Europe’s ‘Made in Europe’ Gambit Risks Fracturing Western Supply Chain Alliance

The European Commission’s Industrial Accelerator Act, unveiled today, introduces mandatory EU-origin requirements for publicly funded projects in strategic sectors—a move that risks alienating key democratic partners including the United Kingdom and Japan even as Brussels seeks to counter Chinese dominance in critical supply chains.

The legislation, delayed three times amid internal divisions, requires 70% EU origin for electric vehicles, 25% for aluminium, and 30% for plastics used in subsidised projects across automotive, Semiconductors, batteries, and clean technology sectors. According to Electrive, in the first phase, battery systems may use non-EU cells if assembled domestically, but from the third year onwards, battery cells and cathode active materials must originate from the EU.

Post-Brexit Realignment Hits Resistance

The timing underscores a deepening paradox in transatlantic industrial strategy. While Washington, Brussels, London, and Tokyo publicly champion “Friend-shoring”—relocating Supply Chains to trusted democratic partners—the EU’s local-content mandates directly contradict this principle by potentially excluding British and Japanese firms from lucrative European public procurement.

Bloomberg reported last month that the UK is lobbying countries including Germany, Italy and the Netherlands to push back against strict French trade proposals that would exclude Britain from participating in public procurement bids. According to Euronews, the French-led European Commission’s push to embed a so-called European preference in public procurement is attracting heavy lobbying from opposed EU capitals and foreign partners, like the United States and the United Kingdom.

The irony is sharp: nearly half of UK manufactured exports flow to the EU, with automotive sectors highly integrated into EU-wide supply chains, according to research from the UK in a Changing Europe programme. Post-Brexit trade friction has already reduced UK exports to the EU by 26% compared to pre-Brexit levels by mid-2022, per analysis published in The Chinese Journal of International Politics.

Japan’s Semiconductor Dilemma

For Japan, the stakes involve billions in European semiconductor and battery investments. Bruegel, a Brussels-based think tank, warns that breaches of such commitments would damage the EU’s reputation and likely lead to legal challenges by close allies, such as Japan or the United Kingdom, noting that local-content requirements are prohibited under WTO rules, and the EU is committed to non-discriminatory access to procurement for suppliers from countries with free-trade agreements.

Japan and the EU concluded a Digital Partnership in 2022 and signed two Memorandums of Cooperation on semiconductors and secure submarine connectivity in 2023, according to EU external affairs documents. Tokyo also became the biggest country yet to associate to the EU’s €93.5 billion Horizon Europe research programme, with Japanese researchers able to apply for grants on equal footing with EU partners.

Yet the Industrial Accelerator Act’s battery provisions threaten this cooperation. Bruegel notes that four-fifths of EU battery-cell manufacturing capacity has been built by Korean companies, aiding European automakers investing in electric vehicle manufacturing—partnerships now at risk under strict EU-origin rules.

The De-Risking Contradiction

Brussels frames the Act as “de-risking” from Chinese overcapacity, yet the measures risk fragmenting precisely the democratic supply chain networks needed to counter Beijing’s dominance. Research from the Centre for Economic Policy Research shows that EU imports are shifting away from non-agreement partners toward reshoring, nearshoring neighbouring partners, and partner-shoring with non-neighbouring agreement partners—a diversification strategy the new local-content rules may undermine.

The European Council on Foreign Relations argues that effective friend-shoring requires partnerships with countries like Vietnam, Indonesia, Malaysia, Mexico, and Brazil, which possess significant industrial capabilities and resources, making them ideal partners in the EU’s attempt to diversify supplies. The Industrial Accelerator Act’s EU-origin thresholds exclude these partners from subsidised value chains.

Competing Industrial Visions

The divergence reflects fundamentally different approaches to economic security. The United States, through the CHIPS Act and Inflation Reduction Act, allocated $369 billion to clean energy and decarbonisation projects according to Economic Strategy Group analysis, but avoided explicit “Made in America” origin requirements, instead using tax credits and investment incentives that remain open to allied producers.

China’s approach differs entirely. The “dual circulation” strategy aims for vertical integration and self-reliance supported by its huge domestic market while globalising China’s home-grown companies, as described by European Central Bank analysis. Beijing faces no WTO procurement constraints and actively subsidises overcapacity in solar, batteries, and electric vehicles—the very sectors Brussels seeks to protect.

The EU now occupies an uncomfortable middle ground: more protectionist than Washington, less self-sufficient than Beijing, and increasingly isolated from democratic manufacturing partners.

What to Watch

Legal challenges: UK and Japanese trade officials are likely preparing WTO complaints. The Government Procurement Agreement explicitly prohibits discriminatory local-content requirements, and the EU has bilateral commitments with both countries.

Investment reversals: Korean battery manufacturers including LG Energy Solution and Samsung SDI, which account for the majority of European cell capacity, may slow expansion pending clarity on subsidy eligibility. Japanese automotive suppliers face similar uncertainty.

UK-EU negotiations: The 2026 Trade and Cooperation Agreement review, scheduled for later this year, will test whether London and Brussels can reconcile the “reset” rhetoric with protectionist reality. According to Bruegel, legally binding trade-facilitation agreements could be negotiated before the end of 2026, establishing a more solid basis for regulatory cooperation.

Alternative coalitions: Excluded partners may accelerate bilateral arrangements. The UK-Japan Industrial Strategy Partnership, announced in September 2025, includes focus on supporting growth in respective automotive sectors and identifying routes to collaboration, including on batteries and other technologies, according to UK government statements—cooperation that may deepen as European markets close.

China’s opening: Every percentage point of democratic supply chain fragmentation is a strategic gift to Beijing. If European protectionism pushes Japanese semiconductor firms or British automotive suppliers toward Chinese partnerships, the geopolitical cost will far exceed any short-term industrial gains.

The fundamental question remains unanswered: Can the West compete with China’s state-driven industrial model without adopting the very protectionism that undermines the alliance of democracies? Today’s announcement suggests Brussels has chosen a narrow path—one that may prove too narrow to walk.