Europe is grappling with a renewed “China shock,” as concerns rise over the increasing integration of Chinese-manufactured components into the continent’s industries, potentially leading to job losses and heightened dependence on Beijing. This situation echoes the economic crisis experienced by the United States 25 years ago, when China became a member of the World Trade Organization, resulting in a surge of imports that displaced local industries and caused significant job losses. Jens Eskelund, president of the European Chamber of Commerce in Beijing, emphasized that while many associate Chinese imports with finished goods like electric vehicles, the real issue lies in the massive influx of components from China, which is making Europe more reliant on Chinese production.
The European Union is now at a crossroads, considering measures to mitigate this increasing dependency. One proposal under discussion is to require European companies to source critical components from at least three different suppliers. In urgent talks scheduled for 29 May, European commissioners will deliberate on the appropriate actions to take. Oliver Richtberg, head of foreign trade at VDMA, praised the EU’s engagement efforts but criticized Germany’s approach, highlighting that state subsidies in China and currency fluctuations have made Chinese products significantly cheaper, putting European industries at a disadvantage.
The situation is precarious, as evidenced by the loss of 22,000 jobs in Germany’s machinery industry over the past year. Trade data indicates a concerning shift, with China now being Germany’s largest trading partner, overtaking the United States. China’s trade surplus with Germany has doubled, reflecting a substantial increase in imports from China while exports have declined. Andrew Small, director of the Asia programme at the European Council on Foreign Relations, warned that the current EU measures are inadequate to address the level of imports, as evidenced by the limited impact of tariffs on Chinese electric vehicles due to unfavorable exchange rates.
As the EU devises strategies to protect its industries, it has proposed the Industrial Accelerator Act, known as the “made in EU” law, and updates to the Cyber Security Act of 2019, permitting companies to avoid Chinese products on security grounds. However, these measures will not take effect until 2027, leaving the EU under pressure to find immediate solutions. Small pointed out that while tariffs required significant political efforts, they have not resolved trade imbalances. He also noted that China’s strategy may involve obstructing new EU countermeasures, ensuring its exports continue to flow, thereby complicating Europe’s efforts to safeguard its industries.