It’s long been understood that technology is a key driver of economic growth and living standards.

The rapid emergence of new, disruptive and potentially transformative technologies such as AI, advanced semi-conductors, quantum computing, biotechnology and advanced connectivity has sharpened the policy debate globally. This is because in addition to their contribution to economic growth, these technologies also have broader strategic applications, including military ones. In light of this, the European Union launched its Economic Security Strategy in 2023.

Frontier was commissioned by Digital Europe to examine the EU’s positioning on these technologies. In our report, we examined its exposure to supply risk, as defined by the degree of market and geographic concentration outside the EU of key activities in their value chains. We also measured the EU’s competitiveness in these value chains.

There are two overarching findings from our work:

• The first is that the EU needs to make significant efforts to bolster its competitiveness in most of these technologies. This is particularly true in AI and advanced semi-conductors, where we assess the EU to be lagging behind the United States by around 25-30% in progressing towards best industry practice.
• The second is that competitiveness is the key factor in determining the EU’s economic security.

These findings in turn have important policy implications. All these technologies function, and are embedded in, global value chains. Competitiveness, and by extension, economic security, cannot be achieved through a policy paradigm based on “technological sovereignty”, that majors on restrictive, protectionist measures. Such measures (for example, local content requirements) would not address the underlying constraints identified in the analysis.  A better alternative for the EU would be to address the significant challenges it faces in translating its well-developed R&D capability into commercial breakthroughs and value generation. Addressing long-standing gaps in completing the single market, notably in services, is also an important part of the policy agenda.

These points bear emphasising at a time of heightened political pressure towards inward looking policy prescriptions and national preference. That would adversely affect living standards. The EU’s GDP per capita is around 30% lower than that of the US, which coincidentally is roughly the same margin by which we estimated the EU lags the US in key critical technologies. The EU can therefore ill afford business as usual, let alone a regression to policies of the past.

Read our report ‘Analysis of the EU’s positioning in critical technology value chains’