However, this approach faces resistance from both the right and the left within the bloc. Spain's left-wing government is reliant on Chinese investment to boost its economy, while critics on the right say Europe has strangled its own industries through over-regulation and green policies.
China Rises, Europe Falls
The trade imbalance between Europe and China has been growing steadily, driven by thriving Chinese exports and stagnating European industries.
The EU’s deficit with China surged to €359.8bn ($419.2bn) in 2025, up from €304.5bn ($354.8bn) in 2024, according to Eurostat, with exports falling by 6.5% and imports increasing by 6.4%. The trade imbalance also rose by €2.9bn ($3.4bn) from the first to the second quarter of this year.
Germany, which was initially reluctant to engage in any hardline tactics with China, has been one of the worst-hit countries as its automotive industry is being undermined by sales of Chinese electric vehicles (EVs) in particular.
The German problem is emblematic of the wider European issue. Where once German BMWs had a market both at home and in China, cheaper Chinese cars are now sweeping through Europe, while Chinese consumers are also turning their backs on once-prestigious European brands.
Beyond consumer goods, European industries are also becoming increasingly dependent on supply chains from the communist-led country.
Fears are rising of a China Shock 2.0, mirroring the collapse of American industries in the face of Chinese competition in the 2000s.
Europe Grinds into Action
The threat is such that even Brussels’ notoriously slow procedures are being forced into a relatively swift response, with European authorities being pressed by capitals to come up with solutions by October of this year.
Already, proposals to encourage public bodies to buy goods made in Europe and requirements for businesses to source critical components from at least three different suppliers are on the cards, while bilateral engagement is ramping up.
On 8 September, Maros Sefcovic, the EU trade commissioner, said that the EU’s deficit with China is now so large that the bloc must boost exports to and limit imports from Beijing to “rebalance” trade.
Sefcovic is heading to Beijing for talks with his Chinese counterpart and has warned that if the talks end in failure, the EU will seek to deploy some of its more than 200 trade protection tools.
Europe has already introduced tariffs on some products, such as Chinese-made EVs, which the bloc says are receiving excessive government subsidies.
European critics of China’s economic policy accuse its government of creating overcapacity within its export industries through subsidies and the suppression of domestic demand.
They argue this means industries in Europe are not competing on a level playing field, especially given China's cheap labor and substantial state financial support.
Brussels also says that European industries are being denied access to the Chinese domestic market.
Europe’s Approach Criticized
While bilateral engagement continues, China has accused the EU of prioritizing “protectionism over cooperation”, arguing that European decline is also due to high energy prices and a fragmented regulatory environment that is hindering the bloc’s own industries.
This criticism is likely to strike a nerve. The EU already faces complaints at home and abroad that its green energy targets are hurting the competitiveness of European industries.
Critics argue that these policies have ramped up costs for local producers, prompting some to move their factories to China.
The lack of innovation in new industries such as artificial intelligence is also cited as a chief reason for Europe falling behind both America and China. Some economists argue that the bloc relies too heavily on outdated incremental innovation methodologies.
Meanwhile, although countries such as France and Germany are pushing hard for a tougher trade policy with China, other nations such as Spain and Hungary have seen some success by seeking to attract Chinese investment.
Spain, in particular, is not keen on engaging in a trade war with the world’s second-largest economy. Prime Minister Pedro Sánchez has visited Beijing four times in as many years, and the country is among the most receptive to Chinese investment, particularly in the solar panel and automotive sectors.
So while the narrative is largely driven by fears that Chinese trade practices have undermined a level playing field, Europe’s ever-growing deficit is also raising awkward questions about the bloc’s approach to regulation, innovation and building resilient local industries.
