Why Europe and China Are Heading Toward a Collision？
May 28 brought two pieces of bad news from Europe. First, the European Commission imposed a €200 million ($232 million) fine on Temu under the Digital Services Act. Second, JD.com became the target of a Foreign Subsidies Regulation (FSR) investigation in connection with its acquisition activities in Europe.
At the same time, five EU member states — including Italy, France, and Spain — jointly submitted a policy paper ahead of the Commission’s May 29 discussion, calling for tougher trade measures against China in response to what they describe as “unfair trade practices.”
Following today’s debate, the Commission released a short readout. My initial impression is that the overall tone remains fairly measured. One encouraging sign is that the Commission still refers to China as a “critical partner,” which is noticeably softer than the increasingly rivalry-centric rhetoric we’ve seen in recent months.
“The Commission’s overarching approach remains de-risking, not decoupling. China is a critical partner, and engagement and dialogue will continue.”
But it immediately adds:
“At the same time the current state of the trade and investment relationship is not sustainable. As economic and security interests become ever more intertwined, both dimensions will require a more robust and coherent response.”
Over the past several months, EU-China frictions have intensified significantly. Brussels is no longer relying solely on traditional anti-dumping and anti-subsidy measures. Instead, it is increasingly deploying newer instruments such as the FSR, IAA/IPI, and CSA2 against Chinese EVs, wind power companies, medical devices, and other sectors. Meanwhile, the EU is also exploring larger-scale tariff tools.
From Beijing’s perspective, the broader objective of these measures is to gradually push Chinese firms out of Europe’s core infrastructure and higher-value markets.
So far, China’s response has been relatively restrained. It has launched investigations into EU pork and brandy imports and signalled the possibility of tariffs on large-engine vehicles last year. Now it keeps warning Brussels against further escalation.
One of the strongest reactions came from Yuyuantantian, a state-affiliated commentary platform, which argued on May 29 that Europe’s turn toward trade protectionism is fundamentally driven by long-term industrial decline and lobbying by entrenched interests.
According to the article, Europe’s structural disadvantages — including high energy costs and a shrinking manufacturing base — have been building for two decades and accelerated after 2022.
The commentary also rejected the EU’s “overcapacity” narrative. It noted that France has been China’s largest source of imported cosmetics for three consecutive years, accounting for nearly 30% of China’s cosmetics imports in 2025. European meat, wine, luxury goods, and cosmetics all enjoy significant market shares in China. If producing more than domestic demand is enough to qualify as “overcapacity,” the article argued, then the same question could be asked of many European exports sold into China.
The broader accusation is that Europe is avoiding difficult structural reforms by erecting new regulatory barriers. From revisions to cybersecurity rules and industrial policy initiatives to proposed “overcapacity instruments” and the FSR, the article argues that the driving forces are politicians seeking domestic political capital and traditional industrial interests trying to protect market share amid the green transition.
More notably, citing unnamed sources, the commentary hinted that Beijing may be preparing stronger countermeasures if the EU continues down this path.
According to sources familiar with the matter, China could respond by launching anti-discrimination investigations and supply-chain security reviews targeting relevant EU measures. China’s Ministry of Commerce has already stated that if China’s national interests or the legitimate interests of Chinese companies are harmed, Beijing will respond firmly.
If the EU proceeds with a formal “overcapacity instrument,” China is expected to react immediately with a broader package of countermeasures. China is neither unfamiliar with nor intimidated by trade disputes and is prepared to match escalation if necessary.
On the same day, Ambassador Cai Run of the Chinese Mission to the EU published an op-ed in EUobserver. He outlined seven points in total. Overall, the piece came across as relatively constructive and appeared to make a genuine effort to engage with European concerns.
Cai Run put forward seven key points:
First, China has never deliberately pursued a trade surplus. It takes a positive and open approach to addressing trade imbalances and has adopted a series of concrete measures to that end.
Second, high-quality and competitively priced Chinese products help ease inflationary pressures in Europe and lower the cost of living for European consumers.
Third, a significant share of China-EU trade is generated by European companies operating in China, creating a situation in which the trade surplus is recorded on the Chinese side while much of the profit accrues to European firms.
Fourth, while China runs a surplus in goods trade with the EU, the EU enjoys a surplus in services trade with China.
