Beijing has threatened to retaliate after the European Union’s executive body called for a more robust response to the surge in cheap Chinese goods flooding its markets.
Amid fears that a new wave of Chinese exports was gutting European manufacturing, the European Commission said on May 29 that the current trade situation was “not sustainable” and that EU economic and security interests required a coherent strategy to counter what some officials have called “China Shock 2.0.”
The term is a reference to the disruption cheap Chinese imports are inflicting on European industry.
The spokesperson of the China’s Commerce Ministry waited only a day before warning that if the EU pressed ahead with new unilateral trade tools or discriminatory restrictions, China would respond firmly and take effective measures to defend its own interests.
Widening trade gap
Europe’s trade gap with China has widened sharply in recent years. The deficit hit €359 billion (US$418 billion) in 2025, more than twice the level recorded before the Covid-19 pandemic, as Chinese goods worth nearly €560 billion poured into the bloc, according to data published by Eurostat in February this year.
Beijing has increasingly redirected exports toward Europe to offset weakening demand elsewhere, including from the United States.
Brussels has responded with a growing number of anti-dumping cases, seven in 2024, 17 in 2025 and more than 50 ongoing this year, targeting Chinese electric vehicles, solar supply chains, steel and other goods.
Yet the bloc remains divided. France, Spain, the Netherlands, Italy and Lithuania have jointly called on the Commission for tougher trade tools and faster investigations.
Germany has refused to sign on, instead pushing for stronger industrial ties with Beijing
Chinese commentators said the real drag on European business was not Chinese competition but a combination of high energy costs, excessive regulation and a failure to invest in industrial renewal.
“Europe’s economic troubles are fundamentally self-inflicted. It over-invested in traditional industries like automobiles and chemicals while missing the waves of internet, digital and artificial intelligence development from the 1980s and 1990s onward,” said Ding Chun, director of the Center for European Studies at Fudan University and president of the Shanghai Society for European Studies. “In the competition with China and the United States, Europe has fallen visibly behind.”
He said Europe’s old-growth model had collapsed amid the Russia-Ukraine conflict and US protectionism, leaving its manufacturers unable to compete with China or the US on either technology or cost.
“Europe has responded by erecting a wall of trade protection tools to shield its industries, but that is the wrong prescription,” Ding said. “China has shown restraint and repeatedly urged the EU to take a clear-eyed view of the situation. Europe should be raising its competitiveness through stronger domestic innovation, not through market-distorting measures.”
He added that China had already put in place countermeasures covering supply chain security and extraterritorial jurisdiction, and retained the tools needed to respond if the situation escalated. He said all parties should work to avoid a further slide into trade friction.
Others said the prospect of all 27 EU member states agreeing on joint trade measures against Beijing remained slim, given the deep commercial ties many capitals had built with the world’s second-largest economy and their reluctance to jeopardize them.
Trade war fears mount
Over the years, the EU has imposed anti-dumping and anti-subsidy duties on a broad range of Chinese goods, from electric vehicles and steel to solar components, chemicals and industrial materials, in an effort to shield European producers from cheaper competition.
In June 2025, the European Parliament said in a research report, requested by its International Trade (INTA) committee, that the EU’s traditional anti-dumping and anti-subsidy investigations were too slow and fragmented to counter structural foreign overcapacity. Because probes currently take between nine and 14 months to conclude, cheap or state-subsidized imports often inflict severe damage on local industries before any defensive tariffs take effect.
“The European Commission should initiate anti-dumping investigations within one month of receiving a complaint, ensuring a swift response to potential unfair trade practices,” it said. “Provisional measures should be implemented within a maximum of six to seven months when justified, in line with WTO recommendations.”
The report singled out the US, China and India for deploying aggressive industrial subsidies to boost their manufacturing and export sectors.
Since 2026, the situation has changed. China posted a record global trade surplus of US$1.19 trillion last year, driven by a manufacturing machine that has increasingly redirected exports to Southeast Asia, Africa and Latin America to sidestep US tariffs. The figure is the largest ever recorded by any single economy.
The surplus also reflects weak import demand and domestic consumption in China. With excess industrial capacity finding fewer outlets in the US, more Chinese goods have flowed toward Europe, intensifying what Brussels is now calling “China Shock 2.0” and fueling debate over whether the current trade order is sustainable.
“The six sectors, including automobiles, electric machinery, general machinery, rubber and plastics, special machinery, and medicines, saw rising export shares and accounted disproportionately for China’s export growth to the EU,” the European Parliament’s researchers said in a report titled “Industrial Overcapacities, with a Focus on China” in March 2026.
