San Francisco Frontiers - EU looks to bolster defences as China threatens key sectors

As tensions come back down a notch with the United States, after Europe got approval of a 2025 trade agreement over the line, the bloc is turning its focus to China.

And it's not alone.

Experts and governments are increasingly warning of a "China shock 2.0", with a glut of cheap goods made in the Asian powerhouse threatening manufacturers not just in Europe but around the world as trade deficits widen with China.

Of rising concern in Europe is the yawning trade gap between China and the 27-nation EU, as the flow of cheap Chinese imports keeps rising.

The bloc's goods trade deficit with China hit some 360 billion euros ($420 billion) last year, meaning Chinese exports exceeded EU imports significantly.

"China's industrial dominance is not accidental. It is the result of decades of state subsidies and non-reciprocal market access," EU industry chief Stephane Sejourne told European Union ministers in Brussels on Thursday.

He later told reporters that 29 million jobs were "at very high risk in the coming months due to the trade deficit", citing the European Central Bank.

But the EU's trade worries over China are nothing new.

Since 2023, European Commission President Ursula von der Leyen has pushed a "de-risk, not decouple" approach that balances concerns over relying too much on China with keeping ties.

On Friday, she will lead a debate with her team of European commissioners on what the EU should do to defend the continent's companies from what Brussels describes as unfair competition from Chinese rivals.

Europe is also simultaneously seeking to diversify its trading partners, especially for rare earths, an industry dominated by China, after Beijing's stringent export controls last year revealed just how vulnerable the bloc is.

The EU also hopes new rules set to be unveiled next week will bolster local manufacturing of chips, used in various electronic products.

- More tariffs? -

Without naming China, four major EU economies -- France, Italy, the Netherlands and Spain -- circulated a document at the weekend pointing to the need for tougher measures to combat the "rise of unfair trade practices".

But their push pits them against Europe's biggest economy, Germany, which exports many goods like cars and factory machinery. Berlin is more cautious, fearful of upsetting Beijing and the painful consequences that could bring.

Quoted by the Financial Times newspaper on Thursday, Sejourne said the EU would step up its use of import quotas and tariffs on China to protect certain sectors including chemicals, metals and clean technology.

An EU official also told AFP commissioners would discuss whether new kinds of measures were needed to address the imbalance.

In response to Sejourne's comments, foreign ministry spokeswoman Mao Ning warned China "will take all necessary measures" to safeguard its legitimate rights and interests.

The EU in recent years has tried to tackle the imbalance through higher tariffs and a wave of anti-subsidy probes in the clean tech sector, leading to increased trade frictions between Brussels and Beijing.

Chinese attempts to invest in Europe have also increasingly met resistance.

The latest example came on Thursday when the EU kickstarted a probe into Chinese e-commerce giant JD.com's bid for major German electronics retail group Ceconomy on suspicion it was boosted by state subsidies.

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J.Peterson--SFF