Europe is grappling with a new wave of economic challenges emanating from China, which threaten to undermine local industries, result in job losses, and lead to a significant influence of Beijing over European manufacturing sectors. Analysts and industry representatives have raised alarms, drawing parallels to the “China shock” experienced by the United States 25 years ago. This term was coined to describe the impact of China joining the World Trade Organization, which caused a surge in imports that displaced domestic industries and led to the loss of millions of American jobs.
Jens Eskelund, president of the European Chamber of Commerce in Beijing, emphasized that the issue lies not with finished products like electric vehicles but with the vast quantity of components being imported from China. This dependency on Chinese components is deeply entrenching itself in the European Union’s industrial framework. In response, the EU is considering a mandate for European companies to procure critical components from at least three different suppliers. This topic is set to be a focal point during the European commissioners’ meeting on May 29.
Concerns about China’s state subsidies and currency valuation have been highlighted by industry experts. Oliver Richtberg, head of foreign trade at VDMA, commended the EU for its proactive stance in addressing these issues while criticizing Berlin’s lack of engagement. The undervaluation of the yuan, estimated at 40% against the euro by economist Jürgen Matthes, exacerbates the situation by making Chinese products more appealing due to their lower cost. This economic reality has forced procurement managers to make tough decisions, often opting for more affordable Chinese suppliers over European alternatives.
According to data from trade analysts, the extent of Europe’s reliance on Chinese imports is alarming. For instance, 52% of amino acids by value, used in both food and pharmaceuticals, are imported from China, with the figure soaring to 88% by volume. A similar trend is observed with polyhydric alcohols, crucial in various industries, with 96% of imports by volume originating from China. This dependency raises concerns about the long-term viability of European production, which could become uneconomical as low-priced imports continue to dominate the market.
In response, the EU has proposed legislative measures like the Industrial Accelerator Act and an update of the Cyber Security Act, aiming to protect its industries. However, these initiatives will not be enacted until 2027, leaving the bloc under immediate pressure to find solutions. While tariffs have been implemented, their effectiveness remains questionable. As Andrew Small of the European Council on Foreign Relations points out, the political energy spent on tariffs fell short of addressing the trade imbalance. Meanwhile, the EU faces the challenge of managing its economic relationship with China, which remains Germany’s top trading partner, further complicating the dynamics of international trade.