Europe as a museum of industry? An examination of the industrial race between Europe, China and the USA
The claim that Europe has already become a museum of industry is exaggerated. The warning behind the phrase, however, is largely justified. Here, the thesis is tested against trade data, robot statistics, R&D figures and innovation measurements.
Overall assessment
Europe is still one of the world’s most important industrial regions, with large trade surpluses in machinery, vehicles, chemicals and pharmaceuticals, very high levels of robotisation, leading research environments and some of the world’s most innovative economies. The EU had a goods trade surplus of €128 billion in 2025, mainly thanks to machinery, vehicles and chemical products. Sweden, meanwhile, was ranked the world’s second most innovative economy in WIPO’s Global Innovation Index 2025.
But Europe has ended up in a dangerous position: the continent remains strong at improving and exporting technologies that are already established, but is significantly weaker at creating, financing and rapidly scaling the next generation of technology companies. Mario Draghi summed up the problem: few new global technology companies, higher energy costs than in the USA and China, dependence on imported digital technology and slower productivity growth. No company founded from scratch within the EU in the past 50 years had, at the time of the report’s publication, reached a market capitalisation of more than €100 billion, while six American companies from the same period had passed €1 trillion.
Six questions and six answers
- Is Europe already a museum of industry? No. Europe still has advanced manufacturing, an export surplus and world-leading companies.
- Is Europe at risk of becoming a museum of industry? Yes – above all if the continent keeps its old industrial companies but loses new production systems, supplier networks and technology platforms.
- Has China overtaken Europe in industrial capacity? Yes, clearly in terms of volume and in several strategic green and digital industrial value chains.
- Is China innovating faster? Often in applied, production-oriented innovation and commercialisation – but not unequivocally in all basic research or all frontier technology.
- Is the USA innovating faster than Europe? Yes, particularly in software, AI, venture-capital financing and scaling new companies.
- Is Sweden an exception? Partly. Sweden has a strong innovation system but faces the same problems with productivity, scale, energy, skills and supplier dependencies as the rest of Europe.
The problem, then, is not that Europe has lost the ability to manufacture advanced products. The problem is that China is building entirely new industrial ecosystems faster, while the USA is building new technology companies and digital platforms faster. Europe risks ending up in the middle: strong in yesterday’s high-value products, but dependent on American software and Chinese hardware, battery technology and supplier capacity.
What the term museum of industry really captures
The concept is less about whether factories remain and more about which part of industry’s life cycle remains. A country can continue producing cars, machinery and chemicals while still losing control of the most dynamic parts: components, batteries, software, data architecture, production equipment, financing and new companies.
The question therefore cannot be settled by measuring industry’s share of GDP. At least five dimensions must be distinguished:
- Production volume – how much can the region actually manufacture?
- Supplier density – how quickly is it possible to find tools, components, materials and skills?
- Capacity for innovation – is new knowledge, are new patents and products being created?
- Commercialisation – how quickly does a prototype become mass-produced?
- Strategic control – who controls batteries, semiconductors, software, raw materials and production machinery?
Draghi noted that the EU imports more than 80 per cent of its digital technology and that European companies pay around two to three times as much for electricity as companies in the USA and China. Europe’s capital markets are fragmented, permitting processes and regulations differ between countries, energy systems are insufficiently interconnected, and companies often have to treat the EU as 27 markets rather than one unified market.
This can be seen in the car industry: as recently as 2024, Europe had a trade surplus of €89.3 billion in passenger cars, while the number of European cars exported fell by just over 13 per cent between 2019 and 2024. A similar tension exists in chemicals: a large trade surplus, but investment in new European chemical production capacity fell by more than 80 per cent during 2025, and since 2022, closures have affected around 17 million tonnes of capacity and approximately 20,000 jobs. Today’s production can be strong while tomorrow’s capacity is not being built.
China has already overtaken Europe in industrial scale
China’s most important advantage is not a single invention but the combination of volume, supplier clusters, capital, infrastructure, engineers and a very large domestic market. When all of this exists within the same ecosystem, companies can test more designs, switch suppliers more quickly and move from prototype to serial production in less time.
- China produced almost three out of every four electric cars in the world during 2025.
- China accounted for around 80 per cent of the world’s battery-cell production in 2024 and produced the cheapest electric-car batteries.
- EU electric-car production stagnated at around 2.4 million vehicles in 2024.
- The EU’s goods deficit with China rose to €359.8 billion in 2025; exports to China fell by 6.5 per cent while imports rose by 6.4 per cent.
- China installed 295,000 industrial robots in 2024 – 54 per cent of the global market – and had more than two million robots in operation, with a robot density of 567 per 10,000 industrial workers compared with 449 in Germany.
The lead is no longer a question of cheap labour. When a European purchaser has to search in Italy, Germany, France and Sweden for different components, the problem is not that each supplier is poor, but that they operate in separate national systems with different costs, lead times, regulations and subcontractors. In several Chinese industrial clusters, the entire chain exists within the same region: design, tooling, electronics, batteries, casting, injection moulding, testing, logistics and final assembly.
