What’s Next for Europe’s Chemicals Industry?

Unpacking key structural shifts and policy choices ahead

Europe’s chemical industry, long a cornerstone of the continent’s industrial base, has seen its global position significantly eroded over the past two decades. Data speaks clearly. Europe’s share of global chemical sales has more than halved, falling from 27% in 2004 to just 13% in 2025, while China’s has surged to 46%. At the same time, the sector is contracting at home: since 2022, around 160 chemical sites have closed – nearly 9% of total capacity – and investment in new production has fallen by more than 80%, raising growing questions about the long-term viability of chemical production in Europe.

This is not simply a cyclical downturn. It reflects a deeper structural shift, driven by high energy costs, regulatory pressures, global overcapacity and intensifying competition – dynamics reinforced by industrial policies globally. This is further exacerbated by capacity developments within Europe, which amplify market imbalances and the overcapacity weighing on the sector with far-reaching implications: chemicals underpin 95% of manufactured goods, making this a strategic issue for Europe’s broader industrial future.

The question now is how Europe will respond. Trade policy, industrial policy and sectoral legislation emerging as central levers to stabilise the sector, but the EU’s approach remains a work in progress, shaped by difficult trade-offs and a risk of fragmentation, potentially falling short of what is needed to sustain production, investment, and innovation in Europe.

Three trends are beginning to define this response:

1. Stronger use of trade defence instruments

The first and most visible shift is the Commission’s growing reliance on trade defence instruments – namely anti-dumping and anti-subsidy tools – in recent years.

In 2024, investigations surged to around three times historical averages, with the chemicals sector accounting for 12 out of 33 investigations, the highest of any sector. China remains the primary target, facing increasingly high duty levels. But it is not just about volume – it is about approach. Recent cases point to a clear evolution, with economic security considerations explicitly factored in, alongside stronger attention to value chain impacts and the increased use of retroactive measures.

Despite this intensification, the underlying distortions persist. Stakeholder pressure is therefore mounting for additional action, and the Commission has committed, in its 2025 Economic Security Strategy, to review by the end of 2026 how existing instruments can be strengthened to better address overcapacity and unfair trade.

At the same time, concerns are growing about the Commission’s ability to keep pace with the surge in cases, notably due to increased pressure on existing resources and the length and constraints of procedures. In response, several industrial stakeholders are calling for a broader and more systematic use of safeguards, building on the precedent set in the steel sector – an approach likely to feature in the relaunch of high-level EU-China discussions, given China’s central role in driving these distortions.

The key sticking point is that these measures can address unfair practices but cannot resolve the structural competitiveness challenges facing a sector that is highly export-oriented and deeply integrated into global value chains.

2. Economic security and industrial policy tools

Going beyond traditional trade tools, the EU is also expanding its industrial policy toolbox.

The recently proposed Industrial Accelerator Act (IAA) reflects this shift, aiming to raise EU manufacturing to 20% of the bloc’s GDP by 2035 and introducing “Union origin” requirements in public procurement for selected strategic sectors. Chemicals are recognised as strategic, though no specific origin requirements are included at this stage (with the option left open for later).

This highlights a delicate balance. While some Member States push for stronger “Made in EU” rules, others warn against disrupting value chains or triggering retaliation. The compromise keeps the system relatively open, while allowing for targeted restrictions.

Still, for industry, the proposal falls short. As Cefic notes, demand-side support – notably through public procurement – remains limited for chemicals. Yannick Scharf, Industrial Policy Manager at Cefic, notes that

“If well-designed, the IAA can strengthen demand for low‑carbon and circular products and support the transition of strategic sectors. At the same time, it must be clear that the IAA alone will not bring competitiveness back. The IAA cannot be a substitute for core competitiveness reforms focused on cost competitiveness: disproportionately high energy and carbon costs, as well as regulatory complexity and weak enforcement of European rules at the borders. The IAA can only complement more impactful policy measures to support the business case for investments in low-carbon and circular chemical production in Europe. The transition of the chemical sector requires tremendous investments in both the shift to alternative feedstocks and the reduction of production emissions – in a time where plant closures are increasing every year and investments are going down. For the IAA to succeed, its tools must be able to support complex value chains, such as the chemical sector, where demand signals need to cascade effectively from end markets to upstream production. The IAA should create workable market mobilisation incentives while avoiding burdensome administrative complexity, particularly to manage European preference requirements. Future measures should be predictable, enforceable, targeted at the appropriate level of the value chain, and avoid unintended side effects such as material substitution. European preference requirements need to be compatible with Europe’s open and fair trade framework.” – Yannick Scharf, Industrial Policy Manager, Cefic

3. The emergence of a “Critical Chemicals” agenda

A third trend is the newly launched Critical Chemicals Alliance, which aims at giving a forum for chemical companies and public authorities to gather and find solutions to the long-standing competitiveness lag of the EU chemical industry.

