Testing the Middle Ground: Europe Diversifies in a Tougher World
Europe probes de-escalation with China, diversifies toward India, and weighs its leverage as Washington pushes Arctic red lines.
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–China trade ties set for a bumpy 2026
Hopes of a near-term reset in EU–China relations look slim, according to a recent Politico analysis. After a year marked by trade frictions and diplomatic chill, the tit-for-tat dynamic shows little sign of easing. Europe’s trade deficit with China is unlikely to narrow, as Chinese demand for EU goods remains weak while Chinese exports to Europe continue to rise. At the same time, shifting global trade patterns under U.S. protectionism are complicating efforts to resolve long-standing disputes over market access and state subsidies.
This year’s first litmus test will come in February, when German Chancellor Friedrich Merz visits China. Germany’s economy is under pressure, with its carmakers losing ground to Chinese competitors and its former trade surplus with China sliding into deficit. While the EU has launched dozens of trade investigations against China, these remain narrowly targeted and do little to address structural challenges.
The Eurasia Dispatch Take: The extent to which the relationship becomes more confrontational will hinge on the resolve of Europe’s largest member states, with Germany’s position being especially influential. Any EU strategy, however, should reflect the fact that Beijing has already taken steps to respond to European concerns, including efforts to boost domestic consumer spending, rein in overcapacity and price competition, and strengthen intellectual property protection. Against the backdrop of U.S. protectionism and China’s structural strengths in areas such as technological manufacturing and rare earths, Europe needs an approach that goes beyond firefighting.
MEMBER STATES
Germany bets on India as the EU hopes to close trade deal soon
German Chancellor Friedrich Merz visited India on 12–13 January with a delegation of 23 senior business leaders, highlighting Berlin’s push to strengthen economic ties with New Delhi. During the trip, Merz said an EU–India free trade agreement could be signed soon by European Commission President Ursula von der Leyen and European Council President António Costa.
His comments come as Germany backs a broader EU strategy to diversify trade away from the United States and China. Momentum has picked up in Brussels after most member states endorsed the Mercosur deal, long championed by Berlin as part of this diversification drive.
EU–India talks intensified late last year, with an EU–India summit briefly considered for January after an end-2025 deadline slipped. Negotiations have continued at the senior level, including last week’s visit by India’s commerce minister Piyush Goyal to Brussels for talks with EU trade commissioner Maros Sefcovic.
Significant hurdles remain. Disagreements persist over sustainability provisions, particularly enforcement mechanisms, while the EU’s carbon border adjustment mechanism remains a major sticking point for India.
The Eurasia Dispatch Take: While a potential free trade agreement dominated headlines, defence and technology cooperation featured just as prominently during the visit.
Germany’s Thyssenkrupp is set to partner with Indian companies to build six advanced conventional submarines in India, supporting New Delhi’s drive to modernise its navy. Both sides also welcomed progress in defence collaboration between India’s Defence Research and Development Organisation and the Organisation for Joint Armament Cooperation under the Eurodrone MALE UAV programme, which would give India greater access to advanced military technologies and deepen its strategic links with Europe.
Space cooperation is also gaining momentum. Leaders noted intensified dialogue between the Indian Space Research Organisation and the German Space Agency and agreed to explore ways to broaden cooperation, including closer engagement at the industry level. Altogether, these initiatives point to a partnership that is expanding into the core domains of security, technology, and strategic alignment.
BUSINESS
EU and China ease electric vehicle tariff standoff
The European Commission and the Chinese government have taken a major step to defuse their protracted dispute over Chinese-made battery electric vehicles, following the EU’s decision in 2024 to impose countervailing duties on the sector. On Monday, Brussels published new guidance setting out how Chinese EV manufacturers can submit price undertaking offers as an alternative to tariffs.
Since the duties were introduced in October 2024, both sides have explored a mechanism under which Chinese producers would commit to minimum import prices, designed to neutralise the impact of state subsidies and restore fairer competition with European carmakers. The newly released guidance clarifies how such offers should be structured and what information must be provided. Companies are required to disclose minimum pricing commitments, sales and distribution arrangements, safeguards against cross-compensation, and plans for future investment within the EU.
China’s Chamber of Commerce to the EU welcomed the move, describing it as a constructive step towards a “soft landing” in a case that has weighed heavily on bilateral relations. The original investigation culminated in tariffs of between 7.8 and 35.3 per cent on Chinese battery EV imports, imposed for five years over concerns that heavily subsidised vehicles were undercutting European manufacturers.
