The European Commission will develop new trade defense tools, including a diversification instrument, to address the EU's "unsustainable" trade deficit with China. EU leaders are backing a strategy of de-risking, not decoupling, while maintaining dialogue.
The EU's move signals a strategic shift towards greater economic self-reliance and a more assertive approach to trade imbalances with China, potentially impacting global supply chains and international trade relations.
European Union leaders are converging on a tougher stance toward China, driven by concerns over unfair trade practices and growing economic dependence. The European Commission is being urged to develop stronger tools to counter Beijing's influence, as the bilateral trade deficit in goods continues to widen. EU trade chief Maroš Šefčovič stated that the current trading relationship with China is unsustainable and requires rebalancing, not confrontation.
European Commission President Ursula von der Leyen announced that the Commission will develop new trade defense tools, including a diversification instrument, to tackle the EU's "unsustainable" trade deficit with China. She emphasized that Europe must use its existing toolbox more proactively and strategically to defend its interests. European Council President António Costa stressed that the status quo cannot continue, noting the daily deficit of approximately €1 billion is unsustainable.
The proposed diversification instrument would be country-agnostic, aiming to help European companies in specific sectors de-risk faster, as supply chain diversification has been too slow. The Commission has not specified a timeline, but officials suggest the State of the Union speech in September is a likely occasion for presenting these new instruments.
While EU leaders showed unity, not all member states favor a more aggressive trade policy. Germany, heavily reliant on exports to China, and Spain, a hub for Chinese investment, are wary of provoking Beijing. France, however, has led calls for stronger tools to contain China's overcapacity and market-distorting subsidies, with President Emmanuel Macron stating that the summit signals Brussels is taking a harder line.
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