The EU is preparing for a possible trade war with China

As Chinese-made products flood the EU market and threaten thousands of jobs, the European Commission is stepping up efforts to protect EU production against the risks associated with China’s excess production.

This decision comes as Chinese customs data shows that in the first four months of 2026, Beijing accumulated a $113 billion surplus with the EU, compared to $91 billion during the same period in 2025. The surplus has widened by $22 billion over 12 months, as the EU’s trade deficit with China reached €359.9 billion in 2025.

Pressure is also mounting on Brussels, with Beijing repeatedly threatening in recent weeks to take retaliatory measures against several EU laws limiting access of Chinese companies to the single market. On Friday, China also banned these companies from contacting the Commission for inquiries into foreign subsidies of the EU.

European commissioners are set to discuss the China issue and strive to restore fair competition conditions on May 29th. What options does Europe have?

1. Reducing dependence on Chinese components The Financial Times reported on Monday that a plan is underway at the European Commission to require EU companies to purchase critical components from at least three different suppliers, setting thresholds of around 30 to 40% for purchases from a single supplier.

This proposal follows China’s restrictions on exports of rare earths and chips last year, essential for EU sectors such as green technologies, automotive, and defense.

2. Targeting strategic sectors with tariffs The European Commission presented a security and economic strategy last December, indicating new tools would be introduced by September 2026 to bolster protection of EU industry against unfair trade policies and overcapacity.

“We will fight tooth and nail for every European job, for every European company, for every open sector, if we see they are treated unfairly,” said European Commissioner for Trade and Economic Security, Maroš Šefčovič, to Euronews.

The decision to impose quotas and double tariffs on global steel imports, dominated by Chinese overcapacity, was approved by EU countries and the European Parliament in April.

Today, the chemical industry is in focus. Chinese imports of chemicals have risen by 81% in five years, but the EU’s chemical sector also depends on exports abroad, including to China, complicating any measure targeting China.

As an export-oriented industry, the European chemical industry makes over 30% of its sales abroad, posing a risk of retaliation from third countries, according to Philipp Sauer, a trade expert at Cefic, the European chemical industry lobbying group.

3. Imposing anti-dumping or anti-subsidy import duties The Commission can impose duties on Chinese companies when import prices are lower than domestic prices, and investigate firms benefiting from unfair subsidies.

However, investigations can last up to 18 months, with around one-third to half involving the chemical sector, said Mr. Sauer.

4. Using the anti-coercion instrument The coercion instrument, a last-resort tool – the “commercial bazooka” – could be utilized in cases of economic pressure from a third country, allowing the EU to implement strong measures like restricting access to licenses or public markets in the EU for China.

However, its use would require the support of a qualified majority of member states, which is not guaranteed.

Germany opposed the EU’s tariffs on Chinese electric vehicles in 2024, while Spanish Prime Minister Pedro Sánchez, who visited China four times in three years, favors closer ties with Beijing and seeks significant Chinese investments.

5. Unifying the member states Brussels faces challenges in its decoupling strategy, as EU member states remain divided on how to approach China, potentially enabling Beijing to divide capitals.

These divisions are evident in the ICT sector, where the EU proposed a new mechanism requiring the gradual removal of high-risk suppliers like Huawei and ZTE in strategic industries, starting with telecommunications.

This risk reduction strategy has financial concerns, as Chinese suppliers are generally cheaper than European counterparts like Ericsson and Nokia, partly due to subsidies from Beijing.

European telecom operators have requested financial compensation from the EU to replace their Chinese equipment, similar to the American “rip and replace” program, but neither the EU nor national governments seem willing to allocate funds.

In conclusion, a complete EU-China decoupling could have high political and economic costs, and it remains to be seen if European countries are ready to bear them.