Regardless of Trump, Europe should not be seduced by China’s charm offensive

As the European Union, like the rest of the world, scrambles to react to President Trump’s imposition of ‘reciprocal’ tariffs, China is knocking on the EU’s door. The country has launched a charm offensive on Europe, pursuing stronger bilateral relations with EU countries including Spain (going beyond the usual suspects like Hungary, Slovakia or Portugal) and considering lifting some of its sanctions on members of the European Parliament.  

The reality, however, is that the economic benefits of resetting the EU-China relationship are not significant, particularly when compared to those of the past. First, European exports to China have shrunk. China is increasingly substituting the EU’s major exports with its own products. This is a problem for European exporters in Chinese markets and in third markets – as export prices decline in China, it is even harder for European companies to compete.

Second, European firms operating in China are finding it increasingly difficult to do business in the country. Pessimism about profitability from European companies is at an all-time high and plans to expand operations in China are at an all-time low.

Third, the policies of the Trump administration have made a reset in EU-China relations even more challenging. Trump’s tariffs could cause China to push its overcapacity to the EU, which remains broadly open to China except for relatively moderate tariffs on electric vehicles (EVs). Beyond EVs, overcapacity is much more pervasive in solar panels, cement, iron and chemicals. If the EU moves towards a reset with China, it seems unlikely that it would introduce protective measures for these industries. Even existing tariffs on EVs could be at risk. Ironically, lifting tariffs on EVs would make it harder for Europe to attract Chinese companies to produce EVs in Europe given the much lower cost of production in China.

Finally, for Europe, the geopolitical landscape shifted irreversibly after Russia’s invasion of Ukraine. China has continued to support Russia diplomatically and economically. For Eastern and Central European states in particular, the idea of strengthening relations with a regime that has not clearly condemned Russian aggression is not just distasteful but could also constitute a security threat.

On the face of it, the only obvious benefit of a reset is increased Chinese greenfield investment into Europe in the form of green tech factories, including EV production plants. In reality, existing European-Chinese partnerships are compromising on EU technology transfer and pollution rules. This contrasts markedly to the technology transfer that China managed to secure from European foreign direct investment.

Ultimately there is no consensus among EU countries on stronger relations with China. Any future bilateral agreement should be negotiated from scratch, which would be a multi-year project. Although the EU’s tone on EU-China relations may seem more positive since Trump introduced his reciprocal tariffs, in reality, there has been no meaningful change in the EU position.

China’s charm offensive – no matter how timely given Trump’s aggression against the EU – should be ignored. China cannot help the EU to protect itself from Trump’s policies and the benefits from enhancing EU-China relations are not evident. The EU should continue to build on its strengths – further integration and maintaining open markets.

ZhōngHuá Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

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ZhōngHuá Mundus is a newsletter by Bruegel, bringing you monthly analysis of China in the world, as seen from Europe.

Click to read all past editions of ZhōngHuá Mundus

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This is an output of China Horizons, Bruegel's contribution in the project Dealing with a resurgent China (DWARC). This project has received funding from the European Union’s HORIZON Research and Innovation Actions under grant agreement No. 101061700.