As Brussels heads into its summer recess, a trade war with China looks both undesirable and increasingly difficult to avoid.
With the European Union’s trade deficit with China reaching €359.9 billion last year and the bloc’s unemployment on the rise, EU officials have become increasingly adamant that accepting Europe's deindustrialization as inevitable is simply not an option.
Trade hostilities have continued to heat up over the past few months despite Brussels' repeated demands that Beijing rein in its industrial overcapacity — shorthand for flooding foreign markets with artificially cheap exports to offset weak domestic demand. European officials have long called out Beijing for heavily subsidizing its export-heavy industries — including steel, aluminium, electric vehicles and batteries — to undercut European rivals, prompting Brussels to respond with a growing arsenal of trade defense measures.
Whether China will blink and offer Europe some narrowing of the trade gap may become clearer in October, when trade negotiators from both sides are due to meet in China after launching a new dialogue format in June. During what reportedly stretched into a 12-hour meeting with China's Commerce Minister Wang Wentao, EU Trade Commissioner Maroš Šefčovič raised Europe's mounting economic frustrations, telling reporters midway through the talks that there would be "sufficient time to deliver tangible results" by the autumn.
But behind the diplomatic reassurance, expectations are subdued.
“It will be interesting to see if China has gotten the message,” said one European diplomat, who was granted anonymity to speak candidly. "There needs to be some kind of economic balance. One way or another, it will have to change," he said of the trade imbalance. Even so, he added, “we have no interest in a trade war.”
Brussels is walking a delicate tightrope: flexing its muscles while hoping Beijing will refrain from major retaliation. For now, analysts appear skeptical that the October meeting will produce a breakthrough, expecting only minor concessions, if any.
Jasper Roctus, a fellow at the Egmont Institute, said his optimism has steadily faded over recent months. “We don’t see even the slightest of the olive branches at the moment.”
A ‘piecemeal’ trade war
For all the talk of a looming trade war, what one would actually look like remains far from clear.
Most of the analysts who spoke to The Parliament said any confrontation would likely be contained to a handful of strategic sectors, but that even such sectoral skirmishes would be punishing for both sides.
“Both Beijing and Brussels have the potential to seriously hurt each other’s economy,” said Camille Boullenois, associate director at Rhodium Group, a research firm.
For China, losing access to the EU’s €18 trillion single market would be particularly painful. Its growth model is built around exports, and there are no signs that course will change under the government’s latest five-year economic plan.
In Brussels, officials have already begun fortifying defenses. Last September, the European Commission introduced new steel safeguards to push back against China, the world’s largest steel producer.
Chemicals could be next, although the EU executive may wait until after the October meeting to table any legislation. Earlier this week, the Commission slapped anti-dumping tariffs on imports of Chinese nylon, which is accused of imperilling thousands of jobs in Croatia, Italy, Spain, Romania and Slovenia.
Meanwhile, the EU has recently embraced a broader “Made in Europe” agenda that aims to strengthen domestic manufacturing and reduce reliance on China-linked supply chains.
The fear, of course, is that Beijing will counter by restricting exports of rare earths. Last year, the EU famously became collateral damage in China’s retaliation against Washington’s trade hostilities.
For now, China is adopting a “wait-and-see approach,” said Laia Comerma, a fellow at the Centre for Security, Diplomacy and Strategy at Vrije Universiteit Brussel. “When there is something tangible that affects its interests in the EU, then Beijing will respond — [just as] it did with the electric vehicle tariffs.”
In 2024, following an anti-subsidy investigation, the EU slapped duties on Chinese EVs, prompting Beijing to hit back with a string of tariffs.
Philippe Le Corre, professor of geopolitics and Asian studies at Paris-based ESSEC Business School, said Europeans “are in for a tough ride over the next two years.”
“If China doesn't want to buy more European products — which I unfortunately suspect — then they will have to be given more tariffs so that they sell less, he said”
A structural dependence
But narrowing the EU’s ballooning trade deficit with China is no cakewalk.
To begin with, the EU is heavily dependent on China for critical raw materials. Beijing dominates the production and processing of rare earths and other minerals that underpin everything from drones, tanks and submarines to electric vehicles and solar panels.
“Chinese firms command overwhelming majorities in many essential component types,” said Daniel Burke, senior analyst at Dutch intelligence firm Datenna. “Disparate sectors like neodymium magnets, active pharmaceutical ingredients and titanium production all see strong Chinese supremacy.”
In recent years, Brussels has scrambled to loosen China’s grip on the critical materials supply chain, signing non-binding partnership with mineral-rich countries and pursuing a broader strategy of “de-risking.” So far though, those efforts have yielded only meagre results.
A recent report by consultancy SCE Insights, shared with The Parliament, found that electronics, electrical equipment, shipbuilding, machinery and textiles are among the sectors most exposed to Chinese supply chains.
“This dominance of critical inputs allows the Chinese government to easily make life difficult for European citizens at a whim,” continued Burke. “Facing supply chain weaponization from a vindictive Chinese government, Europe could easily see itself unable to maintain key systems or production levels.”
Brussels’ trade defence weaponry
Brussels, for its part, has spent the last few months sharpening its trade defence tools as it braces for a possible showdown.
But the EU’s most powerful weapon — the Anti-Coercion Instrument (ACI), or the so-called "trade bazooka," — has lost some of its potency. Although the mechanism was repeatedly invoked during last year’s trade talks with Washington, Brussels never pulled the trigger.
In theory, the ACI would allow the EU to restrict Chinese firms’ access to the single market in public procurement tenders. Deployment only requires a qualified majority in the Council of the European Union, but governments remain wary of courting retaliation against their own national champions.
It’s against that backdrop that the EU’s executive arm has floated a new tool specifically designed to tackle industrial overcapacity. Rather than waiting for lengthy investigations to prove economic coercion or state subsidies, the bloc could point to market distortions, without singling out China.
The jury is out on whether another legislative tool is what Brussels needs. But analysts agree on one point: the EU can’t afford to stand still.
”The worst scenario is one in which we do nothing,” the Rhodium Group’s Boullenois said. “That would be the most devastating in the long term for Europe.”
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