Watching China in Europe—October 2025
A Huge Lesson
One year ago, EU member states agreed to impose tariffs on electric vehicle (EV) imports from China in a landmark trade case that was hailed (including on these pages) as a victory for the bloc and its efforts to shield the European car industry from unfair Chinese competition. But only 12 months later, the anti-subsidy case has come to be seen in Brussels and other capitals as a cautionary tale rather than a triumph of European trade policy. The EV saga dragged on for a full year, left the EU divided, and ended up penalizing European carmakers as much as it did their Chinese competitors. The tariffs that the Commission imposed are unlikely to prevent Chinese EV producers such as BYD from profitably exporting cars to the EU. Despite that, they triggered a robust response from Beijing, which launched a series of retaliatory trade cases targeting European cognac, pork, and dairy.
Had the European Commission’s EV case collapsed in the face of pressure from Beijing and Berlin, the damage would have been far worse. Still, it is hard to argue today that the benefits from this hard-fought case have outweighed the costs. Instead, the saga exposed the flaws in Europe’s approach to trade defense. In a world where China and the United States are moving fast and hitting hard, the EU has been too slow, too timid, and too wedded to a rulebook the others have torn up. “We have developed a lot of instruments that are very narrow, very technical and that take a long time to deploy,” a senior European diplomat told me. “Going forward, we will need to go much harder in Brussels.” The view is shared by people at the top of the Commission who worked on the EV case. “It has been a huge lesson for us,” a senior EU official said. “We have been operating within the rules, and it hasn’t made a dent. There is no benefit to our measured approach, to being a slightly kinder version of the United States.”
Fever Pitch
This realization is dawning at a time when the alarm bells over Chinese overcapacities are reaching fever pitch. Some officials now acknowledge that the policies of past years, which were focused on leveling the economic playing field with China and securing better market access there, may have led Europe down a dead-end road. The EU’s policy of de-risking, which dates to a March 2023 speech by European Commission President Ursula von der Leyen, has yielded few, if any, results. In terms of trade, the EU is more dependent on China now than it was when the speech was given two and a half years ago. There is now an urgent need to course-correct, but the path forward is unclear. “We are in the process of rethinking our China strategy,” said a senior EU trade official.
There are many measures in the pipeline, but there is also a nagging fear that they may not be enough. This week, the Commission will present a proposal to shield the European steel industry once its safeguards expire in mid-2026. The plan foresees a near-halving of import quotas and a doubling of tariffs to 50% on imports not covered by the quotas. It is the closest the EU has veered toward blunt Trumpian protectionism. Other trade cases loom as a growing list of industries, from machine tools to chemicals, clamor for protection. Support for “Made in Europe” rules is gaining momentum, despite concerns that they risk penalizing partners such as Japan as much as they would China. Local content requirements are expected to feature prominently in a new Commission proposal for public procurement. “I would rather see the EU including partners, but the pressure to move to a local content approach is very strong,” the senior EU trade official said. The idea of building a like-minded anti-China trading bloc that includes Japan, South Korea, Canada, Australia, and the UK—but not the United States—is dismissed by EU officials as unworkable.
A Yawning Gap
The EU is also preparing an “industrial accelerator act” by the end of the year that will attempt to tackle the thorny question of FDI conditionality: ensuring that greenfield investments from China are more than tariff-dodging assembly plants, with little added value for Europe in terms of jobs and know-how. Whether the Commission will get buy-in from European member states, which have the power to set investment policy themselves, is unclear. “They will simply have to get on board,” one EU official explained to me when prodded. A country such as Spain may see it differently. Prime Minister Pedro Sanchez’s government seems eager to attract Chinese investment regardless of the conditions—and even if it means luring production away from other EU countries by presenting Madrid as an uncritical friend of Beijing. As it is contemplating with Hungary, the Commission will need to ensure that Spain’s beggar-thy-neighbor policies do not go unchecked.
But Spain may be the tip of a European iceberg. At a time when Brussels is contemplating much bolder steps against China, a yawning gap is opening up with other European capitals that are either reluctant to confront Beijing, are consumed by other pressing political, economic and security priorities, or are still holding out hope that China might be part of the solution. President Emmanuel Macron, I am told, is considering bringing the Chinese into a discussion on global imbalances as part of France’s G7 presidency next year. As US President Donald Trump pivots to a more transactional approach with Beijing, a discussion is swirling about whether the Dutch government (and Europe in general) should be doing more to promote industrial crown jewels such as ASML instead of restricting their business with China.
Total Inertia
The five-month-old German government is also turning its attention to China, though it is unclear whether its policies will match a more critical tone. We will have a better picture when Foreign Minister Johann Wadephul makes his first trip to Beijing at the end of October. Chancellor Friedrich Merz has yet to pin down the timing of what he had hoped would be a two-stop trip this year to Delhi and Beijing. Officials say he is now considering splitting up the trips and could be forced to push his China visit into next year. Trouble in free trade talks between Brussels and Delhi, which resume this week, may be complicating the timing of an India trip. The EU has said it wants to conclude a deal by the end of the year, but exasperation with the hard line taken by India’s Commerce Minister Piyush Goyal is rising as the deadline nears. “At the moment, we are having trouble seeing that the deal on the table would be good for our companies,” the senior EU trade official said. A Brussels-based industry source who is privy to the talks added: “If we get an agreement with India, it will be a very shallow one.”
Another source of concern in Berlin is the state of total inertia in the Federal Ministry of Economic Affairs and Energy (BMWE). Officials have promised to produce a national economic security strategy by the end of the year, but that deadline now looks impossible to meet. Minister Katherina Reiche has been sitting on an internal proposal for how to tackle the strategy since before the summer, I was told by several officials, meaning that real work on it has not even begun. “There is no way it will be done by the end of the year,” one official told me. “Reiche’s ministry is stepping on the brakes at every turn.” Another noted that economic security was not in the DNA of the officials running the ministry.
Light Speed
It is a similar story with the €1 billion critical raw materials fund that the German government launched one year ago. One might have expected that China’s export controls on rare earth magnets, which sent German industry into a panic in the spring, would have supercharged Berlin’s push to reduce its dependencies. But a year after the fund was set up, not a single project has been approved, despite roughly 40 applications that have been submitted to state bank KfW. A paltry €13 million of government support made it into the 2025 budget. And the economy and finance ministries are sparring over who will set aside funds for critical mineral projects in the 2026 budget, which is due to be approved next month.
The president of the German Federation of Industries (BDI) wrote to Reiche before the summer expressing concern about the rare earths situation, but has yet to receive a response. Reiche is already being likened to Christine Lambrecht, the former defense minister who was forced out after only a year in office because of her bungled response to Russia’s full-scale invasion of Ukraine. “This is an absolutely critical time,” another German official told me. “We don’t have one to two years for the new minister to move up the learning curve. The geopolitical shifts are happening at light speed, and we are still moving at the same old slow pace.”