Economic Security, Strategic Balancing: The Next Phase of the EU's China Policy
The EU looks to expand its economic toolkit while preserving dialogue with China amid growing trade tensions.
Dear Readers of Eurasia Dispatch,
Welcome to the latest issue of the newsletter! As always, there is a lot to unpack, so let’s get down to business.
This week, Eurasia Dispatch covers:
Institutions
Member states
Business
Commentary
INSTITUTIONS
EU leaders seek stronger China trade tools while keeping dialogue open
EU leaders have asked the European Commission to examine new trade defence measures as concerns grow over China’s industrial capacity, subsidies and rising exports into the European market. The decision reflects increasing support among member states for strengthening the EU’s economic security approach, although leaders stopped short of approving immediate new restrictions.
During the Brussels summit, discussions focused on expanding the EU’s existing toolbox and assessing how current instruments could be used more effectively. Leaders also stressed the importance of continued engagement with Beijing, with Chinese Commerce Minister Wang Wentao expected in Brussels later this month for talks with EU Trade Commissioner Maros Sefcovic.
The debate highlights a growing tension within the bloc between reducing economic dependencies and maintaining commercial ties with China. While countries including Germany have shown greater openness towards tougher measures, others remain cautious about escalation and potential retaliation. The Commission will now assess possible options, a process expected to take time before any new instruments are introduced.
The Eurasia Dispatch Take: Expectations ahead of the summit were high, with some observers anticipating that EU leaders would provide a clearer direction on the bloc’s future approach to China. Instead, the outcome focused largely on further assessment and preparation of possible measures rather than immediate policy decisions. The next steps, including Chinese Commerce Minister Wang Wentao’s reported visit to Brussels, may provide additional indications of the direction of EU-China economic relations. A successful establishment of a trade and investment consultation mechanism would represent a significant development, signalling that both sides are prioritising structured dialogue and dispute management. Such a mechanism could help create channels for addressing differences and reduce the risk of further escalation in trade relations.
MEMBER STATES
Merz raises exchange rate concerns as EU debate over China trade intensifies
German Chancellor Friedrich Merz has introduced currency policy into the EU’s growing debate over economic relations with China, arguing that the renminbi is significantly undervalued and contributes to China’s export competitiveness. Speaking after the European Council summit, Merz linked the exchange rate issue with broader concerns over subsidies, industrial mass production and Europe’s widening trade deficit with China.
His comments add another dimension to ongoing discussions in Brussels over trade defence measures, supply chain resilience and industrial competitiveness. Merz referenced the 1985 Plaza Accord as an example of international coordination on currency issues, though the comparison has prompted debate given the different economic circumstances today.
The exchange rate argument comes amid wider European manufacturing pressures, including high energy costs, slower investment and waning competitiveness in sectors such as automotive and clean technology. The discussion highlights the broader question of whether Europe’s industrial challenges should primarily be addressed through external trade measures or domestic competitiveness policies.
The Eurasia Dispatch Take: Germany has traditionally taken a more cautious approach towards a tougher China policy. Merz’s recent comments may indicate a shift in Berlin’s positioning, although it remains unclear whether this reflects a lasting policy adjustment or short-term political signalling. China remains a major trading partner for Germany and a significant source of investment, creating incentives for Berlin to balance economic concerns with broader strategic considerations.
If the remarks are followed by more measured messaging, they could represent an attempt to strengthen Germany’s negotiating position while maintaining engagement. However, if they reflect a broader change in policy direction, they could signal increasing alignment among EU member states around stricter economic measures towards China and contribute to further tensions in the relationship.
BUSINESS
EU considers additional duties on Chinese plug-in hybrid vehicles amid trade deficit concerns
The European Commission is reportedly preparing to impose potential countervailing duties on Chinese plug-in hybrid vehicles, according to the German newspaper Handelsblatt, citing EU officials and industry sources. The measures could be introduced once a majority of EU member states approve the proposal, although the Commission has not commented on the report.
The possible tariffs would target vehicles from Chinese manufacturers, including BYD, Chery, and SAIC, and would expand the EU’s existing trade measures on Chinese electric vehicle imports introduced in 2024.
The move comes as EU leaders discuss additional measures to address concerns over the bloc’s growing trade deficit with China and reliance on Chinese suppliers for strategic goods, including rare earths. The discussions form part of a wider EU review of its economic relationship with Beijing, with trade defence instruments becoming a central element of the bloc’s approach.
The Eurasia Dispatch Take: The potential move carries several implications. First, it could add further strain to EU-China economic relations, which are already facing increased tensions over trade and industrial policy. Second, it may have consequences for European consumers. The popularity of Chinese electric vehicles has partly been driven by competitive pricing, meaning additional duties could increase costs for buyers rather than directly addressing the underlying competitiveness gap faced by European manufacturers.
Third, targeting plug-in hybrids may only address part of the challenge. Chinese manufacturers have previously adapted to EU trade measures by shifting their market focus, including from battery electric vehicles towards plug-in hybrids after the introduction of EV tariffs in 2024. A similar adjustment in response to new measures could limit their effectiveness and require the EU to consider broader long-term strategies.
COMMENTARY
From individual measures to a broader framework for EU economic security
In a research paper, Andrew Small, director of the Asia programme at the European Council, argues that the EU’s current approach to China has been too fragmented, with responses often focused on individual sectors or specific trade issues. He suggests that the bloc should move towards a broader framework for single-market access based on transparency, reciprocity and resilience.
Small proposes six principles covering areas such as fair competition, supply-chain diversification, security standards for critical infrastructure, corporate transparency and restrictions on firms linked to security concerns. He argues that these rules should apply broadly rather than target China specifically, while addressing challenges associated with China’s industrial policy and growing role in strategic sectors.
According to Small, a more coordinated approach would allow the EU to use existing tools more effectively, reduce vulnerabilities and strengthen its negotiating position while keeping channels for dialogue open.
The Eurasia Dispatch Take: Small’s proposals highlight the potential benefits of a more comprehensive EU approach compared with the current sector-by-sector response. A broader framework could help the EU address external dependencies more consistently, regardless of whether they involve China, Russia or other partners. However, designing country-neutral policies presents practical challenges, as different external actors generate different risks and may require differentiated policy tools.
A second challenge concerns maintaining engagement with China while strengthening economic security measures. A more structured approach could create friction with Beijing if it is perceived as disproportionately targeting Chinese firms, even as both sides remain economically interdependent and reliant on continued dialogue.
An additional consideration is the impact on European consumers and firms. Some of the measures implied in Small’s framework, including higher compliance costs and trade restrictions, could feed through into prices and competitiveness. This matters in a context where European consumers often face a choice between higher-cost domestic products and lower-cost imports. As Small notes, these trade-offs may be unavoidable but would need to be managed through broader policy support and sequencing.
BEFORE YOU GO
The European Council, new potential tariffs, and the EU’s economic security regulatory drive have shaped the Eurasian discourse over the past weeks. Developments on these fronts will reverberate across global politics, trade, and defence. If you are interested in how these processes evolve, stay tuned for further updates in the next issue of Eurasia Dispatch! Thank you for reading, and we’d love to hear your thoughts—feel free to share your insights and feedback.
Until next time,
Eurasia Dispatch
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