EU-China Trade Relations: How Economic Security, Competitiveness, and Trade Policy Are Changing

For years, industrial overcapacity from China has hovered at the center of EU debate. But the discussion is increasingly less about a single cause—and more about a broader question: how the EU competes, secures critical supply chains, and protects strategic industries while staying commercially engaged with a major trading partner. In Brussels, the tone has evolved from episodic disputes to a more systemic approach combining trade defense, industrial policy, and economic-security instruments. 

At the same time, the relationship is not being framed as a binary “decoupling” choice. The picture that emerges is more like a balancing act under pressure: Europe remains dependent on China in areas such as critical raw materials and advanced manufacturing, while trying to reduce vulnerabilities—often through tools that can be scaled up, adjusted, or used as leverage in negotiations. 

The analysis below draws on insights shared by trade policy experts, including MLex Chief Trade Correspondent Cynthia Kroet and trade policy expert Hosuk Lee-Makiyama, during a recent discussion on the future of EU–China trade relations. 

Chinese Industrial Overcapacity Is Reshaping EU Trade 

China’s industrial overcapacity is frequently described as the defining challenge in EU-China relations. Yet even that framing is nuanced: overcapacity appears less as an isolated phenomenon and more as a symptom of wider structural pressures—subsidies, export surges, and strategic industrial policy. 

As Cynthia Kroet, MLex’s Chief Trade Correspondent, put it: 

“Chinese industrial overcapacity has really become… the biggest challenge in that relationship.” 

She also highlighted that what feels new is not simply the existence of trade remedies, but the scale and pace at which they are being deployed. According to her reporting, the European Commission has already imposed 19 definitive duties, and 14 of those involve goods from China. That matters because it shows a shift from one-off responses to a rising volume of enforcement and protection against specific sectors. 

Kroet pointed to industries particularly affected by this escalation, including steel, electric vehicles, and chemicals. The drivers are twofold: export surges “fueled” by state support and weak demand on the Chinese side, which can redirect supply toward overseas markets. 

So why does Europe respond more aggressively now? One interpretation is that EU policymakers believe traditional trade defense tools are struggling to keep up with systemic overcapacity. Another is that the EU is preparing for negotiations where trade defense and economic-security measures can function as bargaining chips. 

How the EU Is Strengthening Trade Defense and Economic Security  

The most striking insight from policy discussions in Brussels is that the EU is not relying on one lever. It’s assembling an interconnected toolkit—trade defense measures, investment screening, industrial competitiveness initiatives, and economic-security instruments. 

Kroet summarized this direction clearly: 

“As a result… [the EU] has become more and more willing to use [trade defense] instruments, also together with… strengthening its foreign investment screening and… develop economic security tools.” 

Meanwhile, Hosuk Lee-Makiyama (an expert on trade technology and international affairs) offered a broader strategic lens. He argued that what looks like a “crossroad” is not really a moment of choice between East and West—it’s more like an ongoing progression of confrontation and friction that Europe has lived with before. 

He put it this way: 

“This is not a crossroad… we are already on the road.” 

In his view, the EU’s measures function as “leverage accumulation” rather than as a one-time escalation. That is consistent with how economic-security and industrial-policy tools can be used both defensively and tactically. Investment screening, for example, can reduce exposure to acquisitions in sensitive sectors. Trade defense instruments can limit market access. Industrial acceleration policies can improve Europe’s ability to compete over time. 

Trade Policy Alone Won't Close the Competitiveness Gap 

Although overcapacity and trade remedies dominate headlines, the underlying policy ambition is broader: restoring and strengthening European competitiveness while maintaining openness where possible. That competitiveness agenda includes faster permitting, more predictable investment conditions, and targeted industrial support. 

As Kroet noted, Europe’s approach is partly about getting “its own house in order,” including simplifying regulation and accelerating permitting. She also emphasized timing: competitiveness reforms may take years to materialize—while market pressures are immediate. 

