EU leaders weigh new trade defences to counter China's export dominance

At a two-day summit in Brussels starting on Thursday evening, EU leaders will seek ways to reduce a growing imbalance in the flow of goods between Europe and China – which Brussels fears makes it vulnerable to potential coercion and supply shocks.

The bloc's trade deficit in goods hit around €360 billion last year, meaning Chinese exports sharply exceeded those from the EU.

“Our trading relationship with China has reached a point that requires a reset. Not confrontation, but rebalancing,” EU trade chief Maros Sefcovic said.

One option would be to create a new tool to impose sector-specific tariffs, for example on chemicals or green technology.

French President Emmanuel Macron last month called for a “European equivalent of Section 301”, the trade tool used by US President Donald Trump to impose sweeping tariffs, arguing Europe's “sovereignty is at stake”.

Germany has so far been cautious because its economy is more exposed to possible retaliation, while Spain has sought to avoid tensions as it pursues Chinese investment.

But Berlin appeared to be moving closer to France's position. Germany was “open” to new tools if they were necessary, as long as they were “not targeted at specific recipients”, a German official told French news agency AFP.

Concern about China's dominance is not limited to the EU. Fears are rising in the West over Beijing's control of the market for rare earth minerals used in everyday electronic appliances.

China was also on the menu during talks between G7 leaders in France this week, after export controls imposed by Beijing on rare earths last year sent shockwaves through global supply chains.

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China subsidies

Over dinner on Thursday, EU leaders will consider which existing tools the bloc can use to address the imbalance and whether new instruments and actions are needed.

The European Commission, which oversees EU trade policy, has pushed for tougher action. The discussion is expected to show how far the EU is ready to go to protect its industries, with leaders due to guide the commission on its next steps.

The commission is also considering whether to introduce safeguard measures for the chemicals industry, similar to those used for steel.

Brussels says fair competition is needed, pointing to the advantage Chinese companies gain from massive state subsidies.

Between 2005 and 2024, Chinese firms received around three to eight times more government support than firms in the Organisation for Economic Co-operation and Development, the OECD said, calling the figure “a conservative estimate”.

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Retaliation

Beijing has vowed to retaliate if the EU pushes through rules that would exclude certain products made outside the bloc from public contracts. After the EU imposed higher tariffs on Chinese electric cars in 2024, China imposed anti-dumping duties on European cognac.

The EU has shown little appetite for a broader trade war with China, and hopes dialogue can prevent escalation. Sefcovic has reportedly invited Chinese Commerce Minister Wang Wentao to Brussels later this month.

The debate comes as Europe is also looking at alternative trade and energy routes, made more urgent by the Iran war's shock to global fuel prices.

European Commission President Ursula von der Leyen has expressed renewed interest in the India-Middle East-Europe Economic Corridor (IMEC), which is intended to improve transport, trade, energy and digital links.

“Alternative export routes have been created that are more resilient and offer choices,” von der Leyen told G7 leaders this week, citing IMEC as an example.

The corridor is seen as a possible way to diversify the EU's supply chains and strengthen energy security.

(with newswires)