Fifth, looking back at the history of China-EU trade, China itself ran a trade deficit for a long period of time.
Sixth, addressing the China-EU trade imbalance cannot rely on China’s efforts alone; it requires joint efforts from both sides.
Seventh, China hopes that the EU will work with it to resolve economic and trade differences and frictions through dialogue and consultation.
Points 2–7 largely reiterate familiar Chinese positions, but the first point was somewhat new and noteworthy. He stressed that although trade imbalances are driven by structural factors such as global specialization, market dynamics, and consumer demand, China has been actively taking practical steps to help address the issue.
China has made strong efforts to expand imports from the EU, including actively broadening market access for EU agricultural products. For example, pork products from 15 EU member states and poultry products from 7 member states have now been granted access to the Chinese market.
At the same time, China has also strengthened regulation and oversight of exports. For example, beginning on April 1 this year, China removed export VAT rebates for products such as photovoltaic products and reduced the export VAT rebate rate for battery products from 9% to 6%.
China has also strengthened export controls on key products by introducing export licensing requirements for products including battery electric passenger vehicles and certain steel products.
It should be emphasized that although trade imbalances are shaped by factors such as the international division of labor, market supply and demand, and consumer needs, China is still willing to make its own efforts to help address this issue.
Notably, Cai argued that EU export controls on high-tech products have constrained Europe's export potential to China. Simply increasing Chinese purchases of European agricultural products and cosmetics will not be enough to rebalance bilateral trade. He suggested that easing restrictions on high-tech exports to China, as well as relaxing scrutiny of Chinese investment in Europe, would help address the trade imbalance between the two sides.
The EU is China’s second-largest source of imports, and high-tech products account for more than 25% of China-EU trade. However, EU export controls on high-tech products to China have constrained the EU’s export potential in the Chinese market.
According to estimates, the profit generated from exporting one lithography machine to China is equivalent to that from exporting 200,000 tons of pork to China. Simply increasing China’s imports of European agricultural products and cosmetics will not be sufficient to achieve a balanced trade relationship between China and the EU.
Chinese companies remain enthusiastic about investing in Europe and see strong opportunities there. However, many Chinese companies operating in Europe report that tighter investment screening, growing market access barriers, and rising policy uncertainty have significantly undermined confidence in investment and business cooperation in Europe.
If the European side were to ease export controls on high-tech products to China and relax restrictions on Chinese investment in Europe, this would help address the trade imbalance between China and the EU.
Cai’s article essentially serves as a systematic restatement of Beijing’s long-standing response to European concerns.
In short, China argues that the EU-China trade imbalance is not the result of a deliberate Chinese pursuit of surpluses, but rather a product of global supply chains, market demand, and investment patterns. Beijing maintains that it has already taken steps to expand imports, regulate exports, and improve trade balance, while Europe itself has benefited substantially from low-cost Chinese goods, Chinese intermediate products, and the profits generated by European companies operating in China.
From China’s perspective, addressing the imbalance cannot be achieved by asking China alone to make concessions; the EU should also ease restrictions on high-tech exports to China and reduce barriers to Chinese investment and market access.
Ultimately, Beijing advocates resolving differences through dialogue and negotiation, opposes the politicization and securitization of economic relations, and argues that escalating restrictions will not only undermine EU-China cooperation but also damage Europe’s own interests.
It is worth noting that Beijing is probably not overly concerned about punishment or investigations targeting e-commerce platforms such as Temu or JD.com. The much bigger concern lies with instruments such as the IAA/IPI, FSR, and CSA2, which could systematically restrict Chinese EVs, wind power equipment, and technology products from accessing European markets.
From the Chinese perspective, the EU is no longer relying solely on traditional trade remedies, but is increasingly building a new toolkit with long-term structural effects. Beyond digital regulations that are increasingly directed at Chinese firms, measures such as FSR investigations, the Industrial Accelerator Act, CSA2, restrictions on the use of Chinese inverters and energy storage equipment in publicly financed projects, and discussions around a so-called “three-supplier rule” are all viewed as negative signals.
