Davos 2025: European Competitiveness in a Changing World

The annual meeting of the World Economic Forum (WEF), held in Davos, Switzerland, during the week of January 20, reaffirmed the onset of a new era characterized by geostrategic rivalry and the fragmentation of the global economic order, where mercantilist tendencies are increasingly disrupting the neoliberal foundations of the Washington Consensus. And while Trump’s inauguration and speech at Davos underscored a renewed sense of American exceptionalism, the mood among European attendees of the forum was markedly different. Indeed, a growing sense of pessimism about the upcoming era and a concern over the European competitiveness in it was evident among government officials, business leaders and civil society representatives alike.

In response to these challenges, the European Commission unveiled its Competitiveness Compass on January 29. Shaped by developments in the US and China and guided by the recommendations of the Draghi Report, the compass seeks to redefine the EU’s growth model through greater state intervention, industrial policy and scaling up, all while maintaining a commitment to the bloc’s decarbonization goals, albeit in a scaled-down format.

Against this backdrop, we asked several CHOICE analysts to share their perspectives on key speeches at Davos – including those by European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz, Ukrainian President Volodymyr Zelenskyy, and Chinese Vice Premier Ding Xuexiang. Their insights shed light not only on the state of European competitiveness but also on the evolving dynamics of Europe’s relations with China and the United States.

Dominika Remžová

China Analyst at the Association for International Affairs (AMO), Czech Republic

Calling for “fairness and reciprocity” in relations with China and emphasizing the interdependent nature of the US and EU economies, Ursula von der Leyen made her stance clear not only on the current state of EU-China relations but also on prevailing concerns across the bloc regarding the trade policy of the newly inaugurated Trump administration. Afterall, in his Davos speech, Trump reiterated his intention to impose tariffs not only on imports from China but also on US allies like Canada and the EU.

In her speech, von der Leyen called for the preservation of the liberal international order based on globalization and cooperation – principles that the WEF itself embodies – while praising the EU’s recently concluded trade deals with Mexico and Mercosur. However, she also acknowledged the shifting global landscape, where globalization is once again giving way to regionalization (i.e., a preference for intra-regional over inter-regional agreements), and cooperation is increasingly being replaced by competition. These changes, she suggested, require an adequate response from the EU.

Although the EU’s terminology differs from that of the US – with the Commission preferring “de-risking” over “decoupling” and “simplification” over “deregulation” – the Competitiveness Compass further underscores the EU’s protectionist turn and renewed focus on industrial policies. Indeed, these trends are evident across the world, including in advanced economies that were once both the architects and enforcers of the liberal order and its associated institutions. Moreover, given the reactive and domino-like nature of industrial policies, the EU’s turn toward mercantilism was arguably inevitable. Because of this, the key question now is not whether to adopt industrial policies but what policies to adopt [spoiler: our team has been actively involved in a consortium dedicated to addressing this very issue].

Several European policymakers, including representatives from the ECB and EBRD, have emphasized the need to avoid distortionary trade-based policies akin to those pursued by the US and China. That said, forthcoming strategies – such as the introduction of “European preference” or “Buy European” procurement rules for critical sectors and technologies – bear a strong resemblance to Trump’s “America First” policy, raising questions about their compatibility with WTO rules. Similarly, plans to subsidize electric vehicles appear to mirror China’s approach, with the main debate concerning the level and form of these subsidies. The EU seems to favor an EU-level approach to prevent the proliferation of national subsidies, which could trigger a race to the bottom, disproportionately harming smaller states with limited fiscal capacity.

While the EU claims to be committed to not just its industrial but also its green and social policy goals, advocating for a “competitiveness-driven approach to decarbonization,” it remains unclear how it plans to reconcile some of its contradictory objectives, such as the rapid rollout of EVs while maintaining employment protection. Moreover, this does not even address the question of funding or the challenges of securing consensus/qualified majority among all member states for these new initiatives. And most importantly for China watchers, how will these new initiatives affect the EU’s relations with China, especially if the EU ends up competing on two fronts?

Chu Yang

China Analyst at the Association for International Affairs (AMO), Denmark

While not naming the countries directly, Chinese Vice Premier Ding Xuexiang’s warnings that “protectionism leads nowhere” and “trade wars have no winners” were clearly aimed at US threats of punitive tariffs on Chinese imports, and the European Union’s imposition of tariffs on Chinese electric vehicles toward the end of last year. These statements represent a continuation of China’s diplomatic efforts, which have intensified throughout 2023. Since Russia’s invasion of Ukraine and the 2023 balloon incident – events that further strained US-China relations – several challenges have emerged for China’s international cooperation and economic partnerships.

European concerns about economic dependence on China have grown, leading to the “de-risking” approach outlined in the EU’s Economic Security Strategy, released in June 2023. Throughout that year, China made attempts to counter the growing Western wariness, including through a high-profile meeting between Xi Jinping and Bill Gates, and Premier Li Qiang’s visit to Europe, which saw him reassuring German and French business communities. However, these diplomatic efforts were undermined by actions on the ground. Raids on consulting firms like Bain & Company spooked foreign investors, while European business confidence surveys continued to highlight persistent concerns about geopolitical risks and market access barriers.

China’s current economic situation urgently requires foreign investment and exports to drive its growth, with both EVs and artificial intelligence serving as critical drivers of its economic restructuring. However, it is in these very strategic sectors that the rivalry with the United States and growing political and ideological differences with Europe have further compounded the existing challenges.

