In recent months, an escalation has been spurred by the European Commission’s decision to impose hefty tariffs of up to 35.3% on Chinese state-owned automotive giant SAIC Motor and its subsidiaries, what analysts refer to as a ‘trade war’ between two of the biggest economic powers—the EU and China. The move has been widely condemned by China, which has lodged a complaint with the World Trade Organization (WTO). This conflict, however, is not only about electric vehicles or specific trade measures but also exhibits a shift in the EU’s policy toward China, changing from what was once described as a “partner for cooperation” to an increasingly confrontational stance where China is regarded as an “economic competitor” and a “systemic rival.”
This development is well-palpable in areas such as electric vehicles, green technologies, critical raw materials, industrial subsidies, etc. Since October last year, the EU has rolled out five industrial probes into Chinese state practices, investigating everything from electric vehicles to wind turbines, solar panels, and train manufacturers. The extent of the conflict has expanded even further through the latest investigation of exploring China’s public procurement of medical equipment.
The response has been swift and forceful from Beijing. The EU’s actions were criticized by Beijing as ‘protectionist.’ The Chinese commerce ministry has warned that the European side’s continued escalation of trade frictions could trigger a “trade war,” placing responsibility squarely on Brussels. This tit-for-tat game is resulting in ripples across world markets and supply chains, giving rise to the shudders among the countries.
Leverage and Vulnerabilities on Both Sides
In this ongoing trade conflict, the EU and China are standing in a paradox between mutual dependence and strategic leverage. The power of market access lies at the very core of this dynamic, a double-edged sword that both empowers and constrains both parties in their economic rapport.
Many underestimate China’s dependency on the European market. According to the data, China relies twice as heavily on the EU for exports as the EU does on China. China’s exports to the EU account for approximately 16% of all exports, while the EU’s exports to China are only 9%. However, Europe is relatively weak in certain sectors and structurally vulnerable but has a lot of asymmetric leverage regarding trade negotiations.
It is impossible to overstate the importance of the European market to China’s economic strategy, including emerging sectors such as green technology. As China seeks to establish global dominance in what it calls the “new three”—solar cells, lithium-ion batteries, and electric vehicles—access to the EU market becomes increasingly critical. It comes as the rivalry between China and the US becomes more intense, making the European market even more strategic to Beijing’s global economic ambitions.
However, Europe is also highly dependent on Chinese imports. Despite a 17.8% drop in exports from China in 2023 compared with 2022, the EU’s trade deficit with China is still very substantial. The EU registered a €291 billion trade deficit with China in 2023, 27% decrease from 2022. The nature of these imports is more concerning. It was identified that China is the source for around one-third of over 200 products in sensitive industrial ecosystems where the EU relies on third-country markets. The EU is critically dependent on Chinese imports in some sectors, such as pharmaceuticals and chemicals, of up to 90%.
A particularly strong example of this is found in the pharmaceutical sector. According to recent data, 40 % of finished medicines and 80 % of the APIs in medicines sold in Europe are originated from China (two-thirds) and India (one-third). This gives rise to a web of dependence that goes beyond bilateral trade dynamics. However, these exposures have been responded to in several ways by Europe. From 2014 to 2023, the EU came up with some key instruments to safeguard its economic interests while keeping market access. China, for its part, has been using market access as a bargaining chip for its interests.
A Double-Edged Sword in Green Technology
The evolution of the EU-China trade conflict has exposed the green technology sector to be a critical stage of the strategic dependence between the two economic powers. China’s dominance in the green technology supply chain is astonishing. China is basically in control of most of the raw materials to produce the products in green technology, and it refines about 90% of these products, according to the International Energy Agency. That control ranges from the value chain of raw materials to finished products. Also, according to the EU, in 2022, 96% of solar panels and 59% of wind turbines imported by the EU were made in China.
