EU Vs China : Trade Tensions Reach New Heights

Tensions between the European Union and China have reached new heights. For several months now, Brussels has been targeting Chinese companies it accuses of benefiting from public subsidies, which distort competition. Under the Foreign Subsidies Regulation (FSR), the EU has launched several investigations, notably against CRRC, the Chinese rail equipment giant, and solar panel manufacturers involved in European projects. In response to these probes, Beijing has reacted strongly, denouncing what it calls discriminatory practices. This standoff, which highlights deep divisions over international trade rules, could reshape the balance of power between the two economic giants. While the EU seeks to protect its market, China is concerned about stricter regulations that could hinder the expansion of its industrial champions. In this context, investors and businesses are bracing for significant uncertainty, where every political decision could influence the dynamics of trade between Europe and the world’s second-largest economy.

Europe Tightens Regulations on Chinese Subsidies

The European Union is increasing its scrutiny of companies receiving foreign public subsidies, which it suspects distort competition within its market. Under the EU’s Foreign Subsidies Regulation (FSR), Brussels has launched several investigations targeting Chinese companies, including CRRC, a major player in the rail sector, as well as solar panel manufacturers involved in a photovoltaic project in Romania. EU authorities believe these companies benefit from state support that gives them an unfair advantage within the single market.

These investigations have sparked a strong reaction from Beijing. In an official report, China’s Ministry of Commerce criticized the measures as “excessive” and “discriminatory.” It denounced “surprise inspections” and accused EU investigators of being “subjective and arbitrary.” According to Chinese authorities, these measures impose a “heavy administrative burden” on the companies involved, creating legal uncertainty that has reportedly forced several firms to revise or cancel their projects in Europe. The economic impact is significant. Beijing estimates these losses at nearly €2 billion, a figure that it says reflects the growing pressure Brussels is placing on Chinese players in the European market.

A Chinese Retaliation in the Making ?

Faced with European restrictions, China is considering intensifying its retaliatory measures against European companies. Among its initial actions, an ongoing anti-dumping investigation into imports of European brandies and cognacs has been extended. Since October, Beijing has required European importers of these products to provide bank guarantees at Chinese customs, a measure seen as a response to the surcharges imposed by Brussels on Chinese electric vehicles. This escalation underscores the strategic heightening of trade tensions between the two economic powers.

Beyond these targeted retaliations, China is grappling with a slowdown in domestic consumption, which is weighing on its economic growth. In response, Beijing is striving to secure international markets to protect its businesses from what it perceives as unjustified restrictions. However, an overly aggressive approach to trade policy could backfire. By increasing pressure on European exports, China risks further straining its relationship with the EU and discouraging some foreign investors who might favor more stable markets less exposed to geopolitical tensions.

This confrontation highlights Brussels’ determination to strictly regulate foreign competition in its market, even at the cost of heightened tensions with Beijing. The EU is resolute in enforcing its new rules without concessions, while China, intent on defending its companies, may escalate retaliatory measures by targeting strategic sectors such as agri-food or technology industries. The outcome of this standoff remains uncertain. While a compromise could emerge to avoid further escalation, the risk of a prolonged trade war cannot be ruled out. Such a scenario would not only threaten bilateral trade but also further disrupt global supply chains already weakened by recent crises. For businesses and investors, caution is paramount in an increasingly unpredictable climate.