Newfound Unity or Old Divisions: European Trade policy towards China
The port of Hamburg is one of the main gateways for German car exports to the rest of the world. (Source: Pixabay)
By Noah Plattner, undergraduate student at Harvard College majoring in History & Economics.
Editor’s note: This article was written before Germany’s general elections in February 2025
Trump’s ascendance in 2016 caused a massive upset in the international trade regime. The US, along with Japan, started to decrease reliance on the Chinese market, while trends like friend-shoring” and “nearshoring” brought back a portion of the manufacturing sector. Although repeatedly criticized both from within and from allies like the US, the European Union nevertheless continued its trade practices with China. More so than other major powers, the European Union is now reliant on China in many critical industries. The EU’s ambitious climate goals cannot be achieved without rare metals from China, which are used to build everything from wind turbine generators to eco-friendly light bulbs. The European Union and especially Germany, is also heavily reliant on the Chinese market for its profitable exports. Consequently, during the trade wars, the European Union did not match US tariffs on China in order to avoid any economically damaging confrontation with China.
Although European economic dependence on China has remained precipitously high, the European Commission has recently sharply pivoted its rhetoric. With the recent implementation of steep tariffs of 21% on Chinese EVs, the European Commission has not only incurred the wrath of the Chinese government but also of the exceedingly powerful German auto industry. Previously, fears of a Chinese backlash have compelled the European Commission to refrain from tariffs, yet this dynamic seems to have changed. In Brussels, Von der Leyen’s European Commission was touting these new tariffs as ushering in a new era of European unity against China’s growing assertiveness. This trend started in 2019 with Von der Leyen calling China a “systemic rival” and has reached a new tipping point with the imposition of steep EV tariffs. This article will dive deep into the recent evolution of EU-China trade defense policy and critically examine the claims of newfound European unity.
Crucially, although both public opinion and policies brought forward by the European Commission have shifted decisively against China, key players have stuck to their positions. By comparing the 2013 solar industry case to the 2023 EV subsidy investigation, it is apparent that Germany still acts as China’s biggest advocate due to its heavy reliance on the Chinese consumer market. Large numbers of abstentions in the EV subsidy vote also prove many EU members are still reluctant to confront China head-on. As a result, although the European Commission managed to pass the tariffs during the Council vote, close examination paints the picture of a pyrrhic victory.
I. Europe’s China dilemma
To understand the significance of Europe’s new EV tariffs, it is crucial to understand Europe’s fraught economic relations with China. Europe’s and China’s economies are deeply interconnected, with essential supply chains linking both regions. Bilateral trade in 2023 amounted to €739 billion in goods, with the EU importing €515 billion and exporting €223 billion. Even during Trump’s trade war, this relationship has grown stronger. This has both increased Chinese dependence on European markets and European dependence on Chinese imports.
Simultaneously, China, with its large and expanding middle class, presents formidable opportunities to many European companies, which have in recent years made significant parts of their profits in China. Germany’s Adidas makes 17% of its profits in China, chipmaker Infineon 25% and France’s luxury brand Richemont 26%. German carmakers are particularly reliant, with VW making 15%, BMW 17% and Mercedes 18% of their revenue in the Chinese market, generating a total trade surplus in the automotive industry of €27 billion.
This reliance on China for many industries has come at a significant cost. Although entering the Chinese market has been lucrative, many companies have faced significant hurdles in China’s state-driven market economy. While domestic Chinese companies receive preferential treatment, foreign companies are often burdened with excessive paperwork. Additionally, many of these companies were forced to transfer some of their manufacturing expertise and enter joint ventures with Chinese companies in order to gain market access in the first place. European governments have often protested against these perceived “unfair trade” practices and opened multiple cases at the WTO. It has been a long-standing complaint that China’s market access rules have created significant disadvantages for foreign companies, forcing them to hand over know-how and restricting their success in the Chinese market.
When Trump started to decry these unfair trade practices and launched a series of punitive tariffs to attempt a reversal of these trends, his demands were also heard across Europe. However, European governments were reluctant to follow in Trump’s footsteps. Europe’s economies are heavily reliant on exports, much more than the US. Massive reliance in strategically important industries like the automotive and luxury sectors, which wield considerable power in key member states like Germany, prevented European governments from instating tariffs. Although these sectors suffered under the same treatment as their American counterparts in the Chinese market, the fear of massive Chinese backlash weighed heavily in European policymakers' minds.
Beyond simple economic considerations, European politicians also view China as a key partner in many of their geopolitical plans. China is crucial in combating climate change not only as the largest emitter of CO₂ but also as a manufacturing powerhouse of clean technologies. Historically, China has supported closer European integration as a way to break US hegemony. For example, China has invested heavily in eurozone bonds in an attempt to decrease its reliance on the US dollar.
