The European Union (EU) is facing a new China shock, a looming crisis that threatens to disrupt its industrial landscape and potentially lead to de facto colonization by Beijing. This is not just about the rise of Chinese imports; it's about the growing reliance on Chinese components and the resulting impact on local factories, jobs, and the very fabric of European industry. The fear is that the EU's dependence on China is becoming a ticking time bomb, with echoes of the 1990s China shock when the country burst onto the global trade stage, displacing local industries and causing significant job losses.
One of the key concerns is the sheer volume of components being imported from China. Jens Eskelund, president of the European Chamber of Commerce in Beijing, highlights that the problem is not just finished goods like electric vehicles (EVs), but the components that make them. As these components become more deeply embedded in the EU's industrial bloodstream, the bloc is facing stark choices. The EU is considering forcing European companies to buy critical components from at least three different suppliers, a move that could have far-reaching implications.
The issue is not just about the cost; it's about the exchange rate. State subsidies and a potentially undervalued yuan have made Chinese products cheaper, leaving procurement bosses with little choice. This is a rational choice, as Oliver Richtberg, head of foreign trade at VDMA, points out, but it's also unfair and hurts European industries. The loss of market share and the pressure on local factories are evident, with Germany losing 22,000 jobs in the machinery industry alone in the last year.
The data is worrying. For example, the EU imports 52% of amino acids, used extensively as flavour enhancers and in pharmaceuticals, from China by value, but a staggering 88% by volume. Similarly, polyhydric alcohols, used in plastics, cosmetics, paint, and antifreeze, account for about 96% of EU imports by volume. This is the less visible part of the China trade story, and it's a risk that EU production becomes uneconomic, leaving the bloc dependent on the very source that displaced it.
The impact of the 2024 EU tariffs on Chinese electric vehicles, which were wiped out by the exchange rate, further highlights the challenge. Andrew Small, director of the Asia programme at the European Council on Foreign Relations, argues that the tools used by the EU are not commensurate with the import levels. China is now Germany's top trading partner, and its surplus with the EU is ballooning, with imports hitting $118bn and exports dipping to $93bn.
The growing reliance on China is an existential worry for the EU. Eskelund notes that 26% of European Chamber members are increasing their onshore presence in China, and the deindustrialization is already happening, with Germany losing 10,000 to 15,000 jobs a month. This could go beyond an economic issue and become a security concern.
The EU has proposed two legislative acts to safeguard industry: the Industrial Accelerator Act and an update to the Cyber Security Act. However, these won't be in force until 2027, leaving Brussels under pressure to find immediate solutions. The question is, where are the member states on this? Tariffs, while politically charged, are seen as a nonstarter, and the EU must carefully calibrate its response to China's inevitable hostile reaction. The future of European industry hangs in the balance, and the time to act is now.