However, this dominance did not happen by accident. As part of China’s strategic industrial policy, its government has openly sought leadership in green technologies. In this regard, again, China’s “new three” (solar cells, lithium-ion batteries, and electric vehicles) signifies a deliberate strategic position at the forefront of the global green transition. However, for the EU, this poses a big challenge to its green transition ambitions. Massive deployment of renewable energy technologies is needed as part of the European Green Deal—a plan to make Europe the first climate-neutral continent by 2050. The paradox is vibrant as Europe’s energy independence is being determined by China, potentially leading to staggering dependency.
The EU’s response to this challenge has been multi-faceted. With regard to building its own green technology capability, the Critical Raw Materials Act is notable but is handicapped in its effectiveness by the absence of dedicated funding, a stark contrast to the $8.5 billion the United States has allocated to critical raw materials projects. Moreover, per a 2021 report by the European Commission, the EU relies heavily on external actors for 137 strategic products, with 52% of these sourced from China. Many of these dependencies have no readily available alternatives, especially in areas like magnesium, permanent magnets, photovoltaic cells, and certain critical materials.
The Electric Vehicle: Ground for Future Trade Relations
The electric vehicle (EV) sector has become the hotspot of the trade conflict. Chinese EV exports to the EU have experienced remarkable growth, surging from 1.4 billion euros in 2020 to 11.5 billion euros in 2023, capturing 37% of all EV imports into the EU. This dramatic surge has set off alarm bells in Brussels, leading to the EU’s decision to impose tariffs of up to 35.3% on Chinese-made EVs—a move that marks an escalation in trade tensions.
Here the EU’s concerns go beyond simple market share statistics. Debates have been observed on the allegations of state subsidies that provide Chinese companies with an unfair advantage. These subsidies, EU officials say, enable Chinese manufacturers to sell EVs at up to 40% less than European rivals. This pricing strategy threatens not just the current market share but the future viability of Europe’s automotive industry, which directly employs 13.8 million people and represents a crucial part of its industrial base.
The EV sector is seen as crucial to China’s economic transformation and its goal of becoming a global high-tech manufacturing leader. According to 2023 data, approximately 60% of the nearly 14 million electric vehicles sold worldwide were manufactured in China, though two-thirds of these sales were domestic. For the EU, the EV sector represents both a challenge and an opportunity. The EV sector is both a challenge and an opportunity for the EU. The bloc’s automotive industry, especially that of German manufacturers, has led the way in conventional vehicles globally. However, economic concerns are not the only reason the EU has responded with tariffs and other measures against China; there are strategic concerns about the preservation of a key sector’s technological capability and industrial capability.
Ripple Effects on Global Supply Chains and Trade Patterns
However, trade tensions between the European Union and China are giving rise to concerns for the global economy as they reshape supply chains and trading relations far beyond their simple European and Chinese dimensions. This is not just another trade dispute—it is deemed as a restructuring of the global economic dynamics that will have lasting implications for years to come.
Central to this transformation is a complex supply chain web with its roots in the decades of globalization. The EU’s hostile role in Chinese trade practices, especially in strategic ones such as electric vehicles and green technology, is forcing companies everywhere to restructure their operational strategies. This shift is not happening in isolation—it is occurring against the backdrop of the broader global economic order.
Yet the ripples go beyond direct EU-China trade relations. New opportunities are emerging for third countries, such as in Southeast Asia and Africa, as companies try to diversify their supply chains away from China. Enhanced by the EU’s thrust toward strategic autonomy, the trend is encouraged by the development of more resilient and geographically diverse supply networks by European companies.
However, looking at the wider economic scenario, the trade tensions are reshaping the global economic power dynamics. The EU’s position as a regulatory powerhouse is being tested, while China’s economic influence continues to grow despite increased scrutiny from Western powers. While the term conveys the real impact of this shifting balance, it also has implications for international standard-setting. The dispute’s impact on international institutions and trade governance mechanisms is also noteworthy. Moreover, this could have long-term implications for the future of bilateral and multilateral trade governance.
