In the ever-evolving landscape of global trade, a new chapter is unfolding, one that seems to have left former President Trump on the sidelines. As the world navigates the complexities of trade wars, Europe finds itself at the forefront of a delicate dance with China, a dance that could reshape the economic dynamics of the continent and beyond.
The Trade War's New Front
Next week's high-level meetings in Europe are set to address a critical issue: the imbalance in global trade, particularly with China. The G-7 summit in Évian, France, and the subsequent European Union summit in Brussels will delve into strategies to diversify supply chains, a move that could significantly impact the EU's relationship with China.
Europe's Vulnerability
Europe is facing a surge of inexpensive Chinese imports, a direct consequence of Trump's trade wars and the protective tariff wall around the US. The EU is considering legislation to reduce reliance on single suppliers, especially those from China, to safeguard against supply disruptions and China's export controls on rare earths and semiconductors.
Missed Opportunities
Had Trump united Europe and the US in a joint trade war against China, the two largest markets for Chinese exports would have held significant leverage. However, Trump's approach, targeting everyone, has left Europe to confront China alone, a daunting task given the scale of China's trade surplus with the EU, which reached a record high of €360 billion in 2025.
EU's Response
The EU is exploring various measures, including broadening export and import quotas and tariffs on Chinese imports, to protect its automotive, chemical, metal, and green technology industries. They aim to increase manufacturing's share of GDP from 14.3% to 20% over the next decade, a goal that necessitates protecting domestic industries from cheap imports.
Beyond Manufacturing
The EU's plans extend beyond manufacturing. They aim to boost domestic technology supply chains and reduce reliance on the US and Asia, particularly China, for critical technologies like artificial intelligence, data centers, and cloud computing. This could create tension with the US, as European governments may be required to store data on regionally owned cloud platforms, favoring European companies over US giants like Amazon, Microsoft, and Google.
The OECD Report
A recent OECD report on trade subsidies highlights the urgency of the situation. It found that industrial subsidies have reached their highest levels since the 2008 financial crisis, with Chinese industrial companies receiving significantly more government support than their OECD counterparts. This has led to market share gains, with subsidies accounting for almost 60% of Chinese businesses' gains.
China's Response
Any attempt by the EU to curb Chinese imports will likely trigger a response from China. They have already warned of countermeasures if their exporters face discrimination. China's control over the supply chain for rare earths and critical minerals gives them a powerful tool to retaliate, as the US learned when it threatened punitive tariffs last year.
A Divided Europe
Europe is not united on this issue. Germany, with its export-oriented economy and significant trade with China, is hesitant to upset the balance. The EU, however, recognizes the unsustainability of the current trade relationship and the need to address the influx of Chinese imports.
Conclusion
As Europe navigates this complex trade landscape, the outcomes of these meetings will shape its economic future. The world watches with anticipation, wondering if Europe can successfully navigate this new front in the global trade war, a war that seems to have outgrown its initial instigator.
