As Europe’s approach to sourcing changes, Türkiye’s production strength and strategic position bring new opportunities. We spoke with Research Istanbul General Manager Can Selçuki about the effects of the transformation in Europe on Türkiye, its competitive advantages and the issues that will be decisive in the upcoming period.
Europe is experiencing a period in which supply chains are being reshaped, sourcing from nearby geographies, technology, sustainability and reliability are becoming more prominent in purchasing decisions. Türkiye, meanwhile, holds an important position in this transformation with the Customs Union, geographical proximity, its experience in complying with EU technical standards and its strong industrial infrastructure. However, competition from China, Europe’s policies to strengthen its own production capacity and new trade agreements also create new risks for Türkiye alongside opportunities. We spoke with Research Istanbul General Manager Can Selçuki about Europe’s changing sourcing strategies, Türkiye’s place in European industry, the competitiveness of the machinery sector and expectations for the upcoming period.
- Security of supply, delivery time, sustainability and technology are becoming more important alongside price in Europe. How does this change create an opportunity for Türkiye?
The supply chain crises and geopolitical tensions experienced after the pandemic have changed the purchasing logic of European buyers. The question is no longer only where is the cheapest, but where is the most reliable and the fastest. This means a direct advantage for suppliers that have geographical proximity, low customs friction and high technical compliance capability. Türkiye can offer three elements at the same time here: duty-free access thanks to the Customs Union, much shorter delivery times compared with China thanks to geographical proximity, and compliance with technical standards thanks to nearly thirty years of EU integration. In 2025, Türkiye-EU trade volume reached a record €217.6 billion and Türkiye became the EU’s fifth-largest trading partner. This is not a coincidence; it is a concrete reflection of European companies’ search for “near sourcing.”
But I would like to make a warning here; the opportunity does not materialize automatically. For Turkish industry to turn this into a lasting position, it needs to invest in value-added production, R&D and sustainability compliance. Otherwise, this will remain only a temporary cost advantage.
Two developments also need to be taken into account here, because both work in ways that could limit this opportunity. First is the “Made in Europe” trend. Following the Draghi Report, the EU is seeking to strengthen its own industry again through the Clean Industrial Deal announced in February 2025 and the Industrial Accelerator Act presented in March 2026, particularly by promoting “production within the EU” and local content requirements in strategic sectors such as steel, chemicals, batteries and electric vehicles. The “Buy European” public procurement regulation was postponed to January 2026 following objections from some member states, but the direction is clear: the main focus of these policies is to protect Europe primarily against subsidized Chinese competition, but the resulting local content and supply chain restrictions may also pose a risk of contraction for nearby suppliers such as Türkiye if they are not well positioned. In other words, the opportunity of “production close to Europe” and the goal of “production within Europe” are advancing simultaneously, and the boundary between the two has not yet become clear.
Second is the free trade agreement signed by the EU with the Mercosur countries, which was signed in January 2026 but has not yet been fully ratified (due to the approval of the European Parliament and member states, as well as legal challenges brought before the Court of Justice). This agreement covers sectors in which Türkiye is also strong, such as automotive, chemicals and machinery. The Customs Union, which has been in force between Türkiye and the EU since 1995, covers only industrial products and does not grant Türkiye reciprocity or a seat at the negotiating table in such agreements concluded with third countries. In other words, Türkiye has to automatically absorb the concessions the EU grants to Mercosur (and similarly to India), but does not gain equivalent access to the Mercosur market. As also stated by Trade Minister Ömer Bolat, while some EU member states are preventing the Customs Union from being updated, such new FTAs may erode the competitive advantage of Turkish industry. In summary; the opportunity is real, but not fixed. Both Europe’s tendency to strengthen its own industry inwardly and new trade agreements with third countries will determine how long and to what extent Türkiye can preserve this opportunity.
“Europe’s existing integration with production chains and industrial capacity make Türkiye one of the potential suppliers”
- How do you assess the change in supply and purchasing criteria in Europe? What could the effects of this change be for Türkiye?
