EU leaders debate new trade tools to counter China export surge

European Union leaders gather in Brussels on Thursday evening for a two-day summit that will test the bloc's appetite for a sharper trade posture toward China. The immediate trigger is a goods deficit that widened to roughly €360 billion last year, a figure that has concentrated minds in capitals from Paris to Berlin. But the conversation is also about something harder to quantify: whether the EU can act collectively before its industrial base loses ground in sectors it considers strategic.

A deficit that changed the mood

The €360 billion shortfall, confirmed by Eurostat trade data, is not a sudden shock. It has been building for years as Chinese manufacturing moved up the value chain, from textiles and toys to chemicals, solar panels, batteries and electric vehicles. What has changed is the political reading of the number. For a long time the dominant view in Brussels was that cheap Chinese imports benefited European consumers and that investment flows ran both ways. That consensus has frayed. The Commission now argues that the imbalance creates vulnerability to coercion and supply shocks, a phrase that appeared repeatedly in the summit's preparatory notes.

Maros Sefcovic, the trade commissioner, put it bluntly in his briefing to leaders: "Our trading relationship with China has reached a point that requires a reset. Not confrontation, but rebalancing." The language is deliberate. "Rebalancing" leaves room for negotiation; "confrontation" would imply a trade war the EU has so far avoided. But the tools on the table, sector-specific tariffs, a European version of the US Section 301 mechanism, safeguard measures for chemicals, are the instruments of confrontation, even if they are labelled defensive.

France pushes, Germany shifts

Emmanuel Macron has been the most vocal advocate for muscular action. Last month he called for a "European equivalent of Section 301", the US statute that lets the president impose sweeping tariffs on countries deemed to engage in unfair practices. Macron framed the argument in sovereignty terms: Europe's ability to make its own decisions depends on retaining control of critical industries. France's own industrial policy, heavy on nuclear, aerospace and defence, aligns with that logic.

Germany has historically resisted. Its carmakers, chemical giants and machine-tool builders sell heavily into China and rely on Chinese supply chains. Retaliation against German exports is a concrete risk, not a theoretical one. But the German position appears to be moving. A senior official told AFP that Berlin was "open" to new tools if they were necessary, provided they were "not targeted at specific recipients". That formulation, country-neutral on paper, China-focused in practice, is the classic EU compromise. It also mirrors the approach taken with the foreign subsidies regulation and the anti-coercion instrument, both of which avoid naming Beijing while being designed with Beijing in mind.

The toolbox: what is actually being discussed

Three concrete ideas are circulating. First, a sectoral tariff instrument that would allow the Commission to impose duties on specific product categories, chemicals and green technology are the leading candidates, without going through the full anti-dumping procedure each time. Second, a "Section 301-style" tool that would let the EU retaliate against non-market practices such as forced technology transfer or state-directed overcapacity, even when no specific subsidy can be pinned to a specific product. Third, an extension of the steel safeguards model to the chemicals sector, effectively capping imports at a historical reference level.

The Commission has been laying the groundwork. Its 2024 report on foreign subsidies documented the scale of state support: OECD analysis found Chinese firms received between three and eight times more government assistance than their OECD counterparts between 2005 and 2024, a range the OECD itself called a conservative estimate. That data underpins the legal case for any new measure. Without it, a sectoral tariff would struggle to survive a challenge at the World Trade Organization.

Rare earths and the supply-chain dimension

The summit dinner on Thursday will also hear about rare earths. China's export controls imposed last year on gallium, germanium and graphite, critical for semiconductors, defence and the energy transition, sent a signal that Beijing is willing to weaponise its dominance of processing. G7 ministers meeting in Paris this week discussed the same vulnerability. The EU's Critical Raw Materials Act, which entered into force in 2024, sets domestic targets for extraction, processing and recycling, but the timelines stretch to 2030. In the meantime, the bloc remains heavily dependent.

That dependence complicates the trade calculus. A tariff on Chinese rare-earth imports would raise costs for European manufacturers immediately, while alternative supply takes years to develop. The same logic applies to solar wafers, battery precursors and active pharmaceutical ingredients. The Commission's impact assessments, which have not been published, are said to show that broad tariffs would add several percentage points to production costs in affected sectors. That is why the sectoral approach, targeted, time-limited, reviewable, is preferred by the technocrats, even if politicians want a bigger banner.

Retaliation already underway

China has demonstrated it will not absorb EU measures passively. When the Commission imposed provisional duties of up to 38% on Chinese electric vehicles in mid-2024, Beijing responded within weeks with anti-dumping investigations into European brandy, pork and dairy. The cognac duties hit French producers hardest, a calibrated signal to Paris. Spanish olive oil and German pork have also appeared on Chinese radar screens. The pattern is familiar: target politically sensitive sectors in the member states driving the policy.

This dynamic explains Spain's reluctance. Madrid has been courting Chinese battery and EV investment, notably a €2.5 billion CATL plant in Aragon. A trade escalation threatens that pipeline. Italy, similarly, has sought Chinese infrastructure and green-tech capital. The north-south divide on China policy is real, though it rarely appears in summit conclusions.

Diplomatic off-ramps and alternative routes

Sefcovic has invited Chinese Commerce Minister Wang Wentao to Brussels later this month, a sign that the EU still prefers dialogue to escalation. The invitation was extended before the summit, suggesting the Commission wants to show Beijing a credible threat while keeping a channel open. Whether Wang accepts, and whether he brings negotiating room, will shape the next phase.

In parallel, von der Leyen used the G7 meeting to revive the India-Middle East-Europe Economic Corridor (IMEC), a multi-modal transport and energy link announced at the 2023 G20 summit in New Delhi. "Alternative export routes have been created that are more resilient and offer choices," she told leaders, citing IMEC as an example. The corridor remains largely conceptual, financing, security and regulatory alignment across multiple jurisdictions are unresolved, but it signals a strategic intent to reduce reliance on any single choke point, whether the Suez, the Malacca Strait or a single trading partner.

What the summit must decide

Leaders are not expected to adopt a legal act on Thursday. The European Council's role is to give political direction to the Commission, which then drafts proposals for the Parliament and Council to negotiate. The key question is how far the conclusions will go. A vague endorsement of "stronger enforcement" changes nothing. A mandate to prepare a sectoral tariff regulation by autumn, with a view to adoption before the 2027 budget review, would be a concrete step. The French want the latter; the Germans want safeguards that the instrument cannot be used pre-emptively against a single country.