions with Denmark — a NATO ally — and raising questions about the reliability of American commitments to European territorial integrity.

The programme's title poses a question that European leaders will be answering for years to come. Whether through reform, investment, strategic autonomy, or some combination of all three, the continent must find a path forward — or accept a diminished role in a world increasingly shaped by decisions made elsewhere.

The stakes extend beyond economics. A Europe unable to compete risks losing not only market share but also geopolitical influence, regulatory power, and the ability to shape global norms in areas from climate policy to digital governance. The coming decade will determine whether the continent can reverse its trajectory or whether it becomes a spectator to its own decline.