Watching China in Europe—April 2025
Liberation Day
In late March, European Trade Commissioner Maroš Šefčovič was preparing for a high-stakes trip to China when he received an urgent message from Washington, DC. US Commerce Secretary Howard Lutnick was encouraging Šefčovič to jump on a plane to the US capital as soon as possible. There was a small window, Lutnick told Šefčovič, for the EU to avert crushing tariffs that President Donald Trump was promising to impose on US allies and adversaries alike on April 2.
The Šefčovič team scrambled to organize the trip to Washington, according to several officials, even though they were just days away from embarking on their first visit to Beijing. It was a decision they would soon come to regret. After landing in Washington, Šefčovič was informed by Lutnick and US Trade Representative Jamieson Greer that he had flown across the Atlantic for nothing. Trump had ordained, at a meeting at the White House that very morning, that there could be no negotiations on tariffs prior to what the president has dubbed “Liberation Day”.
Lutnick was unapologetic about the blunder. But he did promise Šefčovič, before he headed back to Brussels, that there would be no more surprises: The EU trade chief would get a heads-up on all future US measures. That promise would be broken within days. When Šefčovič finally landed in Beijing on March 27, he was shocked to discover that Trump had just announced plans to impose 25% tariffs on all cars made outside the United States—a move that will hit European carmakers particularly hard.
A New Reality
Šefčovič’s trip to China went comparatively smoothly. He and his Chinese counterpart, Commerce Minister Wang Wentao, agreed to talk on a quarterly basis. And a government-to-government dialogue on trade and investment issues tied to electric vehicles was established. It now looks as though an EU-China summit will take place this summer, despite ongoing differences over whether President Xi Jinping will attend. Still, the deliverables were long on process and short on substance. There were no signs during the visit that China was prepared to address EU concerns about subsidized Chinese products flooding into Europe. The message Vice Premier He Lifeng delivered was that China was capable of achieving full self-sufficiency and did not need Europe.
This is the new reality for the EU: a US administration in which “no one knows what the f**k is going on” (according to a Trump ally quoted in Politico), and a Chinese government that is in no mood to compromise with an EU it views as weak, divided, and vulnerable. In the coming weeks, we will get a clearer picture of whether Beijing’s view of Europe is on target. After Trump’s “Liberation Day” on April 2, the Europeans will have a short window to negotiate with Washington before European Commission President Ursula von der Leyen’s “Retaliation Day” arrives on April 13.
That is when Brussels has vowed to respond to what, by then, promises to be a forbidding wall of US tariffs: 25% on steel, aluminum, cars, and car parts, as well as broader “reciprocal” duties on the full range of other US imports from Europe that could be as high as 20%. “The US is incapable of negotiating at the moment,” a senior EU official said. “We hope that will change. But in the meantime, we will need to show strength.”
The Coercion Tool
EU trade officials acknowledge in private that, at some point soon, they could run out of ammunition when it comes to imposing retaliatory tariffs on US goods. That is because the EU has no interest in putting self-harming duties on imports of US defense and energy products. The discussion could therefore shift rapidly to use of the EU’s anti-coercion instrument (ACI), which provides the bloc with a far broader set of punitive tools, including restrictions on services, access to the EU market, foreign direct investment, public procurement, and more.
The hurdles to using the ACI are high. First, there would have to be a clear case of coercion: US measures designed to take control of Greenland, force EU countries to scrap value-added taxes, or weaken EU digital regulations, for example. But some EU officials believe we are not so far away from that point, following US Vice President JD Vance’s menacing trip to Greenland and what has been described to me as an offer by senior Trump administration officials during the Šefčovič trip to send a US delegation to Brussels to help the EU rewrite its Digital Services Act (DSA)—a set of rules, designed to prevent harmful online content and disinformation, that tech titans like Elon Musk and Mark Zuckerberg would love to kill.
Second, the Commission would need to be sure that it had broad support among EU member states before proceeding, as a qualified majority of members is required to deploy the instrument. Italy’s Giorgia Meloni, the sole European leader invited to Trump’s inauguration, and Hungary’s Viktor Orban would surely oppose use of the ACI against the United States. France and Spain would likely be supportive. So it would come down to convincing northern European countries like Germany, Poland, and the Netherlands to back it.
