After the conclusion of the European Union summit on Friday, EU Commission President Ursula von der Leyen announced the development of a new “diversification instrument” aimed at requiring European companies to diversify key supply chain sources to expedite the “de-risking” process in relation to China.
European Council President Antonio Costa, who presided over the summit, stated that the EU’s trade deficit with China has reached €1 billion (approximately $1.15 billion) per day, describing this situation as “fundamentally unsustainable.”
Costa emphasized, “Our strategy is clear: reduce risks without disengaging, while engaging in dialogue. We need to address the challenges we are facing. A daily trade deficit of €1 billion is simply unsustainable. We cannot continue to raise these issues and not see any concrete results.”
Von der Leyen pointed out that due to the slow progress of businesses in diversifying their supply chains, the EU must take more proactive and strategic measures to protect European interests.
The proposed regulation aims to be “country-agnostic,” focusing on assisting businesses in specific sectors to diversify the supply of key components, thereby avoiding the weaponization of supply chain chokepoints.
“Improvements are necessary,” von der Leyen stated. “We have seen the data, and the data speaks for itself. We need to rebalance our relationships with each other.”
She added that if companies can proactively enhance de-risking, the regulation may eventually become redundant, but the primary task for now is to promote diversification.
French President Emmanuel Macron also advocates for establishing stronger trade tools to curb China’s overcapacity.
He stated, “Once there are suspicions of unfair competition or when we see positions that could pose problems, we must be able to react and provide protection.”
Last year, the Chinese authorities imposed export restrictions on rare earths, which was seen as a key event prompting the EU to consider legislation.
Belgian Prime Minister Bart De Wever pointed out that another agreed-upon issue among EU leaders is that in the event of retaliatory actions by a third country, the EU will stand united.
He said, “Retaliatory actions do not impact countries equally. Not every country is equally vulnerable, some are extremely vulnerable. But to some extent, every country is vulnerable, including us.”
EU officials suggest that this new trade defense tool could be formally proposed as early as the State of the Union address in September this year.