EU warns China of trade defense mechanisms amid record deficit

European Commission President Ursula von der Leyen said on Thursday that if negotiations to reduce the record-high trade deficit with China did not produce a breakthrough, the EU should make use of all its trade defence mechanisms.

Tensions have remained high between Brussels and Beijing since the talks were launched last June. Over the summer, China moved to ban Chinese firms from participating in EU antitrust probes, while the Commission has continued opening trade defence investigations into the suspected dumping of Chinese products into the European market.

“Dialogue with China remains necessary. But it must produce results. And when dialogue is not enough, we must be ready to make full use of our instruments,” von der Leyen said in remarks to Medef, the French business organisation.

The EU is facing a wave of cheap imports coming from China, which have increased by 45% in five years, the Commission’s President added, pointing out that 30 trade defence investigations have been opened over the last year – “almost three times more than the historical average”.

“We are stepping up investigations significantly,” she said.

Von der Leyen's remarks come as the EU’s trade deficit with China reaches €1 billion a day. The Commission has set October as a deadline to reach a deal with Beijing to rebalance the trade relationship.

“China is a key economic partner. And our approach is clear and consistent: derisking without breaking ties. But being a partner does not mean accepting permanent imbalances,” von der Leyen said.

Beijing and Brussels have been on the verge of a trade war in recent months, with China threatening several times to retaliate against proposed EU regulations that could reduce market access to Chinese firms.

On Thursday, von der Leyen recalled that all EU member states now record a trade deficit with China.

In June, EU leaders gave her a mandate to act to rebalance the relationship through dialogue as well as the use and review of defence mechanisms. Among these is the EU's so-called anti-coercion instrument, which can be triggered in case of pressure from a foreign country on the EU to change its policies.

This tool, sometimes referred to as the “trade bazooka”, allows the EU to adopt strong measures such as restrictions on access to public procurement or the removal of intellectual property rights.

However, it requires the support of a majority of the bloc's member states. It is unclear whether this could be achieved while EU countries continue trading with China on a bilateral basis, seeking access to its market or investments from Beijing.