The Coming Clash Between China and Europe
In 2025, Chinese leader Xi Jinping tried to capitalize on U.S. belligerence toward Europe by promoting China as the responsible great-power alternative. In a message sent to mark the 50th anniversary of diplomatic relations between China and the European Union, Xi invited Brussels to join forces with Beijing, to “uphold multilateralism, safeguard fairness and justice,” and “oppose unilateralism and bullying.” Despite the lofty rhetoric, Beijing offered nothing of substance to Europeans, and did nothing to address their concerns about unfair trade practices that are threatening large swaths of European industry. Indeed, rather than seeking to conciliate, Chinese premier Li Qiang recently dismissed the concerns of Europeans worried about a “China Shock 2.0,” telling them to focus instead on “China Opportunity 2.0.”
Key EU leaders, as well as the Brussels bureaucracy, are not buying it. They have concluded that the very survival of Europe’s core industries is threatened by China. The first “China shock” describes the devastation of U.S. industry in sectors including furniture, textiles, and metals that came in the early 2000s, after China’s accession to the World Trade Organization. The new China shock will be different. It will happen mainly in Europe, and it will be more severe, devastating advanced industrial sectors—including automotive, machinery, chemicals, pharmaceuticals, and green energy—and leading to immense job losses.
Increasingly, European leaders are arguing that the EU needs to take action to protect its industries. So severe is the threat that measures that were unthinkable a few years ago are now gaining momentum. Earlier this year, for example, the French government proposed “establishing a level of protection equivalent to a general tariff of around 30 percent vis-à-vis China.” And although Germany was initially hesitant, Chancellor Friedrich Merz has signaled that he is ready to act to deal with China’s unfair trade practices. Last month, every EU leader, with the exception of Spain, tasked the European Commission with coming up with options for action.
An all-out trade war with China is becoming a real possibility. Europe is now the only major market with high purchasing power that is wide open to Chinese products. With Chinese domestic demand weak and many firms struggling to make a profit, Beijing desperately needs the European market. As a consequence, Beijing is likely to do everything possible to keep it open. If Brussels wants to have a fighting chance in the looming trade war, it will need to ensure maximum unity of its members, as well as wide-ranging cooperation with like-minded partners. Neither will be easy. But both will be necessary if Europe is to preserve the industrial base that is vital to its prosperity and security.
WHILE EUROPE SLEPT
A decade ago, European policy toward China was defined by complacency. In 2015, Beijing published its Made in China 2025 strategy, which established the goal of displacing European industrial leadership. Few Europeans took these ambitions seriously. European industrial leaders held dominant positions both in the Chinese market and globally, and they believed that Chinese competitors would never be able to catch up with their innovative products. When U.S. President Donald Trump began a trade war with Beijing during his first term, many Europeans rejected his diagnosis of an unsustainable trade deficit with China. The complacency continued. For much of the Biden administration, Brussels appeared more worried by the industrial policy subsidies in the U.S. Inflation Reduction Act—which it feared would put European industry at a disadvantage—than by competition with China. All the while, Beijing methodically poured billions into building its industrial champions to take on European competitors.
Gradually, it became more difficult for Europeans to ignore the reality that Beijing was becoming a fierce competitor. The rise of Chinese car companies was a particular concern, leading the EU to impose tariffs of between 17 and 35 percent on Chinese electric vehicle imports in late 2024. By the time Trump returned to the White House, in January 2025, the European Commission, backed by France and other key member states, wanted to collaborate with Washington on China policy. They were hoping for joint action on Chinese unfair practices, believing that U.S. involvement would induce reluctant EU members to cooperate on tougher measures. But they were rebuffed by Trump, who instead threatened a trade war with Europe, which consumed much of Brussels’s attention in 2025.
