European industrial manufacturing: Turning global disruption into opportunity

By Jan-Oliver Sestak, Sven Siepen, Ralph Mair and Lisa Staedtler

Industrial manufacturers are facing unprecedented global shifts. A new industrial order is emerging with China at the forefront, protectionism is becoming the trade policy of choice and artificial intelligence is transforming the way businesses operate. Individual regions are doubling down on their strengths to weather the changes, turning away from globalization toward resilience, self-sufficiency and increased competitiveness. These shifts create opportunities as well as challenges. But Europe is struggling to adapt. So, how can European capital goods players not just survive in this climate, but thrive?

This article offers answers. It explores how global trends are reshaping the industrial landscape, and what it takes to move from being a passive follower shaped by events to a leader that shapes its own future. First, we break down the geopolitical shifts impacting our industry, then we look at what this means specifically for European mechanical engineering and discuss the strategic choices ahead:

Geopolitical shifts: In the new industrial world order, China is the world’s production powerhouse, while the US is wielding its global power and Europe is wrestling with regulations. This creates a unique dynamic and new challenges for all industry players.

Implications for European players: Companies are sandwiched between global power plays and market realities. They must ask themselves, do they want to remain global market participants, or do they want to become more sovereign and self-reliant?

Strategic choices: What’s the best path forward for European players? They can’t outcompete China on cost or the US on tariffs and subsidies, but they can lead in other ways – by focusing on intelligence, integrity and integration.

The new, asymmetrical industrial world order

To understand what’s happening in the capital goods sector, we need to first break down the geopolitical shifts impacting the industry. At a global level, the economic balance is shifting – growth, trade and influence are being redistributed. China is now the world’s production powerhouse, while the US is moving to strengthen its global power and industrial base. Europe, with its focus on managing values and regulations, risks falling behind, and its companies must find new ways to leverage their strengths and adapt to this changing landscape. Below we look in more detail at the key shifts in each of these markets.

Overcapacity and weak domestic demand are driving Chinese companies to expand globally

China has evolved rapidly from being the world’s low-cost, mass production workshop to a sophisticated, interconnected production ecosystem. Today, it is the frontrunner in the race for geopolitical influence, orchestrating entire value chains, integrating technology and setting new standards for industrial speed and scale.

Its investment-driven growth model has been the basis of its success. Funding has been poured into factories, turning China into an export leader. However, weak domestic demand has led to overcapacities, creating internal economic pressures. Chinese companies have sought to mitigate this by expanding globally in search of new markets, offering not just low-cost products but also high-value manufactured goods that can compete with Western rivals.

China now exports systemic relevance, and sets the global benchmark for industrial speed

And China is not just exporting goods – it’s exporting entire ecosystems. In sectors such as batteries, photovoltaics and electric vehicles, the country provides all supporting infrastructure, from technology to the supply chain and ongoing support. As a result, its customers must buy into the whole system, creating long-term dependencies. So competing with China now means competing with an entire industrial system, not just a product.

China’s global rise is no accident. It’s the result of deliberate policies, including massive subsidies, state-driven investment and a focus on scaling up technology and production capabilities. This scale creates cost advantages and accelerates learning and innovation, while central planning and subsidies allow China to move faster than competitors. Indeed, the country sets the new global benchmark for industrial speed.

China has weaponized its industrial dominance, turning it into a lever for geopolitical influence. Today, the country can set standards, control supply chains and use its market power to shape global outcomes. This dynamic underscores a crucial message for any company operating globally – the competitive landscape is being shaped as much by policy and power as by price and product.

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