The essence of the change is a risk-reduction logic. From Europe’s perspective, the aim is not to sever economic ties with China; it is to reduce the strategic vulnerability created by excessive dependence on a single source for critical products and inputs. For this reason, diversifying supply, shifting production to closer geographies (nearshoring) and strengthening supply relations with reliable partners (friendshoring) are becoming important elements of Europe’s new economic security approach. However, there is an important distinction here; although the strategic direction has changed, actual trade flows have not yet changed to the same extent. Oxford Economics’ 2026 analysis shows that the European Union has failed to genuinely “de-risk” its supply chains over the last six years. While the average distance traveled by products imported by the EU has increased by approximately 6% since 2019, there has been only a limited increase in sourcing from within the EU. China’s share of EU imports has increased rather than decreased. Therefore, Europe’s structural dependence on China remains strong. Consequently, the de-risking process stands out as a long and intermittent transformation process rather than a rapid break.
The opportunity for Türkiye emerges precisely here. As Europe genuinely begins to diversify its sources of supply, its geographical proximity, existing integration with European production chains and industrial capacity make Türkiye one of the potential alternative suppliers. However, this opportunity is not automatic; Türkiye needs to remain continuously competitive in terms of quality, cost, delivery times, technological capacity and compliance with EU standards. The machinery sector is an important example in seeing this potential. Türkiye’s machinery exports increased by 1.9% in 2025, reaching a historic high of $28.7 billion. Moreover, while export tonnage decreased by 6.3%, the average export price per kilogram reached an all-time high of $8.1. This picture supports assessments that the composition of exports is moving toward products that create higher value. Therefore, it is too early to see Türkiye as an outright winner of the de-risking process in Europe. The more accurate interpretation is this; Türkiye is one of the strong candidates that can benefit if Europe’s supply diversification genuinely accelerates in the coming years. The export performance of the machinery sector and rising unit value are also a positive sign that Türkiye has the production capacity to take advantage of this opportunity.
“Türkiye is an integral part of the supply chain”
- How would you define Türkiye’s position in European industry today?
We can define Türkiye as an extension of European industry. An integral, integrated part of the supply chain, not merely an external supplier. It is deeply embedded in Europe’s production network in sectors such as automotive, machinery, textiles and electrical equipment. The figures also support this; approximately 70% of Türkiye’s exports to the EU consist of industrial products, while the share of agricultural products is only around 14%. This is a highly sophisticated export profile for a country generally referred to as a developing economy. At the same time, approximately 42% of Türkiye’s total exports go directly to the EU, and when Europe as a whole is considered, more than half goes to this region. However, its position is not complete, and it is more accurate to see it as a developing position. While Türkiye remains at the level of an intermediate goods and parts supplier in some areas, in some areas, for example in certain machinery segments, it is becoming a player with its own brand and technology. The key question is which direction this dual structure will evolve in the upcoming period.
- How can Türkiye play a role in Europe’s process of diversifying supply chains?
Türkiye needs to make a choice between two different roles here. The first is the role of a production base that is merely geographically close and duty-free. The added value in this role remains limited and essentially means a subcontractor position dependent on the capital of other countries (for example, China). The second is the role of a reliable, technological partner. A player that develops its own engineering capacity, brand and supply chain and establishes a relationship of mutual dependence with Europe.
Current data show a trend toward the second role; the growth of Turkish machinery exports both in volume and unit value, and its increasing share in challenging markets such as Germany and the US, are signs of this. But for this trend to be lasting, Türkiye needs to move from being an alternative to a preferred partner in the diversification process. This is possible through R&D investment, compliance with standards and sustainability performance.
“The tariff advantage arising from the Customs Union is still the most concrete and frequently overlooked factor”
- What do you think are the main factors determining Türkiye’s competitiveness in the European market?
It is necessary to list several factors together. The tariff advantage arising from the Customs Union is still the most concrete and frequently overlooked factor; it provides duty-free access for industrial products that most of its competitors do not have. Geographical proximity is the second important factor, delivery times that take weeks by sea from China fall to the order of days from Türkiye. This is critical for European manufacturers operating just-in-time production.
Third, thanks to the technical standards and quality infrastructure gained through nearly thirty years of EU harmonization, Turkish manufacturers are more experienced than many of their competitors in matters such as CE marking and compliance with technical legislation. Fourth is the availability of a qualified workforce at competitive costs and the strong engineering expertise accumulated over the years in certain sectors such as machine tools, agricultural machinery and construction machinery.
