EU gets tough on China as trade imbalance stokes deindustrialization fears
The European Union is finally admitting what its industrialists have been saying for years: the trade relationship with China is not working, and the costs are no longer theoretical.
Talks between EU Trade Commissioner Maros Sefcovic and Chinese Commerce Minister Wang Wentao in Brussels this week took place against a backdrop of alarming numbers. The EU’s goods trade deficit with China reached 360 billion euros in 2025, a 15 percent increase from the year before. European exports to China fell by 6.5 percent while Chinese imports into Europe rose by 6.4 percent. The imbalance is roughly a billion euros per day, every day.
The numbers are not just a trade statistic. They reflect a structural transformation that is hollowing out European industry. Chinese manufacturers, backed by state subsidies, cheap credit, and the CCP’s industrial policy machine, are producing goods at prices European factories cannot match. Steel, chemicals, machinery, batteries, electric vehicles, sector after sector, Chinese production overwhelms European capacity.
Economists use words like “deindustrialization” and “hollowing out” to describe what is happening. The OECD estimates that Chinese companies receive between three and nine times more state support than manufacturers in other advanced economies. European factories are closing or shedding jobs as production moves to China to gain access to that market.
“EU must act before China cripples European industries,” warned Manfred Weber, chair of the center-right European People’s Party, earlier this month. It is a sentiment that would have been fringe in Brussels a few years ago but is now close to consensus.
The EU has taken tentative steps to respond. The European Commission has put protectionist tariffs on Chinese electric vehicles and introduced safeguards to block steel dumping. Of 21 new anti-dumping and anti-subsidy investigations opened by the EU, 18 target Chinese producers. But these measures have been piecemeal, applied sector by sector, and critics argue they are too slow to match the scale of the challenge.
The politics are difficult. Germany, the EU’s largest exporter, has long opposed antagonizing Beijing because China remains a large market for its carmakers. Spain has cultivated close ties with Xi Jinping. But both countries are reconsidering as the trade deficit widens and their own industries feel the pressure. German Chancellor Friedrich Merz is showing signs of shifting his stance. Luxembourg Prime Minister Luc Frieden said the trading relationship “cannot be a one-way street” and called it “an existential threat for our industries.”
The split within the EU was exposed last month when France, Italy, the Netherlands, and Lithuania issued a joint paper calling for new measures to limit over-reliance on single foreign countries, including possible additional duties or quotas. Spain had been listed as a signatory but then publicly distanced itself.
Meanwhile, China has exploited its dominance in processing of critical minerals. Beijing placed export restrictions on rare earths in April 2025 as a response to US tariffs, and those restrictions hit European companies too. The message from Beijing is clear: economic leverage works both ways, and Europe has more to lose.
One EU diplomat described the new reality bluntly: “We live in a world of wolves now. We no longer live in a world of pink ponies and rainbows.”
For decades, Europe bet that engaging China economically would gradually liberalize its system and integrate it into the rules-based trading order. The bet has not paid off. Chinese state capitalism has produced an economic machine that competes on terms European companies cannot match, backed by a government that treats trade surpluses as a strategic objective, not a market outcome.
The question is whether the EU can move from identifying the problem to fixing it before its industrial base shrinks past the point of recovery.