The Eurasia Dispatch Take: This marks a meaningful positive step in EU–China trade relations. The tariffs on Chinese electric vehicles had a limited impact, as manufacturers continued to grow their market share in Europe, while the measures themselves became a persistent irritant in an already strained relationship.
That said, it should be viewed in context. It offers no relief from punitive duties affecting other sectors, including dairy, pork, and hardwood plywood, which continue to weigh on bilateral trade. Nor is it likely to resolve the EU’s core concern: the widening trade imbalance with China.
Even so, the symbolism matters. At a time marked by unilateral tariffs, rising geopolitical tension, and the broader fragmentation of global trade, any sign of de-escalation carries weight. While far from a breakthrough, the development sends a modest but important signal that pragmatic policy making remains possible.
Brussels clarifies rules on foreign subsidies as scrutiny intensifies
The European Commission has published long-awaited guidelines under the Foreign Subsidies Regulation (FSR), aiming to improve legal certainty and transparency for companies operating in the EU. The guidance explains how the Commission determines whether financial support from non-EU governments distorts competition, how any negative effects are weighed against potential benefits, and when Brussels may require notification even for transactions below formal thresholds.
The FSR, which entered into force in 2023, targets subsidies granted by third countries, with particular attention on China and the United States. Where a subsidised company competes for EU public contracts, the Commission will assess whether foreign support artificially strengthens its market position. The new guidelines make clear that subsidies granted for non-EU business activities can still fall under scrutiny if they risk being used to cross-subsidise operations within the bloc.
At the same time, the guidelines offer some flexibility. Low-value tenders, subsidies below €4 million, and certain “extraordinary” cases are exempt from prior notification, and companies can mitigate scrutiny by demonstrating that subsidies support EU policy goals.
The Eurasia Dispatch Take: The guidelines could help address concerns raised by Chinese companies operating in the EU, including complaints about growing regulatory uncertainty, restricted market access and public procurement, lengthy approval procedures, limited eligibility for subsidies, and constrained channels for dialogue with authorities. They also follow a series of high-profile cases, from the exclusion of Chinese medical device suppliers from EU tenders to investigations into CRRC’s bid for a Portuguese light rail contract and alleged subsidies for BYD’s electric vehicle plant in Hungary. These steps underline Brussels’s effort to tighten oversight while signalling a degree of procedural clarity.
COMMENTARY
Greenland: Washington’s geopolitical gambit in the Arctic
After the U.S. operation in Venezuela, Greenland has become the latest flashpoint in President Donald Trump’s geopolitical ambitions. In interviews with different media outlets, Trump renewed his push for the U.S. to acquire Greenland, framing it as a matter of national security and questioning the utility of NATO without American ownership of the territory. While Denmark and Greenland maintain it is not for sale, Trump has hinted at the possibility of using military force to acquire possession of it, citing the growing presence of Russian and Chinese ships in the region as a security threat. This purportedly increasing presence has not been conclusively proven by intelligence.
Trump emphasises the need for ownership rather than mere military presence or treaties, stating that Washington has a greater inclination to defend ownership than leases. Despite this, the idea of annexing Greenland has met staunch opposition from Denmark, warning that such an action would endanger NATO’s unity.
The Eurasia Dispatch Take: The episode highlights Washington’s drive for self-sufficiency and secure access to strategic resources. Venezuela offers oil; Greenland offers critical minerals. Given the United States’ overwhelming military superiority, Europe would have limited options if Washington chose to assert control over Greenland by force. Appeals to NATO solidarity are unlikely to carry much weight with a president sceptical of multilateral arrangements and openly frustrated with Europe’s defence spending and political establishment.
Europe’s more credible leverage lies elsewhere. Higher defence outlays, firmer NATO burden-sharing commitments, and a clear demonstration that Europeans can help secure Greenland would speak more directly to U.S. priorities. At the same time, a forced takeover would delay mineral extraction for years, whereas European commitments to develop infrastructure and supply chains could accelerate access. In a transactional era, practical offers may matter more than principled statements.
BEFORE YOU GO
U.S. moves to assert control over Greenland, closer ties between Germany and India, and progress in the EU–China dispute over electric vehicle tariffs 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
P.S. As always, I am grateful to my editor.
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