EU-China Trade: Geopolitical Challenges and Economic Security
China has Underestimated Europe’s Pushback
China underestimates Europe’s willingness and ability to push back. Chinese commentators often caricature Europe as weak and US-led, overlooking growing European concerns about economic dependence, security (notably over Ukraine), and unfair trade/practice issues. Recent incidents—chipmaker Nexperia’s seizure, stalled investment talks, tariff threats on EVs, diplomatic coolness after criticism of China’s actions—show Europe’s attitudes hardening. If Chinese leaders assume Europe merely follows America, they risk misreading an independent European response that could become more assertive.
Chinese analysts often portray Europe as divided, US-dependent, and easily outmanoeuvred, but this exaggerates European weaknesses. European worries have now shifted from pure accommodation to concern about China’s economic model, supply‑chain dependence, and security implications (especially after Russia’s invasion of Ukraine). Recent episodes (Nexperia takeover, stalled EU–China talks, diplomatic frictions, tariff consideration on Chinese EVs) indicate growing European readiness to act independently. Finally, Beijing’s belief that Europe simply echoes Washington may cause it to miss Europe’s emerging resolve—risking tougher, unanticipated pushback.
Main Issues in EU-China Trade
German Chancellor Friedrich Merz used his first trip to China since taking office to press President Xi Jinping for a reset in economic ties, urging more transparency, reliability and compliance with global trade rules. He called on China to address its large trade surplus with Germany by appreciating the currency, cutting subsidies and reducing industrial overcapacity that floods EU markets. Xi framed China as a defender of multilateralism and called for closer Europe–China cooperation. The visit—accompanied by a 30-company delegation—reflects Germany’s balancing act between protecting strategic industries and keeping access to the vital Chinese market.
Merz pressed China to reduce market-distorting subsidies, tackle overcapacity and allow stronger domestic demand (including currency appreciation) to ease trade tensions. Additionally, he pushed for fair competition, supply-chain risk reduction in critical sectors (rare earths, car and defence industries) and rules-based trade with transparency and reliability.
Xi emphasized China’s support for multilateralism and European self-reliance while encouraging closer cooperation.
Germany faces deindustrialisation pressures and a record €87bn trade deficit with China; policymakers are considering protectionist measures and requirements for joint ventures/technology transfer from Chinese investors.
To conclude, Merz’s delegation highlighted mutual economic benefits—many German firms still depend on China for sales and innovation in areas like electromobility and AI.
EU Retaliation Against Chinese Trade Practices
The EU is advancing the Industrial Accelerator Act and tougher cybersecurity rules to restrict Chinese firms from public contracts and critical supply chains, citing security and industrial policy goals. China has warned of retaliatory measures if it is treated discriminatorily. The move reflects growing EU efforts to re-shore strategic industries (batteries, EVs, solar, critical minerals) and block “high-risk” vendors, while Brussels seeks to balance protection with keeping lines of communication open with Beijing.
In short, the Industrial Accelerator Act would require governments to buy from the EU or “trusted partners,” exclude China, and impose conditions on large investments in strategic sectors (ownership, tech transfer, local R&D). Additionally, proposed cybersecurity and telecom rules would let EU ban “high-risk” vendors (commonly Chinese firms like Huawei) based on technical and non-technical risk assessments.
The reaction: China warned of countermeasures and called the proposals protectionist; Beijing has previously used export controls and business bans in disputes. China’s commerce ministry criticized the draft as discriminatory, violating WTO rules, and warned it may take unspecified countermeasures, while offering to dialogue. The measure responds to concerns about subsidized Chinese competition and technology transfer practices; it still needs negotiation and approval by EU member states and the European Parliament.
EU officials, including industry and trade leaders, argue the measures are necessary to reindustrialize and protect security, while still maintaining diplomatic channels and not fully mirroring U.S. hardline policy.
Flashpoint: EU’s Huawei Ban in Mobile Networks
The European Commission is considering making its 2020 recommendation to exclude high‑risk vendors (like Huawei and ZTE) from mobile networks legally binding and exploring ways to push EU member states to phase out Chinese telecom equipment. Proposals include extending restrictions to fixed‑line infrastructure and using Global Gateway funding as leverage to discourage non‑EU countries from using Huawei gear. The move reflects growing EU security concerns over Chinese suppliers, but it faces political resistance from some member states and telecom operators and will likely provoke diplomatic pushback from China.
Commission Vice‑President Henna Virkkunen seeks to turn the 2020 non‑binding guidance on high‑risk vendors into a legal requirement, which could trigger infringement procedures and fines for noncompliant states.
Measures under consideration include limits on Chinese equipment in fixed‑line networks and conditioning Global Gateway funding on avoiding Huawei/ZTE hardware.
The push stems from national‑security worries about vendors with close ties to Beijing; responses across the EU remain uneven (e.g., bans in the UK and Sweden, allowances in Spain and Greece).
Industry and some governments oppose stricter rules citing cost and deployment pace; China has warned against politicizing trade and threatened consequences for bans.
European suppliers Nokia and Ericsson stand to gain market share if restrictions on Huawei/ZTE expand.
Europe’s China Policy Needs Updating
Europe’s 2019 “fifty shades of gray” China policy—seeing China as partner, competitor and systemic rival—is now insufficient. Over the past six years China’s political-economic trajectory, deepening alignment with Russia, and use of economic coercion have made China a multidimensional strategic challenge to European prosperity, security and social contracts. The author calls for a transformed European China policy centered on (1) protecting the European social contract and building public awareness and resilience, (2) a new economic compact involving public‑private action and stronger industrial, financial and de‑risking tools to preserve technological sovereignty, and (3) deeper cooperation with allies and partners to boost Europe’s geopolitical power. Urgent political will, funding, and unity across member states are necessary to ensure Europe’s model can coexist with China’s.
To summarize, the 2019 characterization of China as “cooperation partner, negotiating partner, economic competitor, systemic rival” is outdated; geopolitical shifts (notably China’s support for Russia) and Chinese economic practices have narrowed cooperation and expanded systemic competition.
China now poses economic, political and security threats to the EU: unfair trade practices, overcapacity and subsidies, weaponized exports, critical supply‑chain dependencies, investment and infrastructure risks, information/AI surveillance and influence operations, and support for Russia’s war in Ukraine.
Europe must protect its social contract by informing citizens, integrating China assessments into national politics, and building resilience across states to withstand economic shocks and political costs.
Europe needs a new economic compact: coordinated public‑private industrial policy, large-scale financing (comparable to proposals like the Draghi recommendations), targeted tools (Chips Act, Critical Raw Materials, AI, RESourceEU, Competitiveness Compass), and de‑risking/recoupling where necessary to secure technological sovereignty.
Strengthen partnerships (U.S., G7, like‑minded states) and global offers (Global Gateway) to pool resources and present an attractive alternative, while improving EU governance (possible expanded Commission powers on investment/security) to act quickly and coherently.
Conclusion: urgent, costly, politically difficult measures are required — delay raises greater costs. Unity, clarity, and resolve across EU institutions and member states are essential.