Hitting Hungary
While use of the ACI is seen as a last-resort measure to force Trump to the negotiating table, Commission officials are showing less timidity when it comes to deploying their array of other tools against China. That was clear from an FT story in late March revealing that the Commission is considering using its Foreign Subsidies Regulation (FSR) to go after Chinese car giant BYD’s plant in Hungary. On the surface, the move looks like a slap at Orban, who has exasperated Brussels by cultivating close ties to Xi Jinping, Vladimir Putin, and Trump. But it also has far wider implications, suggesting that the Commission is prepared to use the FSR to shape Chinese investment in the bloc.
EU officials acknowledge that the tool, which allows the EU to introduce mitigating measures on greenfield investments by foreign firms that have benefitted from subsidies, is now seen as the primary vehicle for imposing conditions on Chinese FDI in Europe—a channel that was flagged by my Rhodium Group colleagues in October 2024. In an ideal world, a core group of member states (Germany, France, and the Netherlands for example) would be pushing the idea at the European level that foreign firms setting up manufacturing facilities in the bloc should be asked to fulfill certain conditions—from sharing technology and know-how, and employing local staff, to meeting minimum data and cybersecurity standards. But barring that, the Commission appears willing to press ahead on its own.
It is a warning to states like Spain, whose Prime Minister Pedro Sanchez has gone soft on China over the past year, that a race to the bottom on Chinese FDI will not be tolerated. The big question for Europe is whether sought-after greenfield investments, particularly in electric vehicles and batteries, will continue to flow from Chinese firms if they are forced to adhere to the same strict conditions that western firms faced in China for decades. My guess is that they will—but a common EU approach, driven by the big member states, will be crucial. The FSR can only be a stopgap.
The German Question
A bigger question hanging over Europe-China relations surrounds the positioning of a future German government. For now, we are still reading the tea leaves. Incoming chancellor Friedrich Merz provided the first indications in a foreign policy speech a month before the election, in which he lumped China together with Russia, Iran, and North Korea in an “axis of autocracies” and warned German companies against investing in China. A second clue came last week when elements of the future coalition agreement began to leak out. The big news there was that the coalition partners are dispensing with the partner-competitor-rival triptych that the EU has used for the past six years to describe China. The draft text of the coalition pact reads simply: “China has evolved into a systemic rival.” I was told that there was broad consensus on this wording between Merz’s conservatives and the Social Democrats (SPD).
But language is only a small part of the puzzle. More important are the people who will serve in the new government—and ultimately the policies they will deliver. On the personnel front, the assumption of people in both parties I spoke to is that the SPD is likely to end up with the finance ministry and the defense ministry, where incumbent Boris Pistorius is expected to stay on. That could leave Merz’s Christian Democratic Union (CDU) with the foreign ministry and economy ministry, posts for which Johann Wadephul and Carsten Linnemann, respectively, are seen as the leading candidates. This would give Merz’s conservatives, who are intent on establishing a national security council in the chancellery, an unusual degree of control over the ministries that shape China policy. What would they change if they had this control?
Whole Lotta Huawei
One area that I am looking at is Chinese telecommunications group Huawei’s outsized role in the German 5G network. Outgoing Chancellor Olaf Scholz sealed a closed-door deal with the telecommunications providers last July that is likely to preserve the Chinese firm’s position in the network (Strand Consult estimates its current share in Germany at 59%) for years to come. Behind closed doors, I am told that Merz has been highly critical of the permissive approach Scholz and his predecessor Angela Merkel pursued. And his government will have unlimited funds to address cybersecurity issues, thanks to the deal, pushed through the Bundestag last month, that exempts defense spending from the German debt-brake. This would make it easier to subsidize an accelerated phase-out of Huawei.
In Brussels, new allegations that the firm bribed members of the European Parliament in exchange for their support have thrust Huawei back into the spotlight and sparked calls for a Commission crackdown on member states (like Germany) that have ignored EU guidelines on the use of high-risk vendors. In Washington, meanwhile, I understand that people in the Trump administration have been seeking information in recent weeks on the presence of Chinese suppliers in European 5G networks. “They are looking at what countries have done since the first Trump administration and whether they have implemented the 5G toolbox,” one person who is privy to the briefings told me, referring to EU guidelines from 2020.
In the current environment, no one in Berlin will be going out of their way to please the Trump administration on 5G. But if the phase-out of Chinese vendors can be leveraged to get a better transatlantic deal on trade, German incentives could shift. “I do think Merz could re-open the Scholz deal,” a CDU official in the Bundestag told me. “His position has been very clear on this.”