Watching China in Europe—November 2025
A High Fence with Holes
When Donald Trump entered the White House for the second time, the expectation was that he would dial up the pressure on China by several notches. The small yard that the Joe Biden administration had cultivated would get bigger and the fence around it higher, the thinking went. Instead, nearly a year into his second term, Trump’s China policy is a confounding mess. He has overplayed his hand with Beijing, forcing his administration into a transactional dance that gets more awkward with each US-China encounter, from Geneva and London to Madrid, Stockholm, and now Busan, South Korea. The yard is big one day and small the next. The fence may look high, but it is full of holes. When all is said and done, the first year of Trump’s second term in office may be remembered as the moment when the power dynamic between the United States and China shifted decidedly in Beijing’s favor.
Anyone reading the body language from the first face-to-face encounter in six years between Trump and his Chinese counterpart, Xi Jinping, could see the shift. As Trump grinned, yapped at the press, and turned to Xi with the expectant look of a younger sibling, the Chinese president stared coldly ahead, impassive and in utter control. At the end of their hour-and-40-minute encounter, Trump walked Xi dutifully to his limousine in a scene that spread like a virus on Chinese state media. If the mood music was not convincing enough, the agreement that came out of their meeting on the margins of an Asia-Pacific Economic Cooperation summit raised its own set of questions. The US “fact sheet” published last weekend hails wide-ranging commitments by China that its leadership has yet to confirm.
A Powerful Deterrent
China does appear to have agreed in Busan to loosen its iron grip on the critical raw materials that are indispensable for automotive, medical, and defense companies worldwide. But what the United States offered in exchange seems more consequential: a signal to China that measures designed to protect US national security are negotiable. Trump and his team agreed to suspend the so-called “affiliates rule” that (somewhat ironically) was a trigger for the crisis swirling around Dutch chipmaker Nexperia. “In the span of a very short time, the Chinese have established a powerful deterrent,” a European diplomat told me. “The US will think twice about hitting China with new national security measures, knowing that they would invite massive retaliation from the Chinese side.”
Europe has watched nervously as all of this has unfolded. The continent could benefit if, as the US fact sheet proclaims, the Trump-Xi deal triggers a loosening of the rare-earth controls China introduced in April and eases the supply chain crisis sparked by Beijing’s export curbs on the Chinese operations of Nexperia. But a more likely scenario is that China gives US firms preferential access to rare earths to pacify Trump while keeping the Europeans on a tightly controlled drip-feed. The agreement also leaves unresolved the standoff between The Hague and Beijing over Nexperia’s Chinese owner, Zhang Xuezheng, whom the Dutch accuse of trying to loot the firm by transfering intellectual property, technology, jobs, and funds from Europe to China. Days after the Trump-Xi agreement, China’s Ministry of Commerce lashed out at the Dutch and made clear that Nexperia chip disruptions would continue.
Staring at the Train
The departure of Zhang, whom a Dutch court suspended as Nexperia CEO, is a sine qua non for the Netherlands but a no-go for China. “We have given them every opportunity to ditch him. They have shown no signs that they will,” a Dutch diplomat said. Complicating a resolution is the conviction in The Hague that China’s government was complicit in Zhang’s plot to gut Nexperia’s European operations. The Dutch see the Trump-Xi deal as a temporary reprieve at best, which could buy the firm time to rebuild its back-end chip operations outside China, a process that could take 6-12 months. This could be part of a broader European push to reduce its dependence on legacy chips from China. “The coming year will be very important. It is a test of our ability to diversify. Europe needs to show it can do this,” the diplomat said.
Germany, as always, will be key. It is the European country that has been hardest hit by the Nexperia squeeze because its vast car industry depends heavily on the firm’s chips and because the Dutch firm has major production facilities in Hamburg. Germany also has the most to lose from China’s rare-earth controls, which pose a threat to its plans to rebuild its military after decades of neglect. The rare-earths issue is expected to be on the table when Germany’s new national security council (NSC) meets for the first time this week. But the lack of clear signals from top government officials has set off alarm bells in Berlin. “The voices in the government that should be warning Germans about the threat to our companies from China are simply not there,” one German industry official told me. Another said: “We are staring at the train as it hits us.”
