On May 28th alone, there were two bad news from Europe. One was that the European Commission imposed a huge fine of 200 million euros on Temu under the Digital Services Act. The other was that JD.com has been investigated under the FSR (Foreign Subsidy Regulations) in Europe.
Meanwhile, five EU member statesItaly, France, Spain, and othershave recently jointly submitted a policy document. They plan to advocate for more stringent trade measures against China at the European Commission meeting on May 29th. The reason for this is to address what they call unfair trade practices by China.
In recent years, when discussing relations between China and Europe, the outside world still tends to view these relations as being characterized by differences, but also opportunities for cooperation. However, the situation has changed recently. In the past, interactions between China and Europe were limited to specific cases, individual companies, and individual products. Now, it seems that both sides are trying to establish a more formal relationship. Europeans increasingly doubt that market mechanisms alone can withstand the challenges posed by Chinese manufacturing. Meanwhile, Chinese parties also refuse to accept Europes approach of claiming cooperation while actually changing rules in order to gradually exclude Chinese companies from certain areas. Although both sides still talk about cooperation, they are already testing each others limits.
What exactly happened between China and Europe over the past period of time?
On one hand, traditional trade remedy measures continue to be intensified. For example, in May this year, the EU issued an initial anti-dumping ruling against Chinese-produced alkylphosphonic acids and their sodium salts. The temporary tax rate ranged from 182.9% to 219.4%, which effectively prevents these products from entering the market. Additionally, the final anti-dumping ruling against Chinese-produced adipic acid has also been implemented, further increasing the costs for Chinese raw materials to enter European markets.
But what truly deserves attention is not these old tools, but rather the EUs efforts to systematically establish and use new mechanisms to restrict Chinese companies. In addition to digital regulations that increasingly target Chinese enterprises, measures such as investigations under the FSR (Foreign Subsidy Regulations), industrial acceleration programs, revisions to cybersecurity laws, restrictions on the use of Chinese-made inverters and energy storage devices in official financing projects, and discussions around so-called three-supplier rules are all negative signals. What these measures have in common is that they not only make it more difficult for Chinese products to be sold at higher prices, but also make it harder for Chinese companies to enter Europes high-value markets. This is a change that deserves serious attention. The EU is now not just trying to stop the sale of Chinese goods, but rather to rewrite the rules regarding what Chinese companies can do in Europe.
Between China and Europe, there has already begun an exchange of positions and boundaries.
On the surface, these actions by the EU can be seen as protectionism and non-tariff barriers. However, upon closer examination, there are at least four overlapping considerations behind these actions.
First, Europe is indeed concerned about deindustrialization. In the past, disputes between Europe and China often revolved around values, institutional perceptions, and geopolitical attitudes. Now, many Europeans are truly worried that if China continues to expand rapidly in fields such as new energy vehicles, batteries, photovoltaics, wind power, chemical intermediates, and digital platforms, Europes remaining manufacturing bases with high added value will be gradually depleted. In other words, Europe is facing a situation of existential anxiety. Especially under the circumstances of high energy transition costs, limited fiscal resources, and weak growth, this anxiety can quickly turn into political pressure.
Secondly, the EU does not want to learn from its dependence on Russia and apply those lessons to its dependence on China. After the Russo-Ukrainian war, one of Europes most profound strategic reflections is that we cannot wait until risks actually occur before realizing how dependent we are on external supply chains. Therefore, whether it comes to critical minerals, communication equipment, digital infrastructure, or green technology devices, the EU now tends to treat dependence on China as a problem that needs to be managed in advance.
Thirdly, the EU intends to reshape competitive conditions through rules, rather than outright deintegration. In dealing with China, the United States can impose higher tariffs and implement broader technological blockades. This is because the US market is larger, its policy mobilization capabilities are stronger, and it has more room for industrial and financial expansion. Europe is different. Europe cannot do without Chinas supply chains or the Chinese market. It also cannot afford the costs associated with sudden deintegration. Therefore, a different approach is chosen: not outright deintegration, but rather gradually renegotiating market access conditions. This is why new tools like FSR, IAA, and CSA2 have emerged in recent years.
Fourthly, there is also a need for internal political coordination within the EU. Currently, Europe faces significant economic pressures, and the public is highly sensitive to issues such as unemployment and industrial decline. Many governments may not have the ability to quickly enhance their competitiveness, but they can demonstrate toughness towards their domestic electorate through external actions. Many of these actions are intended both for China and for their own citizens. Another important factor that may be overlooked is the spillover effects caused by U.S. high tariffs and the restructuring of the global economic and trade landscape. When the United States prevents certain Chinese products from entering its market, Europe effectively bears more of the burden. This is also a major source of concern for Europeans at present.
From a Chinese perspective, rather than focusing solely on the investigation of certain products or the penalties imposed on certain platforms, whats more concerning is whether the EU is developing systems that can be replicated over time and continuously exclude Chinese companies from participating in certain activities. This not only concerns external issues but also affects Chinas industrial upgrading and its ability to expand its businesses overseas. This is why China has become increasingly proactive in its responses. Instead of merely making verbal protests, China has begun to institutionalize its countermeasures. In response to the EUs FSR investigations, China has raised the issue to the level of improper extraterritorial jurisdiction and judicial sovereignty. Regarding sensitive issues within the EU, China has increased its efforts to investigate and exert pressure in areas such as brandy, pork, dairy products, and medical devices. In terms of rare metals and key minerals, China is also paying more attention to export regulations and comprehensive management measures, thereby firmly holding this powerful weapon that frightens the EU.
In particular, recently, China has engaged in intensive negotiations, condemnations, and countermeasures against FSR, IAA, and CAS2. However, many voices within the EU believe that China has merely used legislation to openly replicate the hidden barriers that China has imposed on foreign companies over the years. So why should China be able to do this, while the EU cannot?
To summarize the current deadlock: China will take time to address its lack of domestic demand. It is difficult to reduce its trade surplus in the short term. However, Europe cannot bear or is unwilling to continue accepting a trade deficit. It is becoming increasingly unacceptable for its markets to continue bearing the pressure from Chinas production capacity. At the same time, Europe cannot be as bold as the United States; it can only rewrite the rules without completely breaking away from China. Meanwhile, China finds it difficult to accept that Europe uses rules to keep its own advantageous industries out of Europes market.
In this situation, relations between China and Europe may become more contentious in the coming period. The European Union may further use trade tools and impose stricter restrictions on supply chains. China, on the other hand, may continue to take stronger measures in certain areas, even risking a trade war or supply chain conflict with Europe. After all, China and the United States have achieved constructive strategic stability. It seems that China has the capability to engage in such conflicts with Europe.
An important characteristic of Europe is that its various regions are not united as one entity. France has agriculture, Spain has pork production, Germany has automobiles and machinery industries. Large corporations also profit from their operations in China. When pressure is exerted on these different sectors, its inevitable that there will be debates within the EU. Moreover, if the issues truly affect Europes industrial foundations, as well as the agenda that needs to be addressed (such as the reconstruction of manufacturing industries, supply chain security, and technological sovereignty), then the EU may be forced to sit down again and engage in meaningful negotiations with China.
However, the uncertainty lies in the fact that Europeans are still somewhat idealistic. Compared to Americans, they tend to stick to their beliefs more firmly. Their decision-making processes arent always rational. Many politicians and even ordinary citizens may be willing to endure pain for their beliefs and values. If it comes to fighting, due to the inertia of the EU and its complex institutions, it will take a long time to make gradual corrections.
Such an outcome is undoubtedly a lose-lose situation. Its better to avoid conflict whenever possible.