- How do you assess the strengths of Turkish machinery manufacturers in the European market?
2025 data are quite revealing here; Turkish machinery exports reached a record $28.7 billion and the average value per kilogram of exported products also reached an all-time high. The second figure is what matters most to me. Because this data shows that the increase in exports is not due solely to volume; it shows that we are selling products involving higher engineering and generating more added value.
The approximately 7% annual increase in exports to Germany is particularly meaningful. Because Germany is one of the world’s most demanding and highest-standard machinery markets. Being able to maintain a position in this market shows that you have crossed a significant threshold in terms of quality and reliability. There are double-digit growth rates in sub-segments such as internal combustion engines and parts, construction and mining machinery, turbines and hydraulic systems, and food processing machinery.
The sector itself is also aware of this transformation; business representatives emphasize that they have maintained export revenues by focusing on highly engineered, value-added products despite weak European demand and increasing import pressure. This makes me think that the sector is benefiting not merely from a cyclical opportunity, but from a deliberate strategic positioning.
“Türkiye can become Europe’s preferred near partner in the next decade”
- How do you foresee Türkiye’s position in European industry taking shape over the next 5-10 years?
Rather than making a definite prediction, it would be more accurate to think through the three axes that will determine the position. First is the CBAM (Carbon Border Adjustment Mechanism) and green transformation axis. It is estimated that Türkiye exports €5.5-8 billion worth of CBAM-covered products annually to the EU; the sectors that will be most affected are iron and steel, aluminum, cement and fertilizers. Türkiye’s relatively high share of electric arc furnace steel production may provide an advantage here, but this advantage is not automatic; whether it establishes its own carbon pricing mechanism and the speed of its transition to renewable energy will be decisive. Second is the future of the Customs Union. If the free trade agreement negotiated by the EU with India is concluded, Türkiye may face an asymmetric disadvantage; while Indian products enter the EU market at low tariffs, Turkish exporters may not gain equivalent access to the Indian market. This risks extending to industrial products a competitive pressure already partially experienced in textiles. Updating the Customs Union is an issue that Turkish industrial circles have long demanded but that has become politically blocked. Third is how the China factor will be managed. The use of Chinese investments as a “back door” to Europe through Türkiye carries both opportunity and risk; whether this turns into a genuine industrial partnership or temporary tariff arbitrage will largely depend on whether Türkiye demands local supply chains and technology transfer from these investments.
If these three axes progress positively, Türkiye can become Europe’s “preferred near partner” in the next decade. But this is not an outcome that will happen on its own; it requires investment in value-added production, green transformation and an active stance in trade diplomacy. Taking a step back and looking at this framework, I believe there is a need for a candid conversation and a new understanding regarding how the relationship between Türkiye and the EU will continue.
“They are shifting their production to countries such as Morocco and Türkiye to gain duty-free access to the EU market”
- What do you think are the effects of China’s increasing presence in the European market on Turkish industry?
This is a complex picture containing both threats and opportunities. On the threat side; China is entering the European market with highly competitive prices, particularly in electric vehicles, solar panels and certain machinery segments. The EU has taken measures against this situation. In October 2024, it imposed countervailing duties on Chinese-origin electric vehicles at rates varying by manufacturer (approximately 7.8% to 35.3%). But such measures are not always effective, because Chinese manufacturers find ways to circumvent tariffs. It is precisely here that a more interesting dynamic comes into play; Chinese manufacturers are shifting their production to countries such as Morocco and Türkiye to gain duty-free access to the EU market. Over the last four years, approximately $6 billion of Chinese investment entered Morocco, while approximately $2 billion entered Türkiye. On the one hand, this brings foreign direct investment and employment to Türkiye; on the other hand, it raises the question of “Turkish industry or China’s back door to Europe.”
My assessment is this; although these investments appear positive in the short term, if they remain only at the assembly/final processing level and do not turn into a local supply chain and technology transfer, they risk weakening Türkiye’s own value-added industry rather than strengthening it. The long-term benefit depends on the extent to which these investments are integrated with local parts production and R&D.