Among its many objectives, the Alliance is also expected to support faster responses to trade-related challenges through early-warning reports on import surges and global overcapacity. It will also examine ways to secure feedstocks, strengthen export opportunities and design market-pull mechanisms for cleaner chemical products to feed into future legislation.

The initiative is promising but is still at an early stage. The real test will be whether it will translate into faster trade responses and stronger demand-side measures, while also addressing more immediate operational constraints – particularly the need for more resources to enable authorities to act swiftly on an increasing number of trade defence cases. At the same time, the question remains as to whether the process can genuinely shape new policy directions and lead to co-creation, or whether it primarily serves to consolidate support around measures already under consideration.

The trade-offs Europe must confront

These policy initiatives point to a deeper dilemma. Europe must navigate three key tensions that will shape the future of the sector.

First, strategic autonomy vs. competitiveness. Chemicals are deeply embedded in global value chains, which raises a question about whether stronger EU-origin requirements could effectively shield domestic production and reduce exposure to external shocks. With €560 billion in extra-EU exports in 2024 and heavy reliance on imported feedstocks, stricter localisation could also end up raising costs and fragmenting supply chains, ultimately weakening the competitiveness of downstream industries. At a time of declining capacity utilisation, rising imports and falling investment, strict EU content requirements risk addressing symptoms rather than causes, protecting parts of the value chain while undermining others.

Second, assertiveness vs. openness. The EU’s prosperity has long relied on open markets, but global overcapacity, rising industrial subsidies, and geopolitical tensions are challenging that model. As Ursula von der Leyen noted during her speech at the annual conference of EU ambassadors in March 2026, “Europe can no longer be a custodian for the old-world order.” A firmer stance may be needed to address distortions, but risks undermining the very rules-based system the EU still heavily depends on.

Third, decarbonisation vs. industrial resilience. The green transition is necessary and unavoidable, but EU producers face higher regulatory and energy costs than global competitors. With instruments like the EU Emissions Trading System (ETS) adding pressure and growing divisions among Member States on the way forward, the lack of alignment between climate, trade, and industrial policies risks causing both carbon leakage and industrial decline in the EU.

What to watch out for

These tensions are no longer theoretical; they will play out in the next 12-18 months, as the EU tests a new mix of trade and industrial policy tools. Key developments to watch include the finalisation of the Industrial Accelerator Act, possible origin requirements through delegated acts, the work of the Critical Chemicals Alliance, the continued expansion and review of trade defence instruments and the EU-China debate.

At stake is a fundamental question: can Europe align its industrial, trade and climate objectives while preserving a viable chemical production base and global ambition?

This moment reflects a broader shift in Brussels, with an unprecedented openness to reassessing the status quo alongside expanded opportunities for industry input through consultations, investigations and targeted initiatives such as strategic dialogues.

While the chemicals industry has succeeded in establishing itself as a priority on the Commission’s industrial and trade agenda – through the Antwerp Declaration and more recently the Antwerp European Industry Summit – translating that political recognition into effective outcomes remains the real challenge. Agreement still needs to be reached at political level, and the technical work of identifying where the balance is struck on specific solutions is only beginning. Crucially, this will require navigating trade-offs and diverging views, both within the Commission and across Member States, where positions on competitiveness, openness and strategic autonomy often differ.

For business, this means engaging in these processes with discipline and strategic focus – from submitting robust evidence in trade defence cases to presenting solutions in policy dialogues and engaging systematically with Member States. But individual engagement only goes so far. The challenge is structural, sector-wide, and extends well beyond chemicals. Any regulatory action on the sector will inevitably affect adjacent and downstream value chains. In this context, impact depends on strategic alignment: industry alliances, cross-sector coalitions and shared vision are key to shaping the frameworks ahead.

The groundwork has been laid, but the decisive phase lies ahead. Delivering concrete outcomes will require a clear political vision aligned with EU’s strategic priorities and supported across 27 Member States, and underpinned by robust, workable solutions. Unity will be essential to shape the future direction of Europe’s trade and industrial policy – and with it, the future of the chemicals sector.