Beijing has called for communication and pragmatism after European Commission President Ursula von der Leyen warned of a second “China Shock” that’s damaging key manufacturing industries in the bloc.
The term “China shock” originally described the wave of cheap toys, textiles and basic electronics that flooded European markets after China joined the World Trade Organization in 2001, hollowing out low-end manufacturing. European industry escaped by moving up the value chain into higher-end goods.
“China Shock 2.0” describes a newer wave of exports, this time electric vehicles, chemicals, machinery and power-generation equipment. Unlike the situation two decades ago, Chinese manufacturing has now followed European industry up the value chain, leaving little higher ground for European companies to retreat to.
Besides, tariffs imposed by the Trump administration have narrowed Beijing’s access to the United States market, making Europe the largest remaining open destination for the surplus.
“Our trade deficit with China is now 1 billion euros [US$1.15 billion] a day. It has reached a tipping point,” von der Leyen said as she delivered her annual State of the Union address before the European Parliament on Wednesday. “Some say the second China shock is looming, but it’s already here. It shows in our communities and in factories across our Union. It leads to deindustrialization in the industrial heartlands of Europe. This is unsustainable.”
“We will use all the tools at our disposal to rebalance our relationship,” she said. “Words are good. But deeds are better.”
She also pointed out that the EU continues to be more than 80% dependent on China for many critical raw materials – 90% for some rare earths. She announced a new European Corporation on Critical Raw Materials to help the bloc stockpile materials needed for EVs, semiconductors, batteries and defense technology.
On September 9, the European Commission proposed a Public Procurement Act that would let public authorities reject bids outright for major contracts when less than 50% of the value originates in Europe. The rules, which would apply to the EU’s €2.5 trillion annual procurement market covering national authorities, schools and hospitals, still need approval from the European Parliament and member states.
On Thursday, the International Road Transport Union (IRU) and the European Metropolitan Transport Authorities (EMTA) said in a joint statement that the current procurement rules need three practical fixes: Electric buses already purchased and registered should remain eligible for their full operational lifetime, exemptions should be aligned across procurement and support schemes and operators should be shielded from costs when manufacturers fail to deliver on time.
“China’s position and attitude are consistent and clear,” Ministry of Commerce spokesperson He Yadong said Thursday, commenting on von der Leyen’s remarks. “We do not engage in microphone diplomacy, nor do we get into a war of words.”
EU Trade Commissioner Maroš Šefčovič held a call with Chinese Commerce Minister Wang Wentao the same day to discuss market access on both sides and Chinese export controls on rare earths. He will travel to Beijing on October 8-9 to co-chair the second session of the EU-China Trade and Investment Council. The European Commission said it hopes Šefčovič’s visit to China will deliver a credible outcome.
EU member states will discuss the matter at the European Council summit on October 15-16. The agenda is urgent as US-China political dynamics could shift again after the US midterm elections on November 3, while the one-year US-China trade truce is set to expire on November 10.
US President Donald Trump and Chinese President Xi Jinping will meet in Washington on September 24. Last month, media reports said Washington might unveil a 7.5% tariff on Chinese goods over industrial overcapacity before the summit, a move that would lift total duties on Chinese imports to roughly 20%.
From deficit to dispute
Over the past few years, China has used a tactic of negotiating with and pressuring EU member states individually rather than dealing with Brussels as a bloc. China’s anti-dumping duties on European pork hit Spain, the Netherlands and Denmark hardest, while its tariffs on French and other European brandy exempted major cognac producers that cooperated with the investigation.
Eurostat said in April that the EU’s full-year 2025 trade deficit with China had widened to a record 359.8 billion euros. EU exports to China fell 6.5% to 199.6 billion euros while imports rose 6.4% to 559.4 billion euros.
In late May, a France-led group of five countries – the other members are Italy, Spain, the Netherlands and Lithuania – urged Brussels to use anti-dumping and anti-subsidy tools more broadly against Chinese imports, citing market distortions in the steel, automotive and clean-technology sectors. Since then, Brussels has been seeking to push for collective measures to counter “China Shock 2.0.”
In late July, Chinese Vice Minister of Commerce Yan Dong pushed back against the “China Shock 2.0” framing at a media briefing, arguing it should instead be called “China Opportunity 2.0” because:
- China’s manufacturing base anchors global supply chains, offsetting shortages from protectionism and conflict. Its textile machinery exports topped $30 billion from 2012 to 2024, helping Southeast and South Asian nations become major producers.
- China drives global innovation, turning new technology quickly into products. Its open-source AI models have been downloaded more than 10 billion times, widening access to new technology in developing countries.
- China’s green industry, set to exceed 20 trillion yuan (US$2.98 trillion) by 2030, has helped cut global wind and solar costs by 60% to 80% over the past decade, according to the International Renewable Energy Agency (IRENA).