This tension—speed versus effectiveness—came through in the debate. Lee-Makiyama stressed that Europe faces structural underinvestment in innovation compared with competitors. One particularly vivid datapoint from his remarks: Europe’s R&D intensity has been around 1% of GDP, while other major economies spend far more. 

He warned that underinvestment becomes hard to reverse quickly: 

“Over 30, 40 years of consistent underinvestment in R&D… that’s how China caught up.” 

Whether one agrees with the exact characterization, the logic is clear: when rivals outspend you in research and industrial upgrading, trade remedies alone cannot solve the competitiveness gap. 

The Future of EU-China Trade Relations: Long-Term Strategy or Short-Term Policy? 

A natural question for stakeholders is whether these moves add up to a coherent, durable strategy - or whether they’re simply reactive steps to surges, disputes, and domestic political pressure. 

Kroet suggested the first part: there isn’t one single policy response. The Commission is pursuing trade remedies while questioning whether those tools are sufficient for systemic overcapacity. She also referenced expectations for “a new tool” and signaled that autumn could be a key window for additional measures. 

Lee-Makiyama leaned into a more strategic explanation. He argued that trade war is a “permanent state of things,” with reciprocity as a default pattern. The key difference, in his framing, is not whether friction exists, but how policymakers manage the “escalation ladder” toward an eventual negotiation and outcome—especially one where neither side wants to be seen as yielding too much. 

In practical terms, this means stakeholders should not expect a single policy document to end the conflict. Instead, the relationship is likely to evolve through iterative adjustments. 

What Happens by October? Dialogue, Deadlines, and “Tangible Results” 

The debate also centered on the timing of EU-China engagement. Kroet referenced statements suggesting “tangible results” by October, following meetings including a contact between EU and Chinese officials. Yet she also noted that the dialogue’s targets have been described “quite vaguely,” leaving open the question of what results could look like. 

Lee-Makiyama suggested that the October window will depend on what the EU and China want to achieve—whether that’s a change in Chinese thinking or simply limiting access to the EU market. 

From a stakeholder perspective, the strategic risk is that negotiations become a holding pattern, where measures continue to accumulate while diplomacy struggles to produce concrete breakthroughs. 

The Domestic Politics Dimension: Elections and Strategic Priorities 

Domestic elections matter because trade policy intersects with jobs, industrial survival, and political messaging. One audience question asked whether elections in France, Italy, and Spain would affect EU management of Chinese overcapacity. The response suggested that Europe has already moved toward recognizing that “something needs to happen” to protect industries. 

However, both speakers implied that Europe’s strategic horizon is expanding. Lee-Makiyama noted that by 2027, issues like defense and broader security frameworks may dominate the political agenda - making overcapacity feel less central by comparison, even if it remains economically significant. 

Forced Labour Regulations: More Political Than Commercial, But Still Material 

A final thread in the discussion was the potential impact of the EU’s forced-labour framework on negotiations. The view expressed was that commercial impacts may be limited for external sourcing from China’s Xinjiang region, but the regulation is still politically significant. 

Kroet summarized the logic in practical terms: 

“It’s more of a political conflict than a commercial one.” 

So even if direct sourcing effects are smaller, the regulation can still harden negotiation positions and constrain how far the EU can go toward market-opening concessions. 

but limited space for constructive resolution. 

Conclusion: Expect Iteration, Not Resolution 

The EU-China relationship is entering a phase characterized by iteration rather than resolution. Overcapacity triggers trade defense actions, but the competitiveness agenda, economic-security instruments, and domestic political priorities shape the long-term trajectory. Europe is not abandoning trade; it is redefining the conditions under which trade is considered safe, fair, and strategically sustainable. 

If there is a single message to take away, it’s this: the relationship is less about whether friction exists and more about how leverage is built, how vulnerabilities are reduced, and how quickly European reforms can catch up with industrial realities. For businesses, the winners will likely be those that treat compliance, supply-chain resilience, and innovation investment as interconnected—not separate workstreams. 

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