“While our empirical analysis does not allow for a precise assessment of the role of active state involvement in industrial overcapacity, the findings point to indicative patterns including state-owned enterprises (SOEs)’ role in adjustment mechanisms,” it added.
The report concluded that:
- The EU’s trade defense instruments (TDI) must be paired with industrial upgrading policies, or companies will simply pocket tariff protection without modernizing;
- Anti-dumping investigations should be expanded, with importers required to disclose full value chain ownership data;
- The yuan’s depreciation against the euro since 2022 has significantly widened the EU’s trade deficit, and exchange rate rebalancing measures should be considered;
- Blanket measures targeting overcapacity across all sectors would invite large-scale retaliation and should be avoided in favor of targeted, sector-specific instruments;
- China’s own efforts to curb overcapacity remain uncertain, meaning competitive pressure on European firms is likely to persist or intensify.
EU-China trade tensions continued to escalate after European Commission President Ursula von der Leyen said on May 29 that the current state of the trade and investment relationship was “not sustainable.”
Speaking after an orientation debate among commissioners dedicated to reviewing EU-China relations, she said economic and security interests had become increasingly intertwined and required a more robust and coherent response.
She stressed that the Commission’s overarching approach remained de-risking rather than decoupling, and that China was still considered a critical partner. The debate’s conclusions will feed into discussions at the G7 summit on June 15-17 and a European Council meeting of all member state leaders on June 18-19.
Tu Xinquan, director of the China WTO Institute at the University of International Business and Economics, said two EU bills introduced this year shared the same goal: systematically excluding companies from certain countries from core positions in the EU market.
The Industrial Accelerator Act would push Chinese technology out of critical infrastructure supply chains, requiring investments from a country controlling more than 40% of global capacity in a given sector to meet at least four of six criteria for approval:
- Equity: foreign ownership capped at 49%;
- Structure: mandatory joint venture with an EU entity;
- Technology: licensing of intellectual property to European partners;
- R&D: minimum investment committed within the EU;
- Workforce: more than 50% local employees;
- Procurement: at least 30% of inputs sourced from the EU.
The second, a draft revision of the EU Cybersecurity Act, would for the first time write the “high-risk supplier” concept into a legally binding EU instrument, blocking Chinese capital from strategic industries through equity caps and localization conditions, requiring exclusion across 18 critical sectors and giving mobile operators 36 months to phase out affected equipment.
“Regardless of the final form these two bills take, the fact that the Commission chose to introduce them at this moment sends a clear policy signal,” Tu said. “The EU is prioritizing local industry protection and imposing conditional restrictions on foreign investment from specific countries.”
Pot calling the kettle black?
“China and the EU are equal partners with important and mutually beneficial trade and economic ties,” the spokesperson of China’s Commerce Ministry said in the ministry’s official statement May 30. “We hope the EU will abide by World Trade Organization (WTO) rules, uphold free trade and fair competition, and firmly oppose protectionism and unilateralism.”
He added:
Communication channels between China and the EU remain open. Both sides are exploring the establishment of a trade and investment consultation mechanism and will carry out relevant dialogues. We hope the EU will work in the same direction as China to implement the consensus reached by our leaders and resolve differences through dialogue and consultation, so as to promote stable and healthy development of China-EU economic and trade relations.
While Beijing’s Commerce Ministry condemned the arrangements as discriminatory investment barriers that violated WTO principles of most-favored-nation and national treatment, some observers noted similarities between the Industrial Accelerator Act’s six criteria and the conditions Beijing itself imposed on foreign automakers seeking to enter the Chinese market between 1994 and 2018.
Since China joined the WTO in 2001, the opening of some sectors has remained limited.
In telecoms, foreign ownership in basic services is capped at 49%, while value-added services are generally limited to 50%, with 100% foreign ownership permitted only in select pilot zones. In energy, power grids must remain under Chinese majority control, oil and gas exploration requires joint ventures, and foreign investment in nuclear power is restricted.
In banking, a single foreign investor may hold no more than 20% of a commercial bank, with total foreign participation capped at 25%. Foreign ownership in securities and fund management is limited to 51%, while life insurance is capped at 50%. Foreign investment in rare earths exploration, mining and processing is outright prohibited, as is investment in strategic metals, including tungsten, tin, antimony and graphite.
Read: British Steel crisis derails China’s tariff-bypass strategy
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