- China’s industrial output has lowered living costs and eased inflation worldwide, including air conditioners that sold briskly across Europe this summer.
Some Chinese commentators said Beijing has many cards to play in dealing with the EU, including rare earth export controls, tariffs on European agricultural products, luxury goods and high-end equipment and restrictions on European service providers in China.
“The European Union simply does not have the means to decouple from China,” says a Huanqiu.com columnist. “Europe needs the Chinese market to absorb its high-end equipment, luxury goods and professional services, and needs a stable supply of critical raw materials, while China needs Europe’s technical standards, brand channels and regulatory experience.”
“Rather than using China as a political scapegoat, von der Leyen and other EU leaders should make use of existing China-EU communication channels and get down to practical work,” he says, adding that Europe’s anti-dumping duties, countervailing duties and supply chain tools will only increase costs for European companies and consumers.
“The EU does not have fully unified interests,” says a Guizhou-based columnist surnamed Sima. “France and Italy favor stronger industrial protection, while Germany and other members with close ties to China worry more about their companies being retaliated against, since China is both a competitor and an important market.”
“If the EU imposes new tariffs or market restrictions, China can respond with trade remedies, export controls, an unreliable entity list, counter-sanctions and government procurement rules,” he says. “Brussels can propose a unified policy, but China’s retaliation will hit different member states unevenly.”
He says Beijing won’t sacrifice its development rights during the negotiations with the EU. He calls on the EU to improve its own product competitiveness and ease high-tech export restrictions to narrow its deficit with China.
Read: Beijing vows to retaliate as EU warns of China Shock 2.0
Follow Jeff Pao on X at @jeffpao3
ASML chip making machines can cost high tens of millions USD to USD 300 million+ which has a trail of thousands of high-end suppliers and a steady stream of service and maintenance contracts. China would buy dozens of those machines each year except the Americans told the Dutch not to allow them. Looking at it one way is that just buying a single ASML EUV machine could be the equivalent of selling Chinese consumers 15,000 to 20,000 European cars. Similarly, with expensive software tools that Europe places restrictions on for sales to China. There was a time about fifteen years ago that China would have paid for high end components for their space research such Swiss SpectraTime atomic clocks but the Europeans told the company not to sell the more accurate ones to the Chinese. China then went off and developed their own.
Its not that China doesn’t want to buy high-end European products. Its just that Europeans only want to sell the Chinese their subsidized agricultural products, old tech ICE cars, and high mark-up luxury goods (which ironically much is made in China today). China gave foreign car manufacturers in their country several years notice on changing emission standards for ICE vehicles and any foreign managers on the ground in China could see developments towards EVs and hybrids. With the latter the Japanese had a decade or so of Toyota’s Prius to indicate the way things were heading. I will make a prediction that the vehicle market has too many manufacturers competing globally. There will be many of those including ones from China and major Western ones that will go under in the next few years. The global economy is in a poor state and car buyers (and other consumers) will be looking for value for money. Guess which country and brands that can fill that need ….
European Auto and high tech manufacturing are dead man walking. Gonna make our miserable western amigos even more miserable. How much more miserable can you get? Add African and Arab immigrants. It’s now a cesspool
The mismanaged immigration is deliberate. It is there for a reason. Playing with European lives to benefit a certain group of forever victims who need far right support in a time when they can at best pay people to be their “friends” and rally people with the empathic depth of a wooden plank on their side.
Running at full speed, yet falling further behind.
Chinese at athletics ?
What the EU wants is industrial capitulation from China and no counter retaliation. Especially the latter. They make up onlya small portion of the world population. The best they can hope for is to be seen as being proactive politically and do very little. Large states like China can do what they want While small states like the EU suffer what they must. There will be a decline in living standards in the EU. There is no going back. My miserable western amigos lives will get not miserable.
More miserable.
The EU are larping lapdogs of the USA at a political level. At an economic level, they cannot compete with China or the US for that matter. Too stupid to follow the USA blindly at a political level, too stupid to not see the EU and China can build a working economic relationship that benefits both sides. My imbecile theory in full action
the EU are scared out of their wits with what Chump can do to them like take over Greenland or tariff the heck out off them. They won’t even come to the US rescue with Iran. The Europeans are the true weaklings. History will not be kind. 🤣🤣🤣🤣
yaall blowing smoke up each other’s sixes while making out, again….. It is only 80 years since European re-construction began, again… Try to remember: Walk down and score all the pretty cows…
Another bomb in Pak
Poor little Chinese, when the Europeans slap tariffs on your tat, who will you sell to?
Maybe the same people sniffin’ yer Aunty’s taint,,, Ne?