Therefore, while seeking cooperation with Western counterparts, China is also actively pursuing alternative economic partnerships. This was evident during Ding’s Davos speech, where he repeatedly emphasized multilateralism while carefully tailoring his message to specific audiences, particularly in the Global South.

China’s rhetoric frames the current global order as unjust, arguing that it was imposed on developing nations without giving them a voice in shaping international rules and institutions. This post-colonial narrative has found a receptive audience in many Global South countries. Indeed, over the past two years, China has strategically promoted concepts like “a community with shared future for mankind” and three global initiatives as alternatives to the existing order. Moreover, through its leadership in the BRI, BRICS, the Shanghai Cooperation Organization (SCO), and the Forum on China-Africa Cooperation (FOCAC), China actively positions itself as a champion of a more equitable model of international cooperation, all of which has proven quite successful in expanding its influence among developing nations.

Tim Hildebrandt

Research Associate at the Ruhr West University of Applied Sciences, Germany

As political and business leaders at this year’s World Economic Forum turned their attention to Europe’s economic standing amid intensifying competition with China, Germany remains preoccupied with domestic concerns ahead of a pivotal federal election. Debates around migration and social policy dominate the headlines, overshadowing the broader global challenges that could reshape Europe’s role on the world stage. It is a telling moment for Europe’s largest economy, described by some as a “sick man” too entangled in internal disputes to notice the seismic shifts unfolding beyond its borders. While both Chancellor Olaf Scholz and his main rival Friedrich Merz advocate for a robust and competitive Europe, doubts linger about their ability to inspire meaningful change.

German Chancellor Olaf Scholz, whose reelection prospects appear slim as his center-left SPD polls in third place, used his special address to urge Europeans to grow stronger from within. According to Scholz, Europe’s renewed push for competitiveness is not merely a reaction to Trump’s policies or China’s rise, but a response to deeper changes in globalization, where new players in Asia, Africa, and Latin America are emerging. Scholz outlined a plan focused on reducing regulatory hurdles, promoting free and fair trade, and implementing a modern immigration law – all as part of a broader vision to revitalize Europe’s growth. However, his proposals received a lukewarm response from German business leaders in Davos, reflecting skepticism about the feasibility of his economic agenda.

Meanwhile, Friedrich Merz, the center-right CDU leader whom polls suggest is more likely to become Germany’s next chancellor, was also present at the forum. He projected a more pragmatic stance toward the US, referring to President Trump as an “interesting partner” and urging Europe to explore what it could offer in mutually beneficial deals. Merz emphasized transatlantic collaboration as a cornerstone of strengthening Europe’s position and proposed initiatives such as joint European purchases of liquefied gas and defense equipment from the US. In his view, Germany should lead efforts to forge a common European strategy that engages both the US and China from a position of unity and economic strength.

Despite the rhetoric from both Scholz and Merz, questions remain about the likelihood and ability of either leader to position Germany as the driving force behind a more competitive and autonomous Europe – particularly in its dealings with China. After all, the SPD and CDU have alternated or shared power since 1949, and it can be argued that their long-standing policies have contributed to the economic vulnerabilities and lack of competitiveness that Germany and Europe now grapple with. The possibility of yet another CDU-SPD coalition forming after the election raises concerns about policy inertia, effectively maintaining the status quo instead of delivering the transformative changes both leaders have promised. Without a decisive break from the past or a newfound political will to enact significant structural reforms, Germany’s ambitions to spearhead a stronger, more coherent European approach to global challenges will continue to ring hollow.

Nataliya Butyrska

Senior Fellow at the New Europe Centre, Ukraine

Russia’s aggression against Ukraine and the return of Donald Trump to the US presidency are pushing Europe to reconsider its role in the world. The concept of “strategic autonomy,” a key component of the EU’s foreign policy, must now transition from theoretical discourse focused on its implications to practical implementation. This is not about establishing a “third pole,” in which European countries must navigate between shifting US political dynamics and economic dependence on China. Instead, it is about building a strong, self-sufficient Europe.

“Europe is at a turning point and must establish itself as a strong global player, so that the world cannot afford to ignore it.” This was the key message of Ukrainian President Volodymyr Zelenskyy during his address at the WEF. Russia’s full-scale invasion of Ukraine has, on one hand, triggered a profound transformation within the EU, reinforcing the need for Europe to take responsibility for its own security. On the other hand, it has exposed vulnerabilities, including a lack of preparedness to counter hybrid threats (particularly from Russia and China), a weakened defense industry, and internal divisions fueled by pro-Russian forces. Europe has also found itself unable to compete with the US and China in the field of advanced technologies, jeopardizing the development of defense innovations and cutting-edge weapon systems.

In this context, European countries must not only overcome their fear of change, driven by global transformation and the collapse of the international security system, but also reassess their own underestimated potential. It is here that Zelenskyy’s message to Europe, shaped by Ukraine’s own experience, is particularly relevant. Confronted with an existential threat posed by a much stronger adversary, Ukraine has consistently sought unconventional solutions – not only in military strategy on the battlefield and technological innovations in its defense industry but also in ensuring energy, economic, and food resilience. At the same time, without the support of its Western partners, particularly European countries, Ukraine would not have been able to withstand the onslaught. It is precisely the synergy of Ukraine’s experience and adaptability, combined with the potential of European nations, that can serve as a true catalyst for building a robust and truly strategically autonomous Europe.