Baffling New Hurdles
Jacob Schrot, who was tapped by Chancellor Friedrich Merz to head up the new NSC, admitted at an event hosted by Berlin-based China think tank MERICS a month ago that the government simply had not had time to focus on China. Plans to update Germany’s 2023 China strategy with a policy action plan have become bogged down due to what one German diplomat described as a “lack of political will”. As I laid out on these pages last month, there is also no buy-in from the top of the German economy ministry, where plans to put together an economic security strategy are descending into farce. A restructuring of the ministry in early October left it with two separate economic security units in different departments, one focused on “European and international economic security” and the other on “national economic security”.
Responsibility for writing the strategy has been moved from the first unit, which has been focused on economic security challenges for years, to the second unit, which is new and sits awkwardly in the Security, Gas and Hydrogen, and State Shareholdings Department. Neither people in the ministry nor those in other parts of the government understand the change. “It’s a disaster,” an official from another ministry told me. “Germany is late to the game on economic security, and now we’re erecting baffling new hurdles for ourselves.” The strategy, promised for this year, is now unlikely to be ready until the second half of 2026, I was told. More importantly, the episode has underscored what some officials in Berlin say is Economy Minister Katherina Reiche’s disdain for the concept of economic security. “The top of the ministry views economic security as a form of bureaucracy. And it is on a mission to slash bureaucracy,” another official said.
Phul’s Gold
German Foreign Minister Johann Wadephul cannot be accused of pulling his punches on China. In recent months, he has called out Beijing for its aggressive policies toward Taiwan and its support for Russia—including on a visit to Japan that infuriated the Chinese. But without action to back up Wadephul’s words, Berlin risks turning US President Theodore Roosevelt’s aphorism “speak softly and carry a big stick” on its head: Germany is speaking loudly and carrying a small stick. The approach contrasts with that of the Japanese and the French, who eschew public criticism of China but are more active in pushing policies to counter it behind the scenes. Berlin should talk less and do more. The dichotomy has not been lost on Beijing, which imposed so many conditions on Wadephul’s first trip to China—including pushing him to visit a memorial commemorating China’s fight against Japanese aggression—that he felt obliged to cancel.
A follow-up phone call this week between Wadephul and his Chinese counterpart, Wang Yi, appears to have done little to ease tensions. According to a Chinese readout, Wang blasted Germany for engaging in “megaphone diplomacy” and demanded that Berlin support unification with Taiwan, as China did for Germany when West and East merged in 1990. Never mind that German reunification was by mutual consent, in the aftermath of a democratic uprising. Germany has not been alone in incurring Beijing’s wrath. China’s normally cordial Commerce Minister Wang Wentao was described to me as “menacing” in a late October call with his EU counterpart, Maroš Šefčovič. The European commissioner and French diplomatic adviser Emmanuel Bonne, who visited Beijing in mid-October, were told to expect a forceful Chinese response to the EU’s 19th Russia sanctions package, which targeted two Chinese refineries and a Hong Kong-based oil trader that are significant buyers of Russian crude oil.
Silver Linings
Still, if one looks hard enough, one can make out silver linings. The Nexperia and rare-earths crises could and should jolt Europe out of its de-risking stupor. The standoffs may also open eyes in Washington about the need to coordinate more closely with allies. I was told by EU officials that the Americans had come around on the need to cooperate on rare earths in recent weeks. “They have realized this is too big for them to tackle on their own,” one official said. Regardless, the EU will be walking a tightrope in the months ahead.
It is set to roll out a series of initiatives aimed at China by the end of the year, including new rules on local content, on the conditioning of foreign direct investment, and on the handling high-risk suppliers in a range of renewable industries. One can also expect a more serious debate in Brussels about using the EU’s anti-coercion instrument against China, a move that the French support. Further escalation seems inevitable. “We have entered a new phase with China,” a senior EU official said. “They are no longer pretending to be nice. They are very clear about their contempt for Europe and its agency.”