Europe has stronger trade-defence tools and a clearer understanding of its dependence on China, but Beijing’s control of critical materials can still divide member states unless Brussels cushions the cost of retaliation.
The European Union’s ability to respond to a second wave of Chinese export pressure depends less on discovering new trade instruments than on maintaining political unity when those instruments impose unequal costs across member states.
China’s strength combines industrial scale, subsidised production and commanding positions in the processing of rare earths and other critical inputs. Europe can impose tariffs, investigate subsidies and diversify supply. Beijing can respond by restricting materials needed by European automotive, clean-technology, electronics and defence industries.
A Reuters Breakingviews assessment of Europe’s response identifies the central challenge: the EU has market size and regulatory power, but those advantages weaken when national governments calculate the immediate risk to their own exporters, factories and consumers differently.
Rare earths turn trade policy into security policy
Rare earth elements and permanent magnets are essential to electric motors, wind turbines, radar, precision weapons, drones and advanced electronics. China dominates key stages of processing, leaving European manufacturers vulnerable even when raw material is mined elsewhere.
Export licensing can create disruption without a formal embargo. Delays, uncertainty and selective approval are enough to interrupt production schedules and raise financing costs.
EU Global recently reported that China rejected the G7’s critical-minerals push while defending its controls as legitimate. The dispute shows why diversification is urgent and difficult. New mines and processing plants take years, require large capital commitments and often face local opposition.
The EU’s Critical Raw Materials Act sets targets for domestic extraction, processing, recycling and diversification. Targets do not guarantee bankable projects. Investors need predictable demand, permitting and prices that can compete with Chinese supply.
Industrial overcapacity creates uneven pressure
Chinese exporters are expanding in sectors where Europe wants to preserve manufacturing capacity, including electric vehicles, batteries, solar products, machinery and chemicals. Lower-priced imports benefit consumers and downstream businesses but can undermine European producers.
That creates divisions within the EU. Countries with threatened factories may favour aggressive trade defence. Governments whose companies depend on Chinese inputs or sales may fear retaliation. Consumers and climate policymakers may resist measures that raise the cost of clean technology.
The bloc’s goods deficit with China reached €360.6 billion in 2025, according to figures cited during the June European Council debate. The political importance of the number lies not only in trade balance. It reflects a pattern in which Chinese firms sell more finished goods into Europe while access to the Chinese market becomes less rewarding for European producers.
Unity requires compensation as well as enforcement
Brussels can investigate subsidies and impose duties through qualified procedures, but durable policy requires member-state consent. That consent will weaken if the economic cost is concentrated in particular regions or sectors.
An effective strategy therefore needs adjustment support. Workers and firms affected by Chinese competition require investment, retraining and access to capital. Member states exposed to retaliation may need alternative markets and coordinated procurement.
The same principle applies to critical minerals. Companies cannot be ordered to diversify without addressing the higher cost of alternative supply. Long-term contracts, stockpiles, public guarantees and strategic partnerships may be necessary to make non-Chinese projects viable.
Europe must distinguish resilience from protectionism
Not every Chinese import is a security threat, and blanket protection would raise costs while reducing competitive pressure on European industry. The EU needs to identify where dependence creates coercive leverage and where open competition still benefits the economy.
That requires transparent criteria. Defence-related magnets, grid equipment and core digital infrastructure justify a different risk tolerance from ordinary consumer goods. Trade measures should be linked to specific distortions and dependencies rather than a general desire to exclude Chinese products.
Europe must also remain open to negotiation. China is too deeply integrated into global trade for rapid decoupling to be realistic. The objective is to prevent any single supplier from gaining the ability to halt critical European production.
The political contest inside the EU
Beijing’s leverage is strongest when it can target individual states or companies and encourage them to lobby against a common response. The EU’s defence is solidarity: shared information, coordinated measures and support for those bearing the greatest cost.
Europe now possesses more tools than during the first China shock. It has anti-subsidy investigations, foreign-subsidy rules, procurement policy and a strategic-materials framework. What it lacks is certainty that all 27 governments will hold the line when retaliation begins.
The next phase of EU-China trade policy will therefore be decided as much in European capitals as in Beijing. Rare earths and industrial overcapacity are the external pressure. European unity is the capability that determines whether the bloc can withstand it.
