Europe is accelerating its shift toward a tougher and more defensive trade strategy toward China, a move that could reshape supply chains, industrial policy, and geopolitical alignments for years to come. Germany—historically the EU’s most China-dependent major economy—is now rethinking its stance, giving Brussels more political room to advance measures aimed at reducing vulnerabilities in critical technologies and strategic industries.
On December 3, 2025, the European Commission will unveil an economic security doctrine that reviews its entire trade defense arsenal against geopolitical threats, with China at the center of the strategy. The timing could not be more consequential: Beijing’s restrictions on rare earth exports have already disrupted European manufacturing, transatlantic tensions under the Trump administration are reshaping alliance structures, and the EU faces the complex challenge of maintaining economic competitiveness while reducing strategic dependencies.
Background: The EU’s Rapidly Evolving China Policy
The European Union’s approach to China has undergone a fundamental transformation over the past five years. What began as cautious “de-risking”—a term carefully chosen to avoid the more confrontational American language of “decoupling”—has evolved into a comprehensive strategy to reduce dependencies across critical sectors.
The numbers tell a stark story. The EU’s trade deficit with China surpassed €300 billion in 2024, the largest bilateral imbalance in Brussels’ trading relationships. Chinese battery electric vehicle imports into the bloc grew by a staggering 1,646 percent between 2020 and 2023, capturing nearly half of all EV imports. In critical minerals, Europe remains dangerously exposed: China controls roughly 60 percent of global rare earth production and 90 percent of refining capacity, with the EU sourcing 70 percent of its rare earth imports directly from Chinese suppliers.
These dependencies became uncomfortably visible in April 2025, when Beijing imposed export restrictions on seven rare earth elements critical to the defense, energy, and automotive sectors. By June, shipments of rare earth magnets had plunged approximately 75 percent, forcing European automakers to shut down production lines across the continent. The European Association of Automotive Suppliers warned of critically low stocks causing significant disruption throughout the supply chain.
For years, Germany’s resistance to confrontational measures kept the EU’s response muted. Berlin’s corporatist tradition—identifying the wellbeing of its largest firms with national interests—meant that what was good for Volkswagen was assumed to be good for Germany. With German automakers heavily invested in the Chinese market and dependent on Chinese battery technology, successive governments from Merkel to Scholz preferred engagement over confrontation.
Germany’s Pivot: What Changed?
The shift in Berlin has been remarkable in both speed and scope. Chancellor Friedrich Merz, who took office in May 2025, has moved decisively to align German policy with the EU’s harder line on China, breaking with decades of free-trade dogma that his predecessors maintained even as economic conditions deteriorated.
Several factors drove this transformation. First, Germany’s economic model built around exporting premium goods to China has fundamentally broken down. Chinese imports to Germany jumped 98 percent between 2020 and 2022, while German exports fell 10 percent over the same period. By 2024, Germany posted a €77 billion trade deficit with China—a historic reversal for a country that long ran balanced trade. China remains Germany’s top import partner at 13 percent of total imports but has fallen to just its fifth-largest export market at only 6 percent of exports.
Second, the German automotive industry’s strategic miscalculation has become undeniable. In the first quarter of 2025, China imported 65 percent fewer foreign cars compared to 2022—a fundamental market shift that German manufacturers failed to anticipate as China pivoted toward domestic electric vehicles. Volkswagen, BMW, and Mercedes-Benz find themselves competing in a shrinking market against increasingly capable Chinese rivals who are now targeting European consumers with competitively priced alternatives.
Third, security concerns have risen dramatically. The Merz government announced plans for a National Security Council to better coordinate foreign and economic policy, established an expert committee to advise parliament on security-relevant trade relations with China, and declared that Germany will not allow components from Chinese companies in its future 6G mobile network. The new KRITIS law obliges operators of critical infrastructure to secure installations against cyberattacks, reflecting mounting concern over Chinese cyber operations.
Perhaps most symbolically, Merz called for protection of Europe’s steel industry—a direct rejection of the free-trade principles that had defined German economic policy for generations. His government has revived the “de-risking” push that had largely stalled under Scholz and is working on a China action plan expected to focus on de-risking, diversification, and reducing dependencies.
