EU Leaders Eye More Confrontational Stance on China Trade

BRUSSELS — EU leaders meeting in Brussels on Thursday are arriving with a more confrontational attitude toward China as each side accuses the other of unfair trade practices.

“Our trading relationship with China has reached a point that requires a reset — not confrontation but rebalancing,” EU trade chief Maroš Šefčovič said after a meeting of EU foreign ministers on Monday. “The status quo is not sustainable — not economically or politically.”

Šefčovič was referring to the bilateral trade deficit in goods, which hit €360 billion last year and continues to grow. Germany, the EU’s largest economy and longtime export powerhouse, has become the latest EU country to slide into a deficit with China.

“The momentum is shifting toward taking a more assertive position,” said one EU diplomat of the debate in Brussels. “But the devil is always in the details on these things. Even if we agree on the direction of travel at the European Council, then it [becomes] about how to translate the mandate — and this is where it gets tricky.”

As concerns about Chinese overcapacity grow, the Commission has launched trade investigations, proposed new defensive tools, and stepped up pressure on Beijing to address market distortions. China is responding in kind, enacting measures to elbow foreign competitors out of its market.

Yet the EU is likely to stop short of a full-blown confrontation — like activating its trade “bazooka,” the Anti-Coercion Instrument. Unpopular governments are wary of endangering their already battered economies and further angering disillusioned voters.

“We’re so fragile that it’s hard to use the tools,” said a second EU diplomat. “How can you use ACI if someone can shut down all your industrial production?”

Talk vs. action

For now, the Commission is pursuing a twin-track strategy: intensifying dialogue with Beijing while signaling it’s ready to strike if needed.

Earlier this month China’s vice minister for commerce, Ling Ji, flew to Brussels for talks to set the stage for a meeting between Commerce Minister Wang Wentao and Šefčovič at the end of June.

According to a person familiar with how the talks went, the meeting lasted several hours and wasn’t easy.

Ling posed a direct question to his DG TRADE counterpart, Ditte Juul Jørgensen, asking if the EU wanted to start a trade war. Juul Jørgensen, who recently took over as head of the trade department, assured Ling this wasn’t Europe’s intention, the person said. The Commission declined to comment.

Thursday’s meeting of the European Council offers a first opportunity for leaders to take stock after Commission President Ursula von der Leyen held a strategy session at the end of May. While no decisions are expected, the discussion over dinner in Brussels will be a crucial test of leaders’ appetite for tougher action.

One option is the wider use of import quotas — known as safeguards — for industries hit hardest by Chinese competition, like chemicals and machine tools. Another is a new “diversification instrument” that would require companies in sensitive industries to source inputs from at least three international suppliers.

A third and more aggressive option would be an overcapacity instrument that would effectively impose sweeping tariffs on China. The EU has resisted this so far, as these would be hard to square with World Trade Organization rules.

“The degree of cohesiveness is steadily growing,” said Gunnar Wiegand, the former managing director for Asia-Pacific at the European External Action Service, the EU’s diplomatic corps.

“What has become clear now to all governments in Europe is that the very industrial base of Europe is in danger,” added Wiegand, who is now a visiting distinguished fellow at the German Marshall Fund.

Getting tough

France, Italy, the Netherlands, Lithuania and most recently Poland have backed a position paper that urges the EU to take a harder line on partners pursuing unfair trade practices.

In addition to calling for the broader deployment of safeguards, the French-led paper urges steps to prevent exporters from evading tariffs by locating production offshore.

Germany has traditionally been wary of antagonizing Beijing, given its economic heft. But Chancellor Friedrich Merz, without explicitly naming China, has signaled that Berlin is open to a tougher approach to address “trade-distorting practices by other states.”

“I am not worried that we will eventually take measures. The situation is so dire that even the Germans are coming to terms with the need for them,” said a third diplomat who, like the others cited above, was granted anonymity to discuss closed-door discussions.

China meanwhile retains a chokehold on supplies of rare earth elements that are needed in everything from high-end computers to weaponry.

“How much room for maneuver do we really have?” asked a fourth diplomat from a Western European country. “You have to play it very carefully so as not to hurt sectors that are already struggling. We do not have that much space.”