The European Union will next month outline how to deal with the increasing economic, trade and geopolitical challenges from Beijing. There are signs that Germany, which had previously prevented taking tougher measures against China, is reconsidering its policy. Meanwhile, China has successfully courted Spain, causing concerns about unity within the EU.
According to a report by Reuters on Thursday, the European Commission will review its trade defense arsenal and decide whether to take further measures to address various threats and pressures from Beijing, including restrictions on rare earth exports.
Threats from Beijing will be at the core of the new policy focus, as concerns grow about Europe’s heavy dependence on key minerals and Chinese subsidies for imports posing unfair competition to European companies.
Notably, Germany is adjusting its stance on China. A year ago, Berlin was against imposing tariffs on electric cars made in China. However, last week, Germany established an expert committee to provide recommendations to the parliament on issues related to “security-related trade relations” with China and restarted “risk mitigation” measures.
German Chancellor Friedrich Merz stated this month that Germany will not allow components from Chinese companies in its future 6G mobile network. He also broke Germany’s decades-long doctrine of free trade, calling for measures to protect the European steel industry.
German Finance Minister Lars Klingbeil, who visited China this week, expressed concerns about China’s restrictions on rare earth exports and industrial overcapacity.
He told Reuters in Shanghai, “We have learned from our dependency on Russia’s energy supply. Germany and Europe are making themselves stronger.”
He added, “I am in favor of free and open markets. But I do not want to see the German steel industry suffer losses due to Chinese steel products supported by the state.”
The underlying reasons for the shift in Germany’s China policy are due to China’s weakening economy and its upward shift in the industrial production value chain, meaning it is no longer a reliable export market for Germany.
Trade realities are driving policy changes. Since 2019, the EU’s trade deficit with China has increased by nearly 60%, and Germany’s trade balance with China shifted from a surplus to a deficit in 2023 and continues to expand.
Jacob Gunter, an expert from the Mercator Institute for China Studies (Merics), stated that Germany adopting a tougher stance could be a game-changer in the EU’s attitude towards China.
However, he noted, “China (CCP) will not worry about Europe’s hawkish rhetoric unless it threatens their access to the European market.”
While Berlin’s attitude towards Beijing is cooling, Madrid has opened up investments from China in renewable energy, electric car batteries, and mining. At the same time, Spanish pork producers have enjoyed lower tariffs than their EU counterparts in China’s anti-dumping investigations.
The recent visit of King Felipe of Spain to China further highlights Beijing’s success in cultivating Madrid as its ally within the EU.
According to Bloomberg, Noah Barkin from the Rhodium Group warned that Spain’s China policy increasingly contradicts the European consensus established in Brussels, Berlin, and Paris.
He said, “This ‘Spain First’ approach could undermine EU unity at a critical moment, as the EU faces unprecedented economic threats from Beijing in rare earths and issues related to chip manufacturer ASML Semiconductor (Nexperia).”
Ferdinand Schaff, Senior Manager for Greater China at the Federation of German Industries (BDI), warned, “Tools against coercion are our sharpest tools, but unity is key, and China (CCP) is intentionally exploiting divisions within the EU.”