Warnings about the deindustrialisation of Germany and Europe have been circulating for years. But what once seemed like distant fears is now becoming bitter reality. Hardly a day goes by without chemical companies announcing plant closures or shutting down entire sites. There is no doubt: basic chemicals are retreating from Europe. The steel industry is making similar headlines. Thyssenkrupp Steel plans to shut down two blast furnaces in the coming years. Competitor ArcelorMittal has decided not to invest in future capacity – at least not in Germany.

Urgent letters to Brussels and Berlin accompany these developments. This is more than the usual noise from lobbying associations calling for government support. Both sectors operate at the start of industrial value chains. Without their products, not only would machines, cars, and wind turbines cease to be built – they are also found in most everyday goods.

In response, the first EU Chemicals Summit was held in mid-May, and recently the European Commission presented an action plan. German Chancellor Friedrich Merz has also signalled openness to convening a Steel Summit in the near future – even though the previous government already held a high-level industry meeting in Duisburg in September 2024, which resulted in a national action plan. So far, however, those plans have remained little more than warm words. Merz is currently in discussions with steel producing locations, and steel was on the agenda during his recent visit to Saarland.

The decisions by these companies follow a clear economic logic. And who, ten years ago, would not have agreed that such developments were simply part of a structural shift in a globalised, specialised economy? Companies that can no longer compete internationally are forced out of the market. Production moves to regions with the greatest comparative cost advantages – simple as that. But reality is far more complex than economics textbooks suggest. While clinging to old industries out of nostalgia is unwise, industrial policy must be rethought for today’s world.

At the latest since the energy crisis triggered by Russia’s war on Ukraine, it has become obvious what one-sided dependencies mean. Can Europe afford to be reliant on foreign sources for essential upstream products? In a world where more and more countries weaponise raw materials and goods for political leverage, the answer is clear. But one consequence is also obvious: this fosters deglobalisation – and that comes at a cost to prosperity.

What’s needed are the right industrial policy responses. The main causes of Europe’s declining competitiveness are energy prices and CO₂ costs. The former are far too high by global standards, and the latter exist in their current form only in the EU. That does not mean Europe should abandon its climate ambitions à la Trump – quite the opposite. Not only because green products likely have the future on their side and can offer a (temporary) competitive edge, but also because the long-term costs of unchecked climate change will far exceed the already enormous costs of transformation.

From an industrial policy standpoint, the goal must be to make the energy and climate transition a success. Bans and penalties won’t suffice – what’s needed are broad, easy-to-implement incentive mechanisms, similar to those in the US Inflation Reduction Act. And while it may be wishful thinking, the EU must take the lead to ensure that location advantages – like access to green electricity – are leveraged within the single market. In return, national solo efforts are counterproductive.