The theories of economist David Ricardo have become outdated. The “technological power dynamics” have radically changed international trade, as shown in a conference held during the Spring of the Economy on March 18 in Paris. “The hierarchy no longer depends on specialization but on mastering areas of excellence by a small number of players. We have moved from a logic of comparative advantages to a logic of absolute advantage,” analyzes El Mouhoub Mouhoud, president of the Université Paris Sciences Lettres. This absolute advantage does not apply to a product but to about ten essential technological domains. These are seen as “bottlenecks” for the global economy, providing immense power to those who master them. For example, artificial intelligence, dominated by the United States (graphic processors, global cloud, investments from venture capitalists…). This position leads the country to “seek the deregulation of AI in Europe,” says the economist.
The market for electronic memories is controlled by South Korea, while Taiwan dominates in semiconductors… As for China, it dominates the supply of rare earths and critical materials and is gaining ground in patents. And Europe? With ASML (Netherlands), it masters an advanced technology: advanced lithography used to engrave microprocessors for AI. However, in these new power dynamics, Europe is in a situation of “strong fragility” between the United States and China, notes El Mouhoub Mouhoud. The reason being: since the late 1980s, with the information technology revolution, “the United States moved towards breakthrough technologies, while we remained in the ‘middle tech incremental’,” explains Philippe Aghion, Nobel Prize in Economics 2025, Professor at the Collège de France.
“It takes freedom” The dominant positions of the U.S. and China are the result of very different trajectories, explain the two economists. “China’s meteoric rise is due to its planned objectives in terms of changing specialization and holding absolute advantages in critical sectors,” says El Mouhoub Mouhoud. China is no longer just the “workshop of the world.” Since the 2010s, a well-thought-out strategy has been implemented. For example: imposing technology transfers on foreign companies targeting the Chinese market, global mastery of the production of rare earths, positioning in the downstream chain of AI (production of cells, cathodes…). In terms of research, “China has poured enormous resources into universities,” adds Philippe Aghion. The implementation of systems copied from the American MIT model that combines university and research, campaigns to attract researchers who have gone abroad…
Will the Chinese achieve breakthrough innovations? “I don’t know. Freedom is needed for this,” points out Philippe Aghion. According to him, this is one of the fundamental factors explaining the dominant U.S. position. Their industrial policy aims to stimulate private competing projects on goals determined by Advanced Research Project Agencies. Examples of success: sending a man to the moon, producing vaccines against Covid… Another determining factor of the American model, as stressed by Philippe Aghion, is the performance of the innovation financial ecosystem where venture capital contributions are combined with those of institutional funds.
Finding complementary allies Yet, in January, Yann Le Cun, a brilliant researcher and head of AI research at Meta, left the United States, the tech paradise, for Europe. His goal: to establish his startup, AMI, Advanced Machine Intelligence, in Paris. And in the field of quantum computing, a very promising new technology, France, for example, has its strengths, including a CNRS research director, Nobel Prize in Physics, Alain Aspect, and several startups: Alice & Bob, QPerfect, ColibriTD…
So, is the battle lost for the old continent? “Everything is recoverable… Europe has its advantages,” believes Philippe Aghion. Starting with the indispensable freedom for researchers… Nevertheless, “an innovation-friendly ecosystem needs to be created in Europe,” says the economist who calls for the implementation of the Draghi report published in 2024. This report foresees easing competition rules to favor mergers, for example in the defense or telecom domains. It recommends relaxing the EU’s regulatory position towards technology companies and accelerating the creation of an energy union. The Draghi report also advocates for a union of capital markets and EU funding for joint projects. A resource that European startups sorely lack compared to American ones.
However, Philippe Aghion advocates for a “coalition of innovation volunteers.” Bringing together all European countries willing to create a single innovation market. At the international level, El Mouhoub Mouhoud suggests forming “strategic alliances”: “we must not close ourselves off. We must find complementary allies who hold absolute advantages on strategic points, in order not to be overtaken by China and the USA.”
