The EU-China trade war is about to break out! Petrol and electric vehicles are just the first step. It is rumored that the EU is considering targeting "these" industries

According to people familiar with the matter, the EU has begun to consider follow-up actions in industries such as the chemical and machinery industries. (Reuters photo)

[Financial Channel/Comprehensive Report] After forcing China to accept automobile export restrictions, people familiar with the matter revealed that the EU has begun to consider follow-up actions in other industries, including the chemical and machinery industries, which are potential targets. This also means that a trade conflict is about to break out.

"Bloomberg" reported that Beijing and Brussels have huge differences in their views on the agreement to restrict the sales of gasoline-electric hybrid vehicles in China, and this disagreement emerged just days after the agreement was reached. EU leaders will meet on Thursday (15th) to discuss next steps, a move that would jeopardize the broader goal of avoiding a trade war.

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For Beijing, the agreement reached last week is a well-thought-out concession, perhaps a step back in principle, but in terms of annual exports to the EU of more than US$560 billion (approximately NT$18.12 trillion), it is only a small sacrifice. However, Chinese state media have warned that if the EU "plays new tricks" in negotiations, it will take action in response.

The EU has made it clear that gasoline-electric hybrid vehicles are only the "first item" on the alliance's list of concerns. According to people familiar with the matter, Germany will urge the EU to implement similar restrictions on Chinese imports in industries including chemicals, mechanical engineering, and possibly pharmaceuticals.

Brussels also pointed out that products such as furniture and motorcycles have been affected by the surge in Chinese imports, posing a threat to local manufacturers. If a car trade deal is all the EU can negotiate, there will be little improvement in the EU's trade deficit with China. This figure reached a record US$34.8 billion (approximately NT$1.12 trillion) last month.

EU Economic Affairs Commissioner Valdis Dombrovskis said in an interview in Bangkok on Tuesday (13th) that the trade imbalance between the EU and China is "not limited to the automotive industry" and that the EU needs to continue to promote this action in other different areas.

In fact, even the car deal is not yet finalized. The European Union said it would limit the number of gasoline-electric hybrid vehicles imported from China to 350,000 units per year starting in December, less than half of this year's expected number. This is expected to reduce China's overall sales to Europe by approximately 1.5% and global exports by approximately 0.2%. China did not directly confirm this figure, but revealed that the two parties will "adjust upwards" starting from the sales volume of 302,000 vehicles in 2025.

Calls for a tough response are growing ahead of an EU meeting on Thursday, where EU leaders are expected to discuss how to deal with a surge in Chinese exports.

Last week, the EU's two largest economies, Germany and France, called for the development of new tools that would give the EU the power to completely exclude China from its huge single market. This so-called "second strike" mechanism can form a strong deterrent effect against China cutting off the supply of rare earths.

Magnets have always been a powerful bargaining chip for Beijing, and people familiar with the matter said Beijing is negotiating with the European Union in the hope of lifting trade restrictions on Chinese companies in exchange for China resuming the supply of these metals to European companies in the ASML supply chain.

The jury is still out on whether the strategy will succeed, but some Chinese analysts are also worried that not only European trade negotiators will see this as a precedent that can be exploited, but other governments may begin to believe that the threat of restrictions can force Beijing to make concessions.

However, Gerard DiPippo of Eurasia Group believes that China's concessions to Europe are unlikely to trigger a global domino effect. Because few countries have as much influence as the EU, Di Pippo is skeptical that Beijing will treat all counterparties that complain.

The conflict between Beijing and Brussels could still escalate if EU leaders demand concessions beyond the automotive industry. Tu Xinquan, a former adviser to the Ministry of Commerce of China, said that it would be difficult for the EU to replicate the auto trade agreement because WTO norms have high thresholds for the implementation of "safeguard measures", which gives China ample room to delay progress. If judged strictly according to the provisions, the EU will definitely not comply with WTO rules in some places.

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