The New Trade Tools Europe Is Preparing
The December 2025 economic security doctrine represents the most comprehensive overhaul of EU trade defense mechanisms in a generation. Brussels is preparing to deploy, and potentially strengthen, a range of instruments designed to counter what it views as unfair Chinese practices.
The most significant tool already in use is countervailing duties on Chinese electric vehicles. In October 2024, the Commission concluded its anti-subsidy investigation and imposed tariffs of up to 35 percent on Chinese EVs, on top of the existing 10 percent standard import duty. The rates vary by manufacturer—17 percent for BYD, 18.8 percent for Geely, and 35.3 percent for state-owned SAIC—reflecting the Commission’s calculations of subsidy benefits received. These measures are set to remain in place for five years.
Beyond EVs, the EU is strengthening its foreign direct investment screening regime. The 2016 acquisition of German robot maker Kuka by Chinese manufacturer Midea served as a watershed moment, alerting policymakers to the strategic risks of allowing technology transfers to potential rivals. Investment screening has since expanded significantly, with more transactions blocked or subjected to conditions.
Export controls on dual-use technologies represent another frontier. The EU is aligning more closely with U.S. restrictions on semiconductor manufacturing equipment and other advanced technologies with potential military applications. The challenge lies in balancing security concerns against the economic interests of European technology firms that rely on Chinese markets.
The Commission is also exploring the aggressive deployment of the Foreign Subsidies Regulation, which allows Brussels to investigate and potentially block acquisitions, contracts, or market activities involving entities that have received distorting foreign subsidies. Some officials are pushing for bolder economic statecraft, though member states remain divided on how far to go while facing U.S. tariff pressures.
In response to rare earth restrictions, Commission President Ursula von der Leyen announced RESourceEU—a plan exploring joint purchasing and stockpiling of rare earths alongside strategic projects for domestic production and processing of critical raw materials. The Critical Raw Materials Act aims to diversify imports and enhance recycling efforts, though implementation is gradual and Europe’s domestic capacity remains limited.
How China Is Responding
Beijing’s response to Europe’s hardening stance combines diplomatic engagement, economic counter-pressure, and strategic signaling designed to exploit divisions within the EU.
On the diplomatic front, Chinese officials have maintained an intensive outreach campaign to European capitals. Vice Premier He Lifeng met with German Vice Chancellor Lars Klingbeil in Beijing just this week, while Trade Commissioner Maroš Šefčovič has received invitations to visit Beijing from his Chinese counterpart Wang Wentao. China has cultivated individual member states that might serve as allies against stricter EU policies.
Spain has emerged as Beijing’s most visible European partner. Prime Minister Pedro Sanchez visited Beijing in April 2025, signing a 32-point action plan to strengthen bilateral relations across trade, agriculture, science, and cultural exchange. Spanish pork producers have benefited from lower tariffs than EU peers in Chinese anti-dumping investigations, and King Felipe’s visit in November underscored Beijing’s success in cultivating Madrid as a rare EU ally. Analysts at Rhodium Group have warned that Spain’s approach risks undermining EU unity at a critical moment.
China has also deployed retaliatory measures calibrated to pressure influential constituencies. Following the EV tariff vote, Beijing announced anti-dumping investigations into EU brandy, pork, and dairy products—sectors with significant political weight in France, Spain, and other member states. Chinese officials have reportedly instructed automakers to halt proposed investment plans in countries that supported EV tariffs.
Most consequentially, China has weaponized its dominance in rare earths. The April 2025 export restrictions were expanded in October to cover additional elements and, crucially, processing equipment including centrifuges, vacuum furnaces, and separation systems essential for magnet production. From December 2025, controls escalate to include internationally made products containing Chinese-sourced materials or manufactured using Chinese technologies—an unprecedented assertion of extraterritorial jurisdiction over global supply chains.
Global Implications: Why This Matters Beyond Europe
The EU-China trade confrontation carries consequences far beyond bilateral relations, reshaping supply chain strategies, manufacturing costs, and geopolitical alignments worldwide.
For multinational corporations, the message is clear: diversification is no longer optional. Companies must reconfigure supply chains to reduce single-source dependencies, even at higher costs. The rare earth disruptions of 2025 provided a painful illustration of what concentrated supply risk means in practice—factories idled, production halted, revenues evaporated. Strategic sectors from defense to clean energy to electric vehicles face the prospect of constrained inputs and rising prices.
