How to stop "securonomics" from killing growth

HONDA MOTOR

06/11/2026 12:48

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jon Sindreu
LONDON, Nov 9 (Reuters Breakingviews) - Industrial policy and foreign policy have merged, perhaps unhelpfully. Where Western governments once measured trade by its effect on jobs and GDP, they're now as likely to invoke national security imperatives regarding China. So-called securonomics has provided convenient cover for American and European capitals seeking to prop up their automotive, semiconductor and telecom sectors.
But by feeding a growing acceptance of measures that discriminate against companies based on where their owners are based, rather than where their products are made, it could turn into a threat to economic growth.
Consider a recent Jacques Delors Institute policy paper by former World Trade Organization director-general Pascal Lamy. It argued for a "rebalancing instrument" to allow the European Union to slap tariff-rate quotas on imports affected by Chinese overcapacity. Strikingly, Lamy suggested that products should no longer be judged by the long-established principle of "last substantial transformation," which assesses where a good was fundamentally altered, like car parts being assembled into a vehicle or ingredients being baked into a cookie.
Instead, Lamy floats the alternative standard of who ultimately controls the company making a good. So a BYD car assembled in Morocco would always count as Chinese instead of Moroccan.
Flint Global partner Sam Lowe argues that such "rules of control" have already crept into trade arrangements. One instance came under the administration of former United States President Joe Biden, which in 2022 exempted some British steel exporters from 25% tariffs, which required auditing Chinese-owned ones. American Compass founder Oren Cass, influential in President Donald Trump's economic orbit, has suggested embedding something similar into the renegotiation of the US-Mexico-Canada free-trade agreement (USMCA), fearing that Mexico is becoming a backdoor for Asian goods.
Investment screening regimes have become another way to impose nationality-based criteria. The UK and Italy have battled Chinese influence over chip plant Newport Wafer Fab and tyre maker Pirelli PIRC.MI, respectively. New legislative measures have proliferated too, like the 2024 US action against TikTok's parent, ByteDance.
Meanwhile Biden's 2022 CHIPS Act disbursed billions to Intel INTC.O, TSMC 2330.TW and others in exchange for not expanding leading-edge capacity in China for a decade.
Brussels hasn't embraced this logic yet. Last month, it agreed with Beijing to cap annual hybrid car exports from China to Europe at 350,000 units from December. It's a tight restriction, since forecasts have put 2026 imports at 800,000. Soon after, Chinese automaker BYD 002594.SZ announced plans to expand factory capacity on European soil. This could let it circumvent caps and tariffs, and potentially qualify under future "Made in Europe" public procurement rules. Though EU states are still negotiating criteria for the upcoming Industrial Accelerator Act, a law designed to boost European productive capacity, they won't be based on firms' ultimate nationality.
Yet it's hard to imagine either the EU or US accepting a path like Britain's after the 1980s, where the auto industry survived by selling itself to foreign corporations. Few politicians would accept a Chinese-owned Volkswagen or General Motors, in the vein of how Jaguar and Rover were sold to Ford and BMW, respectively.
To be sure, the later entrance of Japanese groups like Nissan 7201.T and Honda 7267.T, which built big plants in Britain, did revive the ailing UK automotive industry through lean manufacturing and modern management: by the late 1990s, annual vehicle output hit a new record of 2 million units, per Society of Motor Manufacturers & Traders data. In principle, the IAA will introduce inward investment screening to ensure that China's factories in Europe similarly deliver local jobs and content.
Also, the Middle Kingdom's use of trade backdoors has been exaggerated. Take the nearly $125 billion rise in annual Mexican goods exports to the US following the introduction of USMCA, which irked Washington because it largely involves products directly impacted by tariffs on Chinese imports. A Federal Reserve analysis found that, while 53% of the increase did reflect trade diversion, less than 1% resulted from Chinese goods simply being "transshipped." About 14% belonged to production by Chinese companies in Mexico made overwhelmingly with Mexican content. The rest came from non-China sources.
In other countries too, previously bare-bones Chinese-run plants have started to include more local production. Chery Automobile's Barcelona factory is a case in point.
In practice, though, governments may nonetheless seek to implicitly discriminate against the nationality of corporations. Germany is bound to protect key job creators like Volkswagen VOWG.DE, BMW BMWG.DE and Mercedes-Benz MBGn.DE against Chinese marques, even if the latter are assembled locally. The same holds true, to varying degrees, for chemicals and robots.
Preserving some industrial champions does make sense. For one, BYD itself may keep receiving aid from Beijing. Also, the electric-vehicle transition and artificial intelligence revolution have underscored the perils of fully relying on investment decisions made abroad. UK car production is now 40% of its pre-pandemic peak, compared with roughly 70% in Germany.
However, the ideal economic combination, which drove China's own rapid development, is one where foreign frontier firms both teach and turn up the competitive heat on domestic players. Without a coherent, sector-based industrial policy to deliver this, protectionism happens in less growth-friendly ways, shutting out tech that benefits consumers and spurs domestic companies to improve. See how the US has banned vehicles running connectivity or self-driving software made in China, or how Huawei [RIC:RIC:HWT.UL] and ZTE 000063.SZ have been excluded from European telecoms infrastructure.
Of course, such misgivings regarding Chinese firms are well-grounded. So is the desire to minimise geopolitical sourcing risks, highlighted by disruptions in the Strait of Hormuz and Beijing's weaponisation of rare earths.
But "security" is a loose concept on which to build multilateral industrial, investment and trade policy. Likewise, asking regulators to determine who ultimately controls a company through layers of ownership, financing and state ties is fraught with difficulty. In sectors like autos, solar panels and biotech, Chinese advantages rest not just on subsidies and cheap labour, but on genuine gains in quality and productivity. 
These still pose an existential threat to Western industries, meaning that the EU probably needs stringent inward investment regimes requiring Chinese players to form joint ventures. This is still preferable to rewriting trade rules around control. The latter may sound more market-friendly, but contains the seed of technological isolation.
     
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(Editing by Liam Proud; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on SINDREU/Jon.Sindreu@thomsonreuters.com))