France and Germany are pressing for a stronger European Union response to China’s growing trade surplus and industrial overcapacity, as concerns mount over the impact on key European sectors.
The issue was pushed back to the top of the agenda when Emmanuel Macron and Friedrich Merz agreed last week to draw up a "Franco-German roadmap" on how to respond to China’s trade practices by September.
The push builds on a recent report by France’s High Commission for Planning, entitled “The Chinese steamroller – quantifying the systemic threat to Europe’s industrial base," which argues that Beijing’s industrial rise now amounts to a "systemic shock" for Europe’s manufacturing base.
The report says China’s combination of scale, low production costs, heavy overcapacity and rapid technological upgrading is reshaping global manufacturing and eroding Europe’s competitiveness.
Almost a quarter of EU exports are exposed to serious Chinese competition, according to the report, while up to 55 percent of European manufacturing output – including cars, batteries, chemicals and machinery – could be "vulnerable in the medium term if current trends continue".
In 2019, a China-EU Strategic Outlook said that China had become the EU’s “systemic rival” rather than a “partner” or a “competitor."
The world’s workshop
Trade deficits with individual EU countries started to widen after China opened up its economy to the outside world in 1979, turning itself in the “world's workshop” with massive manufacturing in the coastal provinces, while inviting Western companies to outsource their own manufacturing to China.
The gap widened exponentially after 2001, when China entered the World Trade Organization. According to a report by the Council of Foreign Relations, China’s exports have increased five-fold since then.
Meanwhile, Chinese imports from EU and other Western countries did not grow accordingly: currently the China-EU trade deficit stands at €360 billion a year in favour of China.
Today, says the report by the French Commission for Planning, the gap in production costs between China and Europe is often "too wide to be closed quickly through innovation or productivity gains alone".
It also argues that existing EU trade-defence tools are too slow and too fragmented to cope with China’s long-term industrial strategy.
France has long argued for a tougher line on Beijing, while Germany has traditionally been more cautious because of its deeper commercial ties with China, as Europe’s largest trading partner with China.
