Europe is grappling with a renewed “China shock” as trade analysts and industry representatives warn of the increasing encroachment of Chinese manufacturing on local industries. This phenomenon, reminiscent of the crisis faced by the United States 25 years ago, is causing concerns over job losses and the potential for Beijing to dominate the region’s industrial landscape. The original “China shock” referred to China’s entry into the global trade arena following its World Trade Organization membership, which resulted in a surge of imports that severely impacted U.S. industries, causing significant job losses.
Jens Eskelund, the European Chamber of Commerce president in Beijing, highlighted the growing reliance on Chinese imports, particularly components, which is deepening Europe’s dependence on China. The Financial Times recently reported on the European Union’s consideration of new measures, such as requiring companies to source critical components from multiple suppliers, to tackle this dependency. The issue is exacerbated by China’s state subsidies, which make its products more affordable, and exchange rate fluctuations that have left the yuan undervalued against the euro, as noted by German economist Jürgen Matthes. This situation leaves European procurement officials with limited options.
Oliver Richtberg, who leads foreign trade at VDMA, a trade body for the machinery and equipment manufacturing sector, noted the disparity in product pricing and quality between China and Europe. With Chinese products often being 30-50% cheaper, European industries are under significant pressure, resulting in job losses, particularly in Germany’s machinery industry. The problem extends beyond cost; a trade consultant, writing anonymously on a China trade watch website, pointed out that the EU’s reliance on inexpensive Chinese inputs threatens domestic production’s viability, risking a shift to complete dependency on Chinese imports.
China’s trade surplus with the EU continues to widen, with the impact of the 2024 EU tariffs on Chinese electric vehicles being negated by exchange rate issues. Andrew Small from the European Council on Foreign Relations highlighted the inadequacy of current EU measures to address the flood of imports. As China becomes Germany’s top trading partner, the country’s industrial job losses have been stark, particularly in the automotive sector. Jens Eskelund expressed concerns about this reliance, noting that it could evolve from an economic challenge to a security issue for Germany.
In response to these challenges, the EU is exploring legislative proposals like the Industrial Accelerator Act and updates to the Cyber Security Act, aimed at protecting European industry. However, these measures won’t be implemented until 2027, leaving the EU in urgent need of immediate solutions. Small emphasized the complexity of the situation, noting that while the EU must navigate potential backlash from China, Beijing currently holds significant influence over the ongoing trade dynamics. The EU’s political efforts to impose tariffs have not sufficed to rectify trade imbalances, and there is reluctance to pursue similar measures again, given the political capital already expended.