Europe’s challenge is both tumbling German industrial production since 2018 and, more recently, particularly soggy Euro area exports. No doubt expensive energy and cumbersome EU regulation have played a part. But so has China’s mighty export machine.

In a recent paper, Sander Tordoir and Brad Setser point out that Chinese export outperformance has been matched by Euro area underperformance. In industries where China’s export market share has risen over the past few years, German output has been particularly weak. China’s overall imports have barely grown over the past five years and, since mid-2025, it has been selling more capital goods to Germany than it has been buying.

In the short term, China’s export surge benefits consumers in the form of cheap stuff. But there are at least three reasons to worry. First, there is the political risk associated with massive job dislocation. Second, a shrivelled industrial base could be harder to expand in a military emergency. And third, the Chinese don’t appear to be interested in the safety of mutual interdependence. So relying on their manufacturers could leave Europe vulnerable to coercion.

The case for trade barriers is as a signal to companies and consumers that buying so much from one place is risky. Proposals are already swirling in advance of a European Commission meeting on May 29. They include regulations to push companies towards a more diverse set of suppliers, or quotas or duties where supply is too concentrated. The Industrial Accelerator Act being negotiated could also limit access for Chinese companies to public procurement or discriminate against them when handing out subsidies. Tordoir and Setser themselves suggest a US-style European “Section 301” power, which would allow the EU to investigate and lash out against China’s “economy-wide distortions”. They also proposed that any revenue from new tariffs could go to trade-war victims.

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