The main aim of this article is to analyze the effects of industrial and trade policy of the European Union on economic development, with particular reference to the negative effects of excessive trade deficits and industrial decline in some EU countries in the period 2000-2010. We compare 5 major EU countries (France, Germany, Italy, Spain and the United Kingdom) with Switzerland and the United States. We present some macro-econometric models to quantify the positive effects of industry on economic development, employment and real wages. The main conclusion is that Foreign Trade Deficits may lead to unsustainable development and unemployment when they are excessive and are not accompanied by industrial development policies and financial support. Our suggestion is that EU industrial policy should be more effective in order to improve development and quality of life of EU citizens and to avoid financial crisis.