China speed is a system, not merely a high work rate
- The domestic market serves as a test laboratory: launch, collect data, alter the design, try the next model.
- Competition between Chinese companies is extreme, with frequent launches and fierce price wars driving short development cycles.
- Production and development are located close to one another, so production problems are solved while the product is being developed.
- The state absorbs some of the risk through cheap credit, procurement, infrastructure and industrial policy.
The final point means that not all Chinese successes are the result of higher genuine productivity. OECD studies of industrial subsidies show that Chinese manufacturers in several industries have received more extensive support than comparable companies, and that subsidies can increase market shares without corresponding productivity improvements. Overcapacity, price wars and weak profitability are an integral part of the model. China is also grappling with a property crisis, weak domestic demand and indebted local authorities; in July 2026, the official purchasing managers’ index for manufacturing fell below 50.
China as an innovation power – but the picture is uneven
In WIPO’s Global Innovation Index, China entered the world’s top ten innovation systems for the first time in 2025 – behind several European countries, the USA, South Korea and Singapore, but ahead of Germany and France, among others. AI illustrates the duality: the Stanford AI Index 2026 shows that China leads in the number of AI publications, citations and granted AI patents, while the USA produces more significant models. During 2025, the USA produced 59 notable models and China 35. Europe was well behind both: in 2024, American actors produced 40 such models, China 15 and Europe only three.
At the same time, the performance gap between the best Chinese and American models has almost disappeared. In March 2026, the best-performing American model was only a few percentage points ahead of the best Chinese one. China’s particular strength lies in applied industrial innovation: combining AI, sensors, batteries, motor control, cameras and manufacturing data in a commercial product.
- Frontier AI and digital platforms: probable leader, the USA.
- Production, electrification and rapid commercialisation: probable leader, China.
- Several scientific niches, advanced mechanical engineering, pharmaceuticals and regulated quality: Europe and the USA, with rapidly growing Chinese competition.
The USA’s advantage is turning technology into companies and markets
The claim that Americans innovate faster and better is most accurate when innovation is defined as the ability to finance, scale and dominate a new market. The USA does not have China’s factory volume – China had around five times as many industrial robots in operation in 2024 – but controls the technological and financial layers above physical industry: AI models, cloud platforms, chip design, development tools, venture capital and global digital distribution.
EU-based companies increased their R&D investment by 2.9 per cent during 2024, compared with 7.8 per cent for American companies, 7.1 per cent for Japanese companies and 5.2 per cent for Chinese companies. EU companies still invested around €234 billion, but the growth rate was weaker and R&D is more concentrated in the car industry and other mature sectors. The Commission’s own analysis also points to lower R&D productivity among large European companies.
Competition has become asymmetric: China uses industrial scale to become better at innovation, the USA uses innovation and capital markets to build new industry, and Europe is trying to protect and modernise an existing industrial heritage while the Union negotiates common rules and financing solutions.
Europe is not a museum yet
The EU exported €2,583 billion worth of goods in 2024 and had a total trade surplus of approximately €146 billion; exports of machinery and vehicles amounted to more than €1 trillion. In 2024, Western Europe had a higher average robot density than North America and Asia as regions. Europe dominates or is a world leader in lithography equipment, precision machinery, industrial automation, advanced pharmaceuticals, aerospace, power transmission, speciality chemicals, measurement technology and safety-critical industrial systems. Europe had a total of 15 economies among the top 25 in WIPO’s 2025 index.
Digitalisation, too, is more nuanced than the usual picture: the European Investment Bank’s 2025 business survey found that 77 per cent of European companies used advanced digital technology, compared with 78 per cent in the USA. The weakness lies in ownership of the global platforms, the creation of new technology companies and the spread of technology to smaller businesses.
The real European risk
- First, parts of the supply chain disappear because a component or process is cheaper elsewhere.
- Then process knowledge about materials, tolerances, tools, quality problems and mass production disappears.
- Development then moves to where production, suppliers and customers are located.
- Finally, headquarters and the brand become the most important European elements – the company formally remains, but its industrial capability has moved elsewhere.
ECB analyses show that competition from China is now reaching sectors in which Europe previously had a clear comparative advantage – vehicles, chemicals, special-purpose machinery and advanced intermediate goods – and assess that the long-term consequences could affect sectors which together account for nearly one-third of employment in the euro area. At the same time, China’s share of the euro area’s external imports rose from around 14 to 17 per cent between 2024 and spring 2026, while prices for Chinese imports fell.
Neither full protectionism nor passive free trade therefore offers a simple answer. If Europe quickly shuts out Chinese products, its own green transition will become more expensive and slower. If Europe does nothing, the Union risks losing the production and skills required for future independence.
Sweden
Sweden has a strong innovation system but several particular vulnerabilities: the economy is small, export-dependent and closely linked to industry in Germany and the rest of the EU. Swedish companies therefore need the entire European supplier and customer market to function. Most of Sweden’s most important import and export partners are in Europe, although China is one of the largest suppliers outside the EU. Northvolt’s problems risk further strengthening China’s dominant position in the battery value chain and making Europe’s electric-car industry more dependent on Chinese producers.