China claims it isn’t Europe’s real problem

Europe’s future depends less on finding new ways to constrain China than on fixing the limitations Chinese competition has exposed.

Generals losing a war examine the enemy, battlefield and their own forces. Brussels prefers a different sequence, ordering new weapons first and worrying about the diagnosis later. That instinct was on display at the recent European Council meeting.

Faced with a trade deficit it cannot close and dependencies it cannot shake, the European Union agreed on a new label: ‘global macroeconomic imbalances’. To solve them, European Commission president Ursula von der Leyen was reportedly directed to engage in dialogue with China with an emphasis on results – an admission that years of escalating pressure have produced none. Her other mandate was to develop more economic security tools. No euphemism has ever confessed “we don’t know what to do” this loudly.

Europe’s China debate has become detached from any assessment of outcomes. If “de-risking”, anti-subsidy investigations, tariffs, trade defence measures, and procurement restrictions have all failed to cut dependence, narrow the deficit or restore competitiveness, why should another layer of instruments succeed?

“De-risking” became the flagship policy without ever becoming a measurable one. Three years after the policy launch, the European Commission still promotes it. Yet it has never produced a public accounting of which dependencies have been reduced, by how much and at what cost.

The search for the next instrument has become an alibi to avoid more uncomfortable conclusions. Europe keeps looking for a China solution to Europe’s malaise. It treats a competitiveness problem as a trade problem, an industrial problem as a regulatory one, and a technology gap as an external threat. Every new mechanism promises leverage over Beijing while diverting attention from weaknesses born at home.

Brussels still has not settled on what China is. The EU designated China a “systemic rival” in 2019, in the same framework that called it a partner and competitor. Seven years on, the bloc has not decided which label should govern its approach. European policy oscillates between engagement and confrontation because the underlying diagnosis remains uncertain.

It manifests in two ways. First, discussions remain fixated on changing Chinese behaviour rather than assessing European performance. Second, Brussels has spent years investigating whether Chinese companies benefited from state support and little time examining how they became so efficient. Chinese industrial success is reduced to subsidies, overcapacity and market distortions.

Yet Beijing is hardly alone in producing more than its domestic market can absorb. Europe’s per capita manufacturing footprint is about twice China’s; the difference is that one expands its industrial position while the other suffers to preserve it. Europe’s share of the global economy has fallen by a third since 2004; its share of world exports has declined too. Manufacturing’s contribution to the European economy has weakened. Two decades of erosion deserve more scrutiny than accusations directed abroad.

Beijing did not merely subsidise national champions but entire industrial ecosystems, exposing them to ruthless competition that compressed margins, accelerated innovation and rewarded scale. Hundreds of manufacturers entered China’s electric vehicle market, for instance, only to mostly disappear, leaving behind the survivors of one of the world’s harshest industrial shakeouts.

Acknowledging this does not require endorsing Chinese industrial policy. Questions surrounding subsidies, market access and fair competition remain legitimate. Yet investigations will not rebuild industrial capacity, tariffs will not generate competitiveness and “bazookas” will not restore technological leadership.

European companies do not scale up because capital stays locked behind national borders. Energy costs run higher than those of their rivals. World-class research dies on the way to commercialisation. None of those failures originated in Beijing.

A narrative centred on external villains is simply more convenient. China subsidises, China dumps, China overproduces, China dominates supply chains. But the double standards become untenable: Germany’s economic model was built on export-led growth; Beijing gets criticised for the same arithmetic. European subsidies are framed as resilience; Chinese subsidies as distortion.

The contradiction becomes harder to ignore when viewed through the lens of power. The European Commission threatened retaliation during tariff negotiations with Washington before ultimately accepting adverse terms. If Europe struggles to influence an ally deeply intertwined with its security, what leverage does it expect to wield against a country that spent two decades securing dominance in critical minerals, processing capacity and technology supply chains?

Instead of evaluating the effectiveness of existing measures, the commission has been tasked with developing new ones, including an overcapacity mechanism modelled on America’s US Section 301. No official explained whether the last tool worked before greenlighting the next. Europe’s China policy increasingly resembles an expanding toolbox attached to a shrinking sense of purpose.

Economic coercion works when the target depends on you more than you depend on it. Beijing’s shock move to impose sweeping rare earth export restrictions last October – subsequently suspended – exposed Europe’s vulnerability. Four months before the truce expires, Brussels has yet to show that its policies can reduce that exposure. The timing is significant: the EU is expected to decide on such new trade-defence instruments around the same time. The record offers little reassurance: previous measures against China triggered retaliation and ultimately forced Brussels to scale back or withdraw its actions.

Years of confrontation have produced a fire-alarm system without resolving the question of where the fire is. Three years into “de-risking”, nobody can show what has been de-risked. Seven years after declaring China a systemic rival, the EU still cannot explain what that rivalry is meant to achieve.

Europe’s future depends less on finding new ways to constrain China than on fixing the limitations Chinese competition has exposed.