The common feature of these tools, from Beijing’s perspective, is that they make it harder for Chinese companies to enter Europe’s higher-value markets in the first place. That is the most significant shift. In Beijing’s view, the EU is no longer just trying to restrict Chinese goods — it is attempting to rewrite the rules governing how Chinese companies can operate in Europe. Faced with that prospect, China believes it has little choice but to push back forcefully.
Some voices in China argue that Europe is pursuing a fundamentally different approach from the United States. Washington can rely on higher tariffs, broad technology controls, and large-scale restrictions because it has a bigger domestic market, stronger policy coordination, and greater room for industrial and financial adjustment. Europe, by contrast, remains deeply intertwined with Chinese supply chains and the Chinese market, making outright decoupling much more costly. As a result, Brussels has chosen a different path: rather than formally decoupling, it is gradually rewriting the rules of market access.
This is where a significant perception gap emerges. Take CSA2 as an example. Many Europeans would argue that not all sectors are being targeted at once, that any disruption is manageable, and that clear legal rules are preferable to informal restrictions. Some would even say that Europe is simply codifying through legislation many of the market-access barriers and informal practices that European companies have faced in China for years.
Beijing, however, may see things differently.
From a Chinese perspective, many of China’s past restrictions,if they indeed existed, functioned more as informal barriers — slower approvals, localised standards, discretionary enforcement — which, however frustrating, were still negotiable and often subject to political compromise. Instruments such as CSA2, by contrast, write restrictions directly into law. Once formal legal procedures are triggered, they become transparent, institutionalised, and far less susceptible to political intervention or commercial lobbying.
Tariffs, however high, are ultimately a cost issue. Companies can recalculate margins, adjust supply chains, and continue operating if the economics still work. Instruments such as the FSR and the IPI/IAA differ. They are fundamentally about eligibility and access. While not explicitly targeted at China, few in Beijing doubt who the primary target is. China is prepared to compete on cost, but these tools risk preventing Chinese firms from even entering the game.
There is also concern about the so-called “Brussels Effect.” Beijing might be concerned that if these mechanisms become established and operational in Europe, other developed economies—and potentially some emerging markets—could eventually replicate them. From Beijing’s perspective, this would no longer be about losing market share in Europe alone.
Traditional trade frictions, such as tariffs, were temporary, negotiable, and often manageable through political engagement, commercial bargaining, or cooperation with individual member states such as Germany.
Legislation is different.
Once restrictions are embedded in law, decisions move from politics into regulatory procedures, courts, and compliance systems, leaving far less room for flexibility. European companies often complain that many Chinese restrictions lack transparency. What is sometimes overlooked, however, is that opacity can also create flexibility and room for negotiation.
Over time, this could create a standing framework under which every Chinese acquisition, public procurement bid, or critical infrastructure project in Europe must first pass through a review process that is, in practice, designed with China in mind.
Whether European policymakers fully appreciate how these measures are perceived in Beijing is an open question. Part of the gap may reflect deeper cultural differences. Chinese business culture tends to assume that most problems are ultimately negotiable and that rules can be applied with a degree of flexibility. European policymaking places greater emphasis on formal rules and legal certainty, and once rules are established, the scope for political discretion becomes much narrower.
Against the backdrop of a more stable U.S.-China relationship, some in China believe Beijing now has greater capacity to focus on Europe. There is also a view that Europe lacks the economic resilience, innovation capacity, and policy flexibility of the United States, and that a prolonged trade confrontation would ultimately impose greater costs on Europe than on China, forcing Brussels to recalibrate its approach.
From this perspective, China’s strategy is relatively straightforward: publicly defend multilateralism and WTO rules while opposing what it sees as discriminatory measures from the EU, resist making substantive concessions, and exploit differences within the EU by engaging key member states and major European companies with significant interests in China.
The underlying deadlock remains difficult to resolve. China cannot easily reduce its surplus, while Europe is increasingly unwilling to absorb it. The EU does not want outright decoupling and instead hopes to manage the problem through new rules and regulatory frameworks. Beijing finds it increasingly difficult to accept.
As a result, EU-China relations may be entering a period of more intense friction, potentially including elements of a trade or supply-chain confrontation. Only once the costs become tangible for both sides—hitting Europe’s industrial base and China’s overseas growth ambitions—may the two return to the table for a more substantive negotiation and a limited reset.
Unfortunately, that would likely be a lose-lose outcome for both sides.