A cargo ship carrying containers stops at Qingdao Port, China
Fuelled by China-US tension and war in Ukraine, anxiety about a splintering of the global system of trade is increasing © Getty Images

European business leaders expect governments to tighten control over a growing number of sectors in the name of national security, as the world divides into competing economic blocs.

Roughly 80 per cent of those running Europe’s biggest industrial companies believe more sectors will be identified as national security priorities in the coming years, according to a survey carried out last month by the big-business lobby group, European Round Table for Industry, and The Conference Board, a US think-tank.

Ilaria Maselli, senior economist with the Conference Board, said supply chain disruptions because of Russia’s invasion of Ukraine and China’s zero-Covid policy were fuelling protectionist tendencies globally. With China, Europe and the US all aiming to reduce their reliance on others for strategic imports, and trade sanctions increasingly used as a foreign policy tool, “protectionism is becoming a fact”, she added.

In recent years countries from France to Australia have expanded the list of sectors considered strategic, opening the way for greater government intervention. But Russia’s invasion of Ukraine has drawn attention to new areas. Since the war began, 23 countries have turned to food protectionism, according to the International Food Policy Research Institute, a US think-tank.

The survey also revealed that, within five years, 80 per cent of the respondents were expecting to do business in a polarised world, as the war in Ukraine stokes tensions between the west and a realigned China and Russia.

The findings echo rising anxiety about a splintering of the global system of trade. José Manuel Barroso, former president of the European Commission, told the Financial Times recently that tensions between the US and China and Russia’s invasion of Ukraine “were raising serious concerns about a decoupling world”.

Businesses are beginning to shift production, the survey indicates, but Maselli warned this would be neither easy nor quick. A majority of business leaders surveyed in both Europe (51 per cent) and at the head of European businesses in China (60 per cent) were investing in local capacity expansion. However, 44 per cent of respondents said they had no plans to reduce their dependence on Chinese suppliers.

“Decoupling will continue, but not as fast as we talk about,” Maselli said. Over the medium term, roughly 48 per cent of respondents said the Ukraine war would accelerate their efforts to decouple from China, while 46 per cent expected no change in their strategy.

The survey, conducted in the second half of April, revealed a steep drop in confidence among chairs and chief executives of Europe’s biggest industrial companies, from 63 in the second half of 2021 — where a reading above 50 indicates an overall positive response — to just 37 in April this year. Some 61 per cent also said they expected the outlook to worsen over the next six months.

Many businesses are struggling with sharply higher energy prices as a result of Europe’s desire to shift away from Russian gas, as well as funding the hefty investment needed to meet the EU’s carbon targets. Forty per cent of respondents said they did not expect energy prices to return to pre-pandemic levels before 2024, while 38 per cent believe they will never go back.

Yet two-thirds do not expect high energy prices to slow Europe’s efforts to reach its target of a 55 per cent cut in carbon emissions by 2030, compared with 1990 levels. And despite the generally grim near-term expectations, business leaders’ confidence in the outlook for employment remained positive and “relatively high” by survey standards, Maselli said.

“That is a data point I would not have bet on,” she said. “If you look at the labour market there are strengths in Europe . . . Wages are going up and that will support demand.” It gave hope that “the worst outcome might not be realised”, she said.

The survey was conducted in the second half of April with 57 ERT members. ERT brings together the chairs and chief executives of Europe’s 60 biggest industrial and technology companies with combined turnover of about €2tn.

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