JAKARTA - The European Union is preparing fundamental changes to its trade policy amid a swelling trade deficit with China, increasing dependence on strategic sectors, and pressure on European industries due to state-backed production models in China.
As the world's largest manufacturing center, China continues to expand its penetration into the global market through government-backed industrial policies.
China is rapidly increasing production capacity in various sectors, especially electric vehicles, batteries, solar panels, critical mineral raw materials, and high-tech products, which are increasingly squeezing Europe's competitiveness.
The President of the European Commission, Ursula von der Leyen, at the G7 Summit in Canada stated that the EU's trade relations with China are currently unsustainable.
According to von der Leyen, the European Union needs to increase production capacity, expand its network of free trade agreements in various regions of the world, and diversify supply chains. He also highlighted the concentration of supplies of critical minerals and raw materials in China, so that the European Union must avoid excessive dependence on a single supplier.
China's dominance in global trade was one of the main issues discussed at a meeting of EU leaders in Brussels on Thursday and Friday.
The European Commission insists that economic ties with China still need to be maintained through a risk mitigation approach. However, current trade and investment relations are no longer sustainable.
A number of high-level consultations in Brussels show that economic and security threats can no longer be separated. This condition encourages the birth of a more comprehensive and coordinated policy towards China, including the implementation of new tariffs, import quotas, supply chain diversification obligations, and new economic defense instruments to face the risks arising from the world's manufacturing center.
Last year was a turning point in the EU's trade relations with China. For the first time, all EU member states recorded a trade deficit with the country.
Eurostat data shows that EU imports from China reached 559.4 billion euros or around 695.3 billion US dollars (Rp12.390 trillion) in 2025. Meanwhile, EU exports to China only reached 231.5 billion US dollars (Rp4.125.3 trillion), resulting in the highest trade deficit in history of 417.4 billion US dollars (Rp7.419.3 trillion).
The fierce competition from China in the electric vehicle, solar panel, battery, steel, chemical, and machinery sectors puts great pressure on European manufacturers. Therefore, Brussels now views the entry of cheap Chinese state-backed products not only as a trade issue, but also a strategic issue.
The London-based think tank Center for European Reform warns Germany faces a serious risk of deindustrialization due to China's increasing production capacity. Chinese companies are said to be increasingly seizing market share from German manufacturers, both in the German domestic market, third countries, and directly in the European market.
A number of reports estimate that China could control about 40 percent of the world's industrial production by 2030. This condition is seen as putting great pressure on production, research and development (R&D), and innovation in Europe.
To meet these challenges, the European Union is preparing various new mechanisms. The European Commission is discussing the launch of a broad market protection investigation against certain sectors, developing new instruments to deal with Chinese overproduction in strategic sectors, and implementing sector-specific protection measures.
Several proposals from France, Italy, Spain, the Netherlands, and Lithuania even go beyond the current antidumping mechanism. These countries propose the application of direct import tariffs on certain sectors without having to go through a long investigation process.
Critical product supply chain
One of the important regulations being drafted will require supply chain diversification for critical products. The goal is to prevent European companies from relying on one country or one supplier for semiconductor chips, rare earth elements, and other strategic industrial materials.
Under the draft, companies are required to have at least three different sources of supply and limit the share of one supplier in their total needs.
The European Union Trade Commissioner, Maros Sefcovic, proposed the diversification instrument to prevent potential supply disruptions, especially for semiconductors and critical raw materials.
According to the Leibniz Centre for European Economic Research (ZEW), diversification strategies do incur additional costs for companies. However, these costs should be seen as an insurance premium because the losses due to disrupted supplies can be much greater.
Another option being considered is a new mechanism to maintain the economic resilience of the EU. Through this instrument, the bloc can directly impose additional tariffs and import quotas when market practices that are considered damaging threaten the economic security of the region. The legal basis is expected to use the national security exemption clause in the World Trade Organization (WTO) rules.
The EU's increasingly assertive stance towards China is driven by concerns over strategic dependence and a growing trade deficit. Beijing's restrictions on exports of rare earth elements, magnets, and other critical technologies have also sparked concerns in Europe.
Brussels does not want to experience a repeat of the crisis that occurred after the outbreak of the Russia-Ukraine war, when energy dependence became a major problem. However, until now there has been no full consensus among member states regarding the implementation of very strict trade measures against China.
France is among the countries pushing for higher tariffs, while Germany and Spain are likely to take a more cautious approach because of their close economic ties with China.
However, the general direction of EU policy today is to reduce dependence and maintain competitiveness, not to completely cut economic ties with China.
The new trade defense instruments discussed in various meetings this week are expected to determine the direction of economic relations between Brussels and Beijing in the future.
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