EU Braces for 'China Shock 2.0' with Tougher Trade Measures
European leaders are preparing a stronger economic stance against China.
Top Summary
- What happened: The European Commission is preparing to debate and implement tougher trade and industrial policies against China.
- Why it matters: Rising fears of de-industrialization in Europe due to Chinese competition are driving the need for stronger protective measures.
- What changes: Potential new trade and industrial measures including diversification requirements and broader use of safeguard measures.
- Who is affected: European industries, particularly in the chemicals and machinery sectors, and Chinese firms operating in Europe.
Mounting Fears of De-industrialization
European Commission leaders are poised to adopt a firmer economic stance toward China, potentially unleashing new trade and industrial measures later this year. The shift comes amid growing concerns in Brussels over what is being termed "China shock 2.0".
Sources indicate that a majority of the 27 commissioners, including President Ursula von der Leyen, support a more robust approach. This is largely driven by fears that European industry could be decimated.
New Policy Proposals on the Table
Trade commissioner Maros Sefcovic is expected to introduce a new “diversification instrument.” This would require companies in critical sectors to maintain at least three suppliers in two or more countries, aiming to reduce reliance on Chinese supply chains.
Industry chief Stephane Sejourne is advocating for a broader application of the foreign subsidies regulation (FSR). The goal is to combat perceived market distortions created by subsidized Chinese firms, potentially using the tool on a sector-wide basis rather than individual companies.
Safeguard Measures Considered
Both Sefcovic and Sejourne support the expanded use of safeguard measures. These emergency tools can impose tariffs or quotas in response to import surges.
The EU is specifically eyeing the chemicals and machinery sectors. There is discussion of halving the time for anti-dumping and anti-subsidy probes to around six months by leveraging safeguards.
Economic Imbalances in Focus
The EU believes that Chinese firms benefit from unfair government subsidies and support. According to the EU, China's share of global production is predicted to rise from 30% today to 45% in 2030, while its share of consumption remains around 13%.
Outgoing EU trade director Sabine Weyand stated last month:
"That is an imbalance that the world just can’t digest.”
She also emphasized the need for Brussels to use its existing trade weapons “in a manner that’s coherent and consistent”.
Political Implications
Anxiety is growing that the weakening of European industry could empower far-right political parties if the center does not act to protect jobs. Senior commissioners will address these concerns at the upcoming debate.
The commissioners will be briefed by Alfred Schipke, director of the East Asian Institute at the National University of Singapore, and former IMF mission chief for China.
What to Watch Next
The key debate among European commissioners on Friday will determine the extent to which the EU will shield its single market. Further policy actions and announcements are expected in the coming months, particularly concerning the chemicals and machinery sectors.