“The situation is quite simply unsustainable,” thundered António Costa, president of the European Council, last week. Ursula von der Leyen of the European Commission is no less indignant and has announced a new law that could force companies to spread their purchases across more countries and suppliers.
The idea is that companies in strategic sectors should not place almost their entire value chain in China if the product is critical to Europe. This could apply to rare earths, permanent magnets, battery materials, semiconductors and defence-related components that could bring European industry to a halt if Beijing tightens the screws.
For many years, Europe’s relationship with China was marked by hope, trade and polite formulations. China was the market that never stopped growing, and the great power that would gradually become more predictable the richer it became. In Brussels, it was said that China was both a partner, a competitor and a “systemic rival”. But now it is the rival that weighs most heavily.
The figures say it all. In 2025, the EU imported goods from China worth €559 billion, while exports in the opposite direction amounted to only €200 billion. The deficit was therefore €359 billion. This year’s figures may be even worse. That explains why the EU is so keen to trade more with other large nations. Countries such as India, Brazil, Mexico, Indonesia and Australia are all high on the wish list, to name just a few.
The aim is not to cut off trade with China, but to reduce dependence where it is perceived as dangerous. “Reducing dependence on China will not be easy or cheap, but it is necessary and urgent,” stressed the EU’s foreign policy chief Kaja Kallas at the meeting of the EU Foreign Affairs Council on 15 June. She reminded those present that China is not only a tough trading partner, but also a political actor enabling Russia’s war against Ukraine.
The EU’s “de-risking” is therefore not only about hard cash, but about security policy. Responsible European politicians should have thought along the same lines many years ago. Norwegian politicians too, who after the “normalisation” with China in 2016 travelled in droves to the new Mecca — and all returned home happy.
The main reason for China’s large trade surplus is that the country sells precisely the goods Europe most wants. China no longer sells only cheap toys and textiles, but also finished industrial goods and input materials such as batteries, electric-vehicle components, solar panels, magnets and electronics. At the same time, Chinese domestic demand is weak because of economic uncertainty and low household consumption.
The EU is strongly committed to steering Europe towards a more climate-friendly future. Paradoxically, this effort has made the union even more dependent on China. The European Commission states that 100 per cent of the rare earths used for permanent magnets are refined in China, and that 97 per cent of magnesium imports also come from there. This is serious not only for Europe’s green industries, but also for the increasingly important defence industry.
The EU’s solar ambitions are not worth much without China either. In its strategic review, the Commission writes that Chinese companies produce 96 per cent of the world’s silicon wafers for solar panels, while the EU accounts for only 1 per cent. Chinese solar cells make green energy cheaper, but as the Commission points out, this dependence is a sore point.
Without Chinese supplies, it will also be difficult to keep the countless wind turbines in our part of the world turning.
Since the start of the year, negotiators from both sides have shuttled back and forth between Brussels and Beijing in the hope of resolving some of the knots — to no avail. The most difficult issue is not a single tariff rate, but China’s state-directed industrial model. The EU can negotiate on everything from electric-vehicle tariffs to brandy and rare earths, but the real problem is that China produces far more than its domestic market can absorb.
The Chinese negotiators are both skilled and patient. They are masters at dragging out meetings and sowing division in the opposing camp. In Europe’s case, that is not so difficult. The uncomfortable truth for the EU is that the trade deficit and the dependence are not only the result of Chinese strength, but also of European passivity and poor choices made over time. The EU did not understand China’s methods and geopolitical ambitions early enough — and therefore ended up in a bind.
The reception of “Made in China 2025”, Beijing’s ambitious policy declaration ten years ago, is a good example. In it, Xi Jinping and his colleagues stated plainly that China intended to become an industrial superpower. The declaration was described as a golden opportunity for European companies. Today, most people understand that the risks are greater than the opportunities.
For bewildered European politicians, it may be some comfort that the EU’s combined economy is still somewhat larger than China’s, measured in nominal GDP. Last year, around 15 per cent of China’s exports went to the EU, compared with “only” 11 per cent to the United States. These figures mean that the EU still has considerable market power vis-à-vis China, but only if the member states act together and think long term.
The problem is that the EU countries disagree on how they should deal with China. France would like to take a tougher line. Germany fears for its car industry. Spain and other countries are worried about their agricultural exports and possible Chinese countermeasures. The only thing they seem to agree on is that the imbalance in trade with China is unfortunate.
More and more people believe that Europe’s industrial future is at stake in its encounter with China. Not because China alone can destroy us, but because it forces us to answer a brutal question: Do we want Europe still to be an industrial power — or merely a rich market for other people’s industries?
Mario Draghi has now retired, but he is following developments closely. Two years ago, he presented a report that has become the bible for every discussion about the relationship between Europe and China. As the former head of the European Central Bank (ECB) and former prime minister of Italy, he argued that Europe faces an existential threat. Nothing less.
On 29 June, another Chinese negotiating delegation will arrive in Brussels. May the worst of the heatwave have passed before the contest begins.
faeroevi@online.no