II. Europe’s shifting trade policy
Europe’s fear of economically damaging Chinese backlash and the belief it is more important to engage China rather than to oppose it for a long time meant that the European Commission refrained from matching Trump’s tariffs on China. To understand why the European Commission seemingly lost this fear while the German car industry maintained its cautious position against EV tariffs, it is important to look at some key shifts in Europe. Instituting tariffs has both an external component and an internal one. First we will look at domestic public opinion on China, and then we will look at how Trump’s trade war and China’s economic success changed the flows of trade to understand how the EU EV tariffs came about.
Europeans’ nuanced fear of China
The EU EV tariffs come at a time of increased wariness of China; however, Europeans are very nuanced in their stance toward China. While in the US many see US-China trade as being a detriment to the US, in Europe there seems to be broad consensus that EU-China trade has been broadly beneficial. According to public opinion surveys from the European Council on Foreign Relations, 29% of EU citizens see EU-China trade as having mostly benefits, while 21% see it as having mostly risks. The prevailing opinion (35%) seems to be that risks and benefits are balanced. Additionally, there are only five countries, Germany among them, that see China as a rival, while the rest mostly agree that China is the EU’s “necessary partner”. Views of China are particularly positive in Hungary and Bulgaria, where lots of Chinese investments have been flowing. This is markedly different from the European Commission’s stance, which has described China as a “systemic rival”.
However, the European public does have major concerns with the Chinese presence in Europe itself. 43% of citizens oppose China building infrastructure projects in Europe, 52% oppose China buying tech companies, 59% oppose Chinese acquisition of newspapers, and 63% oppose China owning bridges and ports in Europe. Concerns like these have been exacerbated by large Chinese investment flows into Europe. Between 2005 and 2016, China invested $163 billion into European projects while only investing $103 billion into the US. In 2017, several European countries launched complaints with the European Commission about China’s investments in Europe, which led to a tightening of regulations. Recently, the tide of investments has ebbed substantially; however, there are still significant inflows of FDI into strategically important sectors like EVs, battery manufacturing, and communication technology.
Source: ECFR ecfr.eu
Shifting international trade flows
As previously shown, European trade with China was growing at a healthy pace even throughout Trump’s tenure in the White House. Many in Europe feared that as Trump hiked US tariffs, Chinese imports would deflect to the European market, flooding it with cheap goods and dealing a blow to domestic industries. This was a rather widespread concern and used by the Trump administration to coerce the European Union to fall in line with Trump’s tariff hikes. As later data suggest, this scenario never became reality, with only a slight increase in Chinese exports. However unfounded these worries were in the first place, they were nevertheless stoked by the decimation of the solar panel industry.
The European Union’s focus on combating climate change and generous subsidies to switch to renewables unleashed a flurry of investments in clean energy. Consequently, Europe’s solar industry was booming, with installed capacity almost doubling from 162 gigawatts in 2021 to 257 gigawatts in 2023. However, while European solar cell manufacturers were originally profiting from this trend, cheap imports from China and competition from the US rapidly turned the tide. Especially Chinese subsidies made solar panels exceedingly cheap, massively outcompeting European competition. In spite of repeated pleas from the industry, the EU and national governments refrained from providing additional subsidies, eventually leading to China capturing most of the booming European solar power market.
The European EV industry in the context of shifting international trade flows
The dire example of the solar industry is especially relevant for the EV and, more broadly, the automotive sector because both operate within the wider clean tech sphere, one of the areas where China has been catching up rapidly. Across the board, European carmakers have been struggling in China in recent years. Although many of them still make a significant portion of their profits in China, revenues and market shares have been falling precipitously.
Once a cash cow for European and especially German carmakers, the Chinese market has become increasingly characterized by fierce competition. Chinese consumers have shifted their behavior in favor of cheap and long-range EVs, something European carmakers were slow to adapt to. At the same time, Chinese EV makers like BYD and SAIC have captured significant shares of the market, leading to European car sales in China slumping by 12%. Combined with slow growth in Europe, this means that Germany’s top carmaker, VW, will deliver 240,000 vehicles less compared to 2023. China’s growing EV dominance has also meant that, for the first time, Europe has imported more cars from China than it has exported.
This represents a serious shift in EU-China trade dynamics. While previously, mostly labor-intensive sectors were affected by Chinese competition, in recent years China has quickly caught up with the West in terms of its high-tech manufacturing capacity. This can both be seen in the case of the decimated European solar industry and the struggling EV sectors. However, contrary to what happened to Europe’s low-tech manufacturing sector, the European Union is seemingly gearing up to tackle these dynamics and trying to conjure up European unity in this case.
