EU leaders weigh new trade defences to counter China's export dominance

Lead

European Union leaders agreed during a Brussels summit that the bloc must develop stronger trade defences to curb a surge of Chinese exports that Brussels considers an existential threat to European industry. The agreement came after a two-hour dinner discussion focused on reducing the EU’s growing trade imbalance with China, which Brussels fears makes it vulnerable to coercion and supply shocks. The bloc’s trade deficit in goods reached around €360 billion ($413 billion) last year, meaning Chinese exports sharply exceeded those of the EU.

While EU capitals share a common diagnosis, positions differ on the cure. Several leaders had called for dialogue as a priority before the dinner. The leaders tasked the European Commission with continuing to engage in constructive dialogue with the bloc’s main economic partners and with developing additional trade defence tools, according to an EU official who spoke after the talks ended early Friday.

Coverage Comparison

Three outlets covered the summit and related developments, each with a somewhat different emphasis. France 24 and RFI, both French public broadcasters, focused on the EU’s trade deficit and vulnerability to Chinese coercion, with RFI highlighting the India-Middle East-Europe Economic Corridor (IMEC) as a possible way to diversify supply chains. The South China Morning Post, an English-language Asian outlet, centred its coverage on European Central Bank President Christine Lagarde’s comments about the undervaluation of the Chinese currency, framing the issue as part of broader global economic imbalances.

While the French outlets emphasised the EU’s internal debate and the conciliatory tone of some leaders, the South China Morning Post dove into the macroeconomic context, citing Lagarde’s remarks at a Brussels event and referencing IMF research.

Key Claims

Trade Deficit and Search for New Tools

The EU’s trade deficit in goods hit around €360 billion last year, a figure reported by both France 24 and RFI. That deficit was central to the summit’s discussions, with leaders agreeing that the bloc must develop beefed-up trade defences. The EU official said the commission was asked to “develop and eventually complement the toolbox in the area of trade defence” and to ensure the EU has “all the instruments it needs to defend its interests and derisk.”

One option discussed was creating a new tool to impose sector-specific tariffs on products such as chemicals or green technology, a move that would echo the approach of US President Donald Trump. French President Emmanuel Macron last month called for a “European equivalent of Section 301”, the US trade tool used to impose sweeping tariffs, arguing that Europe’s “sovereignty is at stake”.

Germany’s Cautious Openness

Germany has been cautious because its economy is more exposed to possible retaliation from China, but Berlin appeared to be moving closer to France’s position. A German official told AFP that Germany was “open” to new tools if they were necessary, as long as they were “not targeted at specific recipients.” This matches the broader tone of the summit, which blended a desire for stronger defences with a willingness to maintain dialogue.

Spanish Calls for Balance

Spanish Prime Minister Pedro Sanchez struck a more conciliatory tone before the dinner, telling reporters: “We need friends, we need balanced relationships, we need to be pragmatic, and we need to build bridges both with major economies and potential allies, such as China.” Spain has sought to avoid tensions as it pursues Chinese investment.

China’s Retaliation Warning

China has vowed to retaliate if the EU pushes through rules that would exclude certain products made outside the bloc from public contracts. This warning, reported by France 24 and RFI, underscores the stakes of the EU’s trade policy shift. China has also consistently denied that it manipulates its currency for trade advantage, according to the South China Morning Post.

Lagarde’s Currency Concerns

European Central Bank President Christine Lagarde urged global leaders to discuss the undervaluation of the Chinese currency as a facet of the imbalances endangering the global economy. Speaking at an event in Brussels, she cited International Monetary Fund research indicating that the Chinese currency, the renminbi, was 15 to 16 per cent undervalued when its nominal exchange rate was adjusted for international differences in inflation.

“That’s the situation as it is, which justifies completely the fact that there has been, and I hope there will be, further discussions of excessive imbalances, which include a currency aspect to it, between the G7 leaders and beyond,” Lagarde said. She dismissed the notion of a new Plaza Accord to strengthen the yuan, noting that the 1985 international deal to weaken the dollar was struck when “times were different.” Her comments came alongside concerns about China’s surging trade surpluses and Europe’s underinvestment, which have left Europe struggling to compete in sectors it used to dominate, such as high-end cars.

IMEC as a Diversification Option

RFI reported that the India-Middle East-Europe Economic Corridor (IMEC) is seen as a possible way to diversify the EU’s supply chains and strengthen energy security. The corridor is one potential response to the EU’s over-dependence on China for goods and raw materials.

Perspectives

European Commission

The European Commission, represented by EU trade chief Maros Sefcovic, framed the trade relationship with China as “at a point that requires a reset. Not confrontation, but rebalancing.” The commission was tasked with developing new trade defences while continuing “constructive dialogue” with main economic partners.

France

President Emmanuel Macron called for a “European equivalent of Section 301”, arguing that Europe’s “sovereignty is at stake.” France is among the strongest proponents of a more assertive EU trade policy towards China.

Germany

Germany has been cautious due to its economic exposure to China, but a German official indicated Berlin is “open” to new tools if they are necessary, as long as they are not targeted at specific recipients.

Spain

Prime Minister Pedro Sanchez stressed the need for balanced relationships and bridge-building with major economies, including China, reflecting Spain’s interest in avoiding tensions that could disrupt Chinese investment.

China

China has denied manipulating its currency and has vowed to retaliate if the EU adopts rules that would exclude products made outside the bloc from public contracts, signalling firm opposition to protectionist measures.

European Central Bank

Christine Lagarde, speaking in her capacity as ECB President, urged global leaders to address the undervaluation of the yuan, citing IMF research and calling for further discussions of excessive imbalances.

Temporal Context

The summit took place on Thursday evening, with leaders finishing their discussions early Friday. The EU’s trade deficit figures refer to last year, while Macron’s Section 301 comment was made the previous month. Lagarde’s remarks were delivered on Monday before the summit, ahead of the G7 leaders’ meeting in France.