The European Union is moving toward a more assertive stance in its economic relations with China, as officials warn that the current trade and investment dynamic is no longer sustainable. On May 29, 2026, the European Commission held internal discussions to explore ways to shield European industries from a surge in Chinese imports, particularly in sectors vulnerable to overcapacity and subsidized competition.

Background to the Trade Tensions

Europe and China have maintained a complex economic partnership for decades, with China serving as the EU's second-largest trading partner after the United States. Bilateral goods trade has grown significantly, yet imbalances have widened in recent years. European industries have faced increasing pressure from low-cost Chinese exports in areas such as electric vehicles, chemicals, metals, and clean energy technologies. The bloc has already implemented targeted measures, including tariffs on heavily subsidized Chinese electric vehicles, but broader concerns about de-industrialization have prompted calls for a more systematic response.

Key Developments in May 2026

The European Commission's May 29 meeting marked a pivotal moment. Commissioners discussed policy options ahead of an EU leaders' summit scheduled for June 18 to 19. Industry Commissioner Stéphane Séjourné indicated that existing trade defense tools, such as import quotas and tariffs, would be deployed more broadly across sectors rather than on a case-by-case basis. The Commission described the trade relationship as unsustainable, citing surging imports that threaten European manufacturing.

Five member states—France, Italy, Spain, the Netherlands, and Lithuania—have issued a joint position paper urging stronger action against what they describe as systemic industrial overcapacity. The paper calls for faster implementation of safeguards and a greater emphasis on economic security in trade defense investigations.

Proposed Measures Under Consideration

Among the ideas floated are requirements for EU firms to diversify supply chains away from single-country dependence, with suggestions that no single supplier should account for more than 30 to 40 percent of critical components. New trade mechanisms could limit China's access to the EU market in sensitive areas like chemicals, metals, and clean energy. Safeguard clauses, which allow for quicker imposition of tariffs or quotas during import surges, are expected to see wider application. Longer-term proposals include updates to public procurement rules and the Industrial Accelerator Act to favor European production.

These steps build on existing frameworks such as the anti-coercion instrument and cybersecurity regulations, aiming to create a more robust defense without immediately triggering full-scale tariffs.

Perspectives from EU Member States

Support for a tougher line varies across the bloc. Countries with significant manufacturing bases, including France and Italy, have been vocal in pushing for immediate protections. Germany, with its strong export-oriented economy, has shown more caution, concerned about potential retaliation affecting its own industries. The Franco-German divide will need bridging if proposals advance to formal decisions.

Smaller states like Lithuania and the Netherlands have aligned with the call for broader tools, emphasizing the need to address not only tariffs but also non-tariff barriers and supply chain vulnerabilities.

China's Position and Potential Retaliation

Beijing has responded firmly to the emerging EU plans. Chinese officials have accused the EU of selectively using trade data to justify restrictions and have warned of countermeasures if new barriers are imposed. Past responses have included anti-dumping probes on European products such as pork, wines, and brandy following earlier disputes over electric vehicles.

China maintains that its exports reflect competitive advantages rather than unfair practices, while European officials point to state subsidies and overcapacity as key drivers of the imbalance.

Impacts on European Industries

Sectors most at risk include hybrid vehicles, where Chinese market share has grown rapidly, as well as chemicals and metals production. European manufacturers have warned of job losses and factory closures if import surges continue unchecked. The push for supply chain diversification could benefit alternative suppliers in other regions but may increase short-term costs for businesses.

Broader effects could ripple into clean technology supply chains, where Europe aims to build domestic capacity under initiatives like the Industrial Accelerator Act.

Global Trade Context and Comparisons

The EU's deliberations occur against a backdrop of shifting global trade dynamics, including U.S. policies on tariffs and supply chain security. European leaders are seeking tools that address specific imbalances without undermining the multilateral trading system. Proposals draw inspiration from mechanisms used elsewhere but are tailored to EU legal and institutional constraints.

Discussions also reference the need for resilience tools that could apply when other defenses prove insufficient, aiming to protect producers while maintaining open markets where possible.

Outlook Ahead of the June Summit

With the leaders' summit approaching, the Commission is expected to refine proposals into concrete recommendations. Any new measures would likely require approval from member states and could face legal challenges or World Trade Organization scrutiny. The outcome will shape Europe's economic security strategy for years to come.

Officials stress that the goal is rebalancing rather than decoupling, preserving beneficial aspects of the relationship while mitigating risks.

Implications for Businesses and Policymakers

European companies may need to accelerate diversification efforts and invest in domestic or alternative sourcing. Policymakers will balance the desire for stronger defenses with the risk of escalating tensions that could harm exporters reliant on the Chinese market. Monitoring implementation of any new rules will be critical, particularly around circumvention and enforcement.

Photo by Joachim Schnürle on Unsplash

Future Trends in EU-China Economic Relations

Longer term, the EU is likely to expand its toolkit for economic security, including enhanced foreign direct investment screening and public procurement preferences. Collaboration with like-minded partners on supply chain resilience could also gain momentum. The current debate signals a shift toward proactive rather than reactive policy in response to global overcapacity challenges.