III. The EU’s investigation into Chinese EV dumping compared to the 2013 solar anti-dumping case
Reacting to the previous trends and acting upon dumping suspicions, Ursula Von der Leyen announced in September 2023 that the European Commission would be conducting an anti-subsidy investigation into Chinese-made EVs. To see how this case differs from previous ones, if at all, we will look at Europe’s largest anti-subsidy case: the European Commission probe into Chinese solar panel subsidies in 2013. First, we will be looking at how the 2013 investigation progressed, analyzing its eventual conclusion, and then drawing parallels to the recently concluded investigation into illegal EV subsidies.
The initial complaint was launched on September 26th, 2012, by an organization of European solar panel manufacturers. They alleged Chinese-produced solar panels were entering the market below market value, hinting at massive market-distorting Chinese subsidies.
The Directorate General (DG) Trade carried out the investigation through its department of Trade Defense. Legally, they are bound to come to an initial verdict after nine months and a final decision after fifteen. DG Trade was focused on assessing what amount of import duties were necessary to level the playing field between Chinese imports and domestic European products. During the process, it is customary for governments to try to come to a settlement with the European Commission; however, this did not occur. Chinese officials were refusing to negotiate, and in turn, DG Trade proposed to impose provisional duties on Chinese imports of solar panels after it concluded its preliminary investigation.
Although trade policy is an exclusive competence of the European Union, the Council of Ministers gets the final say when it comes to the imposition of duties in anti-dumping cases. This is a result of pressure from northern European countries that fought to keep this right during the negotiation for the Lisbon Treaty. When deciding whether to impose duties, DG Trade has to first submit a proposal to the Council, which gets to vote on it. In terms of voting on duties, the EU-typical North-South divide is ever-present; however, additionally, a group of “swing states” centered on Germany has formed. As with many other EU decisions, Germany’s vote carries outsized weight, as it normally manages to swing other countries with it.
When DG Trade proposed import duties in May 2013, deep divisions in the EU were revealed during the first non-binding vote. Germany and the UK both publicly opposed imposing duties, with other countries following in their wake. Germany in particular was fearful that China’s retaliation would hurt their companies in the rapidly growing Chinese consumer market. Merkel publicly stated that she preferred negotiations over the proposed duties, which were seen in Brussels as undercutting the Commission. British officials and many trade representatives from organizations like the Swedish Trade Board also opposed the duties and criticized the Commission's perceived threats of a “trade war." At the same time, Italians and French supported duties, claiming Chinese companies were unfairly profiting from government subsidies. Countries with larger exposure to the Chinese market, like Germany and the UK, fiercely opposed duties, while Italy and France, with less exposure, advocated for a “defense” of European industry. The private sector was also divided. Many companies that relied on installing cheap Chinese solar panels feared the cuts to their profit margins. Additionally, environmental organizations complained that the price of solar panels would unnecessarily increase, hurting efforts to decarbonize Europe.
Facing massive opposition, DG Trade concluded its investigation in June 2013, finding that it was necessary to increase the price of Chinese solar panels by 88% to reach a fair price. The head of the international trade committee at the time, Vital Moreira, stated that these duties were necessary “as it is all about getting ‘trade justice’ for European companies and workers." Although under heavy criticism from Beijing and actors in the EU, the Commission nevertheless moved ahead and phased in provisional tariffs of 11.8%, which would increase to 47.6% after 2 months.
As a reaction, China launched its own anti-subsidy cases against German, US, and Korean polysilicon and against European wine, mainly affecting France, Italy, and Spain. While the spiral of escalation was turning, the EU Commission sent a trade representative to Beijing to try to find a negotiated settlement. This was mostly motivated by the fact that the Commission knew that EU governments would repeal the provisional duties at the next council meeting, dealing a significant blow to the Commission’s credibility. Chinese solar exporters also seemed ready to enter into negotiations with the EU and after talks in June and July 2013, the European Union and China settled their solar industry dispute with the Chinese side agreeing to import limits and the EU side repealing the duties.
The EU’s 2023 anti-dumping investigation into the Chinese EV industry
A decade later, the European solar industry has all but disappeared, as previously mentioned, leading Politico to claim that the EU lost this trade war in the long run. However, now a much more important investigation is at the doorstep. The European solar industry at its height was never more than a rounding error in Europe’s total GDP; the EV industry and the clean tech sector, in contrast, carry magnitudes more weight. Consequently, stakes are much higher now and the EU’s anti-subsidy was closely followed across the continent.
Originally launched in 2023, the investigation focused on Chinese car battery subsidies, as these components typically make up 30 to 40 percent of the price of a vehicle. China’s dominance in critical minerals like lithium has made the production of batteries significantly cheaper in China. However, the investigation also found that government subsidies and fiscal incentives allowed Chinese manufacturers to scale up production and export at below-market prices, massively undercutting competition.
