Orgalim Director General on the front page of Delo, Slovenia’s leading national newspaper

What does the EU-U.S. trade agreement mean for European industry?

Orgalim represents companies in mechanical engineering, electrical and electronic equipment, and metalworking. These sectors account for one-third of all EU exports, making international trade vital for their success. The U.S. is Europe’s largest trading partner, so a trade agreement is welcome—especially in today’s sensitive geopolitical climate. However, the agreement lacks clarity, and its interpretation remains uncertain.

Recently, the U.S. classified many machinery and equipment items under steel and aluminum categories, subjecting them to a 50% tariff—far higher than the anticipated 15%. This has created significant uncertainty for our members and added administrative complexity with U.S. customs authorities.

Is the agreement’s impact even predictable?

Predictability is very limited, which dampens business sentiment and hinders investment. Some major industrial projects in the U.S., particularly in renewable energy (e.g., wind farms), have become commercially unviable due to the 50% tariff on European steel. As a result, several projects involving European companies have been canceled or postponed, negatively affecting business confidence in Europe.

What needs to be done?

We must face reality. For Orgalim, the EU must accelerate the diversification of its trade partnerships. A key step is the swift ratification of the Mercosur agreement, which has been in negotiation for 25 years and is now ready for approval. This would open significant export opportunities. Progress is also needed on the free trade agreement with India, where tensions with the U.S. have created new openings. The EU must pursue new global agreements, as cooperation with key partners like the U.S. is becoming increasingly difficult.

How does China’s growing presence affect European industry?

There is concern that disruptions in global trade—primarily driven by U.S. policies—will have secondary effects. If Chinese and European goods face barriers in the U.S., more Chinese products may flood the European market, increasing competition and pressure on our industries. We are seeing the emergence of three major geopolitical blocs: the U.S., China, and the EU. Europe must chart its own course, diversify trade flows, and reduce vulnerabilities, especially in raw materials and rare earths. This is a complex task, and Orgalim emphasizes the need to build on Europe’s strengths.

What are Europe’s strengths?

Europe’s strength lies in its advanced and competitive industrial base. Compared to the U.S., Europe still has a stronger manufacturing foundation. In countries like Slovenia, where industry accounts for nearly 29% of value added, this role is particularly pronounced. However, excessive regulation and a fragmented single market are holding companies back. Our main priorities are reducing administrative and regulatory burdens and improving intra-EU trade.

Are these the EU’s biggest competitive weaknesses?

Between 2019 and 2025, the U.S. adopted around 5,000 legislative acts, while the EU passed over 13,000. This regulatory tsunami has hit businesses hard, especially SMEs. While Orgalim fully supports the EU’s high standards in environmental protection and workplace safety, some requirements have gone too far.

Fortunately, the EU has recognized this. A turning point came with last year’s report by former Italian Prime Minister Mario Draghi, warning that without reform, Europe risks losing competitiveness and facing long-term economic decline. The new Commission responded with a simplification package—the so-called “omnibus”—aimed at reducing regulatory burdens, including in sustainability reporting and carbon adjustment mechanisms. We support these initiatives but find them too slow and insufficiently bold. The European Parliament is currently reviewing the omnibus, with over 850 amendments already tabled—highlighting how difficult it is for Brussels to reduce the burden it created.

Are carbon tariffs a threat to industry?

Carbon border adjustment mechanisms, especially in the metal sector, are problematic. While the concept aims to promote sustainability, in practice it raises the cost of steel and aluminum for European industry and risks production shifting outside Europe. The Commission wants to simplify the mechanism, but we believe it should be abolished. Europe must lead in sustainable manufacturing, but this must be achieved while maintaining competitiveness and encouraging investment in European production.

Will deindustrialization in Europe continue?

The industries we represent have been contracting for three consecutive years. Revenues are down 0.7%, and employment has fallen by 0.9%. Urgent political action is needed. Brussels must adopt an industrial policy focused on growth and innovation to preserve Europe’s competitiveness and manufacturing base. This is not only economically vital but also crucial for strategic autonomy and security. Losing expertise and production capabilities in key technologies—including dual-use applications—would seriously undermine European security, especially in light of challenges following Russia’s invasion of Ukraine.

Can dual-use technologies and increased defense spending benefit European industry?

Yes, increased defense spending affects sectors like machinery, electronics, and metalworking. However, the impact will be limited. Defense projects are long-term and procurement processes are complex, so benefits won’t be immediate. For sectors like metalworking, defense spending won’t offset losses from the automotive industry crisis. Some companies will benefit, as Orgalim members provide technologies used in weapons and ammunition production, but systemic measures are still needed to strengthen industrial capacity and competitiveness.

How can Europe’s automotive industry survive the transition?

The automotive sector faces multiple challenges. The shift to electric vehicles is slower and more commercially difficult than expected. Major European manufacturers are losing market share in China, and U.S. tariffs remain a burden—even at the reduced rate of 15%. A dedicated dialogue between the automotive sector and the European Commission is underway, and political debate is expected on whether the strict ban on internal combustion engines after 2035 should be softened.

Do you agree with the notion that America innovates, China replicates, and Europe regulates?

Following the regulatory tsunami, Europe’s mindset is shifting. A new debate is emerging around digital technologies and the global race for AI leadership. The EU was quick to regulate AI, despite not being a global leader in the field. In November, we expect a proposal for a “digital omnibus” to simplify regulations. It must strike a balance between maintaining high European standards and fostering innovation. In fast-evolving fields like AI, companies need entrepreneurial freedom to experiment and develop.

What must Europe do to accelerate innovation?

The EU plans to double research funding in its next framework program and establish a European Competitiveness Fund to support innovative companies in areas like digitalization. We welcome this initiative, but the devil is in the details. EU funding systems are often too bureaucratic and slow. While U.S. companies submit around 50 pages of documentation under the Inflation Reduction Act (IRA), European applications can exceed 300 pages and take up to a year. Simplification must extend to the Competitiveness Fund and research programs.

Industry must be involved in decision-making. Public funds must be combined with private investment. There’s a risk of misallocation, as seen in the failed Northvolt battery project. Future EU funding must be spent wisely, with proper oversight, and directed toward projects that genuinely enhance innovation and competitiveness.

Even Porsche is shutting down its battery production.

Electrification is a major challenge but also a key part of the broader strategy we strongly support. It’s essential for energy efficiency and climate neutrality, extending beyond batteries to include grids, energy storage, and electrification of manufacturing processes. Europe leads in many electrification technologies—from wind turbines to advanced grid solutions and electrified production lines. Ironically, U.S. and Chinese factories often adopt these technologies faster than Europe itself. We must close the investment gap and enable companies to invest, expand, and modernize. The upcoming EU Electrification Action Plan will be crucial.

While Europe lags in battery technology—especially for transport—and faces raw material supply issues, this is just one part of the broader picture. In electrification as a whole, Europe has many strengths that must be leveraged to put the green transition back at the forefront.

How can Europe pursue the green transition while remaining competitive?

There is a major political debate in Europe on how to be sustainable, meet climate goals, and stay competitive. Orgalim strongly supports climate targets, including the proposed 90% reduction in greenhouse gas emissions by 2040 compared to 1990. However, we advocate for more flexibility in how these goals are achieved. This brings us back to the need to reduce administrative burdens. If we succeed, European companies will be well-positioned to lead in technologies critical to the green and digital transitions.

Europe must recognize that it will largely pursue climate goals alone, as the U.S., China, and India follow different paths. But if Europe builds on its strengths, we have a strong chance of success.