Global manufacturing costs will inevitably increase. The cheap inputs that China’s industrial policy delivered to global supply chains came with dependencies that are now being repriced. EU tariffs on Chinese EVs aim to “level the playing field” for European producers, but they also mean European consumers will pay more for electric vehicles at a time when the bloc needs rapid adoption to meet climate targets.
The alignment of EU and U.S. strategies toward China has significant implications for global trade governance. Both Washington and Brussels have moved to restrict Chinese access to advanced technologies while defending domestic industries against subsidized competition. However, transatlantic tensions under the Trump administration complicate coordination—the EU faces the uncomfortable position of confronting Chinese economic practices while simultaneously navigating U.S. tariff threats on European exports.
For emerging markets supplying critical minerals, Europe’s diversification push represents opportunity. The Critical Raw Materials Act prioritizes partnerships with countries meeting high sustainability and human rights standards. Nations from Australia to Chile to African rare earth producers may benefit from European investment seeking alternatives to Chinese supply chains. However, building alternative capacity takes years, and Chinese dominance in refining means that even minerals sourced elsewhere often flow through Chinese facilities for processing.
The fragmentation of global trade rules accelerates. WTO mechanisms have proven inadequate to address state capitalism on China’s scale, and nations increasingly resort to unilateral measures justified by national security. The proliferation of export controls, investment screening, and targeted tariffs points toward a trading system increasingly divided along geopolitical lines.
Forward-Looking Scenarios
The trajectory of EU-China trade relations remains contingent on multiple variables. Three broad scenarios merit consideration.
In the first scenario, coordinated Western de-risking accelerates. The EU, U.S., and allies like Japan and South Korea align on critical technology restrictions, supply chain diversification, and defensive trade measures. G7 coordination on rare earth alternatives succeeds in reducing China’s leverage. European competitiveness improves as domestic capacity in strategic sectors expands. This outcome requires sustained political will, significant public investment, and resolution of transatlantic tensions.
In the second scenario, EU internal divisions re-emerge. Spain’s engagement with Beijing encourages other member states to pursue bilateral advantages. Germany’s economic downturn intensifies pressure to restore Chinese market access. Automotive and industrial lobbies succeed in diluting defensive measures. The December 2025 economic security doctrine becomes paper without teeth. China exploits divisions to forestall meaningful policy change.
In the third scenario, China offers strategic concessions to stabilize relations. Beijing addresses European concerns on market access, rare earth supply, and overcapacity to prevent further escalation. Economic difficulties at home increase the appeal of preserving export markets. Some form of negotiated equilibrium emerges, though fundamental tensions over industrial policy and strategic competition persist.
Key indicators to watch over the next six to twelve months include: the substance and implementation of the December 2025 economic security doctrine; the trajectory of rare earth negotiations and whether supply stabilizes; Germany’s China action plan and whether the Merz government maintains its harder line; the degree of EU unity in the face of both Chinese and American pressure; and the outcome of ongoing anti-subsidy investigations in sectors beyond EVs.
Conclusion
The EU-China relationship is entering a structural shift from which there may be no return to the status quo ante. The era when Europe could treat China primarily as an economic opportunity while downplaying security risks and competitive threats has definitively ended.
Germany’s pivot marks a turning point. When the bloc’s largest economy and its historically most China-engaged major member endorses de-risking, restricts Chinese telecommunications equipment, and calls for industrial protection, the political center of gravity in Brussels moves decisively. The Commission now has the backing it needs to pursue more assertive policies.
Yet challenges abound. Europe’s domestic industrial capacity cannot quickly replace Chinese supply chains built over decades. The costs of diversification will be borne by consumers and taxpayers. Divisions among member states persist, and China will work assiduously to exploit them. Transatlantic coordination remains complicated by U.S. policy volatility.
The global economy must brace for a prolonged era of strategic competition in which trade policy becomes inseparable from security policy, supply chains reconfigure along geopolitical lines, and the liberal trading order that defined the post-Cold War era fragments into something more contested and uncertain. Europe’s choices in the coming months will shape not only its own economic future but the contours of this emerging international order.