After a year-long investigation, the European Commission concluded that these subsidies were in violation of WTO rules and proposed a series of tariffs on Chinese-produced EV makers. These range from 7.4% for Tesla to 35.3% for SAIC, reflecting the level of subsidies these companies received. This fits well into Von der Leyen’s “geopolitically” minded Commission, which has sought to take a more hawkish stance against China. In her State of the Union address, in which Von der Leyen announced the EU’s investigation into EV subsidies, she also mentioned the loss of the solar industry a decade ago, which she attributed to unfair Chinese trading practices.
BYD cars waiting to be exported in Taicang Port, Suzhou, Jiangsu Province. (Source: AFP)
There was support from key EU member states like France in addition to the European Commission publicly advocating for a defense of strategic European industries. This fits into the overall cautious rhetoric towards China across the European Union, as shown by the previously discussed public opinion polls. In the end, the Council voted to pass the Commission proposal for tariffs, which subsequently went into effect in October 2024. The Commission presented this as a victory for European industry and a departure from Europe’s disjointed approach to China. Seemingly, the EU had learned from its blunder with the solar industry a decade ago.
However, looking more closely at the voting procedure, massive internal rifts are exposed, bearing a striking resemblance to what happened a decade ago. Germany led a coalition of countries opposed to the tariffs in fear of Chinese retaliation. The German auto industry, which is supposed to be protected by the tariffs, fiercely opposed them. Even though they had been losing market share even in Europe, the three main German carmakers actually increased their investments in China and saw these tariffs as potentially threatening their already risky bet. Hungary was another very vocal opponent of the Commission tariffs, mostly due to China’s investments in the country, specifically in the battery manufacturing industry.
Of the 27 member states, only ten countries actually voted to impose tariffs, while 12 abstained and five countries voted against, including Germany and Hungary. A decade ago, the German vote managed to swing European countries to fully oppose tariffs on solar panels. This time around, this general rule does not seem to have applied; however, the massive number of abstentions paints a more nuanced picture. Abstentions normally signal a tacit “yes” vote on the European Council when voting on tariffs. However, abstaining from the vote also allowed these countries to credibly claim to Beijing they did not vote “yes” on tariffs, allowing them to avoid economic retaliation. Although the vote did pass in the end, it is not as clear-cut of a victory for the European Commission and China hawks, as the number of abstentions implies that there are still significant reservations on whether to engage China head-on. Meanwhile, Germany seems to have cemented its position as China’s biggest ally in the European Union.
In another striking similarity to what happened a decade ago, China has opted to react in a very similar fashion, imposing tariffs on specific countries, targeting them for their “yes” votes. For example, Spain was threatened with pork tariffs, which was enough to move its “yes” to an abstention. Furthermore, after the vote was passed, Beijing announced tariffs on French wines and other products, targeting its influential agricultural sector. This reflects Beijing's strategy to drive a wedge between EU member states in order to disrupt the unity the European Commission was trying to create.
Reasons for the lack of change
The increase in abstentions and Germany’s inability to sway the vote in its favor can be explained by shifting attitudes towards China. The head of DG Trade, who led the charge against Chinese solar subsidies a decade ago, has argued that because the mood has become significantly more critical towards China, this was enough to sway the vote towards tacitly supporting the imposition of tariffs. However, beyond the shift in public opinion, the underlying dynamics driving European divisions have not changed. Germany is still as reliant on China as ever, and increased Chinese investments in eastern Europe have swung these countries firmly into the China camp. Additionally, although the European Commission has been intent on showing a united front during confrontations with China, the rules laid down in the Lisbon treaties have made this difficult. Crucially, although trade matters are the sole competence of the EU, the member countries’ involvement in the decision process in anti-dumping cases has made the process exceedingly complex. This weakens Europe’s leverage in such cases because China is able to “peel” off member countries by either offering them carrots through increased investments or sticks through the threat of tariffs.
V. Outlook and Conclusion
After the imposition of tariffs, China and the European Commission have entered talks to settle their dispute, mirroring what happened with the 2013 solar industry case. Early reports suggest that both sides have already come to a preliminary understanding based on Chinese willingness to restrict EV exports to Europe. More concretely, Chinese carmakers have started to draw up plans for factories in Europe to circumvent tariffs. Ironically, this is what European companies used to do in the early stages of China’s economic rise in order to enter the Chinese market. There have already been announcements of plans for new battery manufacturing centers in Hungary.
Beyond day-to-day politics, when looking closely at Europe’s new EV tariffs, it is apparent that European Unity's approach to China is still far off. Germany’s reliance on the Chinese export market and China’s successful strategy to split off member states through implicit threats have prevented a cohesive China strategy from emerging. However, compared to the solar industry case 10 years ago, the mood in Europe has swung moderately against China, which has allowed the European Commission to win support for the imposition of some tariffs. European fear of Chinese retaliation has not completely dissipated yet, and the celebratory mood in the European Commission after its victory in the EV tariff case should be taken with a major grain of salt.