Despite this distraction, European policymakers and business leaders have hardened their perspective on Beijing. The trade imbalance is deepening across sectors and along supply chains, and alarm bells are ringing. The numbers are staggering. China’s share of global manufacturing has increased from six percent in 2000 to around 30 percent. Meanwhile, the EU’s share has fallen from 30 percent to 17 percent. Since 2015, the value of Chinese exports to the EU has increased by 89 percent, quadrupling the trade deficit. Last year, China’s trade surplus with the EU reached approximately $411 billion. This year, Germany’s trade deficit alone is expected to reach $114 billion. Jens Eskelund, president of the EU Chamber of Commerce in China, has compared the EU-Chinese relationship to a “400-meter-long giant container ship loaded with 24,000 containers going to Europe and coming back almost empty.” European industry players are also losing market share in countries such as Brazil, Indonesia, and South Africa, into which Chinese imports are flooding. And the effects in Europe are already apparent. German industry is losing 10,000 jobs a month, and Martin Herrenknecht, the founder of the tunnel-boring-machine maker Herrenknecht, declared: “The China shock is real. And it is hitting German industry with full force.”
Chinese business benefits from a dynamic innovation ecosystem and the massive economies of scale of a protected home market. But the Chinese competitive edge also rests on huge subsidies, as well as a currency estimated to be undervalued by anywhere between 16 and 30 percent. A recent report by the Organization for Economic Cooperation and Development concluded that between 2005 and 2024, “Chinese firms received, on average, three to eight times more government support than firms in OECD countries.” At the same time, Beijing has learned to weaponize European dependencies. The Chinese government now has a comprehensive legal framework for export controls, substantial bureaucratic capacity, and intelligence on European supply chain dependencies. And it will use these instruments to try to force Europeans to keep their markets open to goods produced in China.
THE COMING WAVE
The coming China shock will be sustained, and it will be severe. All core European industries will be hit at the same time and undermined by Chinese competitors with which they cannot compete on cost. Whole industries could collapse. The story of the German and European solar industry, which went from 30 percent of global manufacturing share in the early 2010s to one percent today, thanks largely to the rise of Chinese competitors, is a harbinger of things to come. But the job losses in the relatively small solar industry have been manageable. This time, Europe risks losing hundreds of thousands of jobs, and once these industries have disappeared it will be very costly to rebuild them. Moreover, this loss of industrial capacity could lead to a vicious cycle of increased dependencies that China would then be able to exploit politically in order to turn the EU into a Chinese vassal. If these industries are not shielded from Chinese competition, Europe’s rearmament goals would likely be made impossible. Today, imports from China may be cheap. But further down the road, Beijing will be in a position to raise prices on products shipped to Europe, safe in the knowledge that its companies have killed off the local competition.
Europe needs to prepare. As a starting point, the European Commission should craft a compelling narrative for action. Pro-Beijing voices in Europe and Chinese propaganda are ready to attack any robust European trade defense measures. These voices—such as the English-language newspaper Global Times and extreme European politicians including France’s Jean-Luc Mélenchon and Germany’s Alice Weidel—will accuse European leaders of recklessness for picking a costly and unwinnable fight with Beijing. They will also argue that by blaming China, European policymakers are simply seeking to cover up their own failures.
To counter this, European officials need to stress that the lines of communication to Beijing have been and remain open, and that the preferred course of action remains reaching a negotiated settlement. This should see Beijing rebalance its economy to increase domestic demand, end unfair subsidies, and allow the Chinese currency to appreciate. The stumbling block to this agreement is not Europe. It is the Chinese leadership, and it is critical that European voters understand that Brussels needs to take action to compel Beijing to enter into serious negotiations. Voters also need to understand that trade defense measures are a vital economic adjustment to a hostile global environment. Restrictions would buy Europeans time to implement far-reaching agendas on cutting costs and red tape, deepening the internal market, boosting innovation, and positioning the EU as a leader on the industrial adoption of AI. The public must be persuaded that none of this can be done without protecting the European industrial base. EU leaders need to stress that domestic reform and protection against unfair competition are two sides of the same coin.
Beijing has learned to weaponize European dependencies.
