Europe Tries to Take On China Without Launching a New Trade War

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(Bloomberg) — The Group of Seven industrial nations this week pledged an ambitious target to diversify away from China, adding momentum to the European Union’s own push to counter a growing trade imbalance with the world’s biggest export engine.

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The 27 EU capitals unanimously agree on the economic threat posed by China’s trade policy if left unchecked. At a meeting Thursday in Brussels, the bloc’s leaders are expected to discuss how to handle upcoming trade talks with Beijing and explore possible responses — including new trade tools.

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The EU is worried on multiple fronts: from a trade deficit with China that now exceeds €1 billion ($1.2 billion) a day fueled partly by state-subsidized products, to Beijing’s stranglehold on critical minerals and chips. Fears are growing that domestic European industries can’t withstand the onslaught much longer.

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The EU’s chief trade negotiator, Maros Sefcovic, said this month that Europe’s trade relationship with China was “simply not sustainable” and that “diversification requires a dedicated instrument.” French President Emmanuel Macron warned that the EU may take “strong measures,” including potential tariffs, if Beijing fails to address the trade imbalance. 

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Member states also agree on the need to diversify their supply chains away from China in critical areas, but several capitals have privately noted that that process will take years and the bloc needs to be realistic in its approach, people familiar with the deliberations said.

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Bloomberg reported earlier that the EU was seeking to temporarily lift sanctions on a Chinese chipmaker after the auto industry warned it would otherwise face shortages. Spain is also deepening its position as a European hub for Chinese automotive imports and production, making confrontation with Beijing potentially damaging.

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Still, the discussions in Brussels illustrate how far the EU has come since it started taking a harder line with China in 2019 by labeling it both an economic competitor and systemic rival. That shift was partly driven by frustration over unequal market access and increasingly unbalanced commerce. 

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But business largely continued as usual in the coming years as European industry heavyweights, particularly in Germany, opposed restrictions on the free flow of goods as long as China remained a lucrative export market. In 2024, then-Chancellor Olaf Scholz heavily resisted tariffs on electric vehicles from the country over concerns of retaliation.

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The position of German carmakers has worsened significantly in recent years. Shipments to the Asian nation fell by a third in 2025, leaving them more than 50% below their 2022 peak of about €30 billion, according to an analysis by the German Economic Institute.

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BMW’s Woes

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Earlier this week, BMW AG slashed its profitability forecast, citing weak demand and more intense competition in China.

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Other industries, including machinery producers and the pharmaceutical sector, are also under increasing pressure. The EU’s combined trade deficit with China widened for a second year in 2025 to €360 billion, and it continued to swell in the first quarter.