European policymakers must also get as many like-minded partners as possible to join forces to deal with unfair Chinese trade practices. Japan and South Korea, which are also threatened by Chinese competition, are promising options. So are Brazil, Malaysia, and Turkey, all of which have already taken measures against the flood of cheap Chinese imports. This coalition should agree to apply the same tariffs and joint economic security standards, to ensure greater leverage over Beijing. Such coordination will also ensure that no country faces a competitive disadvantage.
The cleanest response would be an across-the-board countervailing tariff, to offset unfair competition advantage. But this is also the least practical political option, since those EU member states faced with concentrated Chinese lobbying and retaliation threats are unlikely to sign off on such a sweeping measure. As a practical alternative, the EU should introduce what Andrew Small has labeled the “art of the swarm.” He has called for “safeguards on surging imports, a wider run of subsidy investigations, procurement instruments deployed across sectors,” and “product-safety and security audits pursued systematically.” Employed as a dispersed swarm, these measures are harder for Beijing to deal with and have the potential to blunt the impact of the China shock by slowing import surges and decreasing dependencies. Europe can open its market to free trade partners on the basis of reciprocity, provided that participants implement agreed-on restrictions on Chinese imports. At the same time, the EU should exempt free trade partners from measures deployed against Chinese import surges.
Finally, the European Commission and member states need to prepare for Chinese retaliation by gaming out and preparing for different escalation scenarios. Member states must commit to the swift activation of the Anti-Coercion Tool, which allows the commission to pick instruments to counter Chinese coercion measures. When prompted, the EU needs to be able to weaponize Chinese dependencies on Europe, for example by tightening restrictions on semiconductor manufacturing and servicing, or by putting export controls on aircraft components. Cutting off access to the European market will be a powerful tool, because it will act as a major demand shock on China’s export industries, worsening China’s economic woes and accelerating its deflationary spiral. Beijing will likely try to play divide and rule by disproportionately hitting select member states, in the hope of fracturing EU unity. The commission is rightly currently crafting a solidarity mechanism that will help to partially compensate those countries and sectors singled out for retaliation.
AN UNCERTAIN PARTNER
Europe is not abandoning global trade. In fact, the EU has recently signed trade agreements with Australia, India, and Mercosur. The changes in Brussels’s attitude instead signal a departure from the belief that Europe can deal with competition from Chinese authoritarian state capitalism by keeping its markets open. In this shift, Brussels and Washington are now aligned, and this presents an enormous opportunity to the United States.
The only way for Washington to compete with China’s design for global manufacturing dominance is through allied scale, and Europe is an essential component of any such effort. In fields including specialty chemicals and polymer intermediates, European manufacturers offer the only alternative to Chinese producers. Losing that alternative would hurt the United States, making it reliant on Chinese products. U.S. involvement in this effort is also overwhelmingly in Brussels’s interest. Having the United States on board makes the coalition stronger and—by removing the threat of an all-out trade war with Washington—allows Brussels to be bolder in its actions against unfair competition from China. Indeed, enlightened self-interest provides strong grounds for U.S.-EU cooperation on China. But time and again Trump has acted against this self-interest, targeting European allies rather than Beijing. He must change course if he wants to maintain the long-term U.S. ability to counter immense Chinese industrial might.
But Brussels cannot wait for Trump to see the light. Maintaining the status quo between China and Europe is no longer an option. Beijing seems to believe that the Europeans will ultimately fold, and as a consequence, it is not offering any serious concessions to deal with European concerns. Without proper preparation and coordination, the EU faces the very real prospect of being decisively defeated in a trade confrontation with China. The scenario is easily mapped: China could respond to European tariffs by cutting off key inputs for industrial production. This would leave Europe isolated, and force its voters, unwilling to bear the costs of escalation, to pressure their leaders to give in. Were that to happen, it would strengthen those defeatist voices in Europe who already argue that Europeans should simply submit to a Sino-centric order. But this possibility is not preordained. Indeed, the only thing worse than the risk of defeat is the risk of letting Europe’s valuable and capable industrial base simply atrophy. Time is short, but Brussels can still put up a fight.
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