Europe finds itself grappling with a renewed “China shock,” a development trade analysts and representatives warn could severely impact local manufacturing, leading to job losses and increased control of industries by Beijing. The situation resembles the economic upheaval experienced in the United States 25 years ago when China’s entry into the World Trade Organization led to a surge in imports, displacing domestic industries and resulting in significant job losses. Jens Eskelund, president of the European Chamber of Commerce in Beijing, emphasized that the issue isn’t limited to finished goods like electric vehicles but extends to the vast volume of components imported from China, increasing Europe’s reliance on Chinese imports.
This growing dependency poses a critical challenge for the European Union, prompting discussions about requiring companies to source critical components from multiple suppliers. According to a recent Financial Times report, European commissioners are scheduled to meet on May 29 to discuss urgent measures. Oliver Richtberg, head of foreign trade at VDMA, commended Brussels for its proactive engagement, contrasting it with Berlin’s approach. Richtberg highlighted the impact of state subsidies, which make Chinese products cheaper, and the significant exchange rate changes over the past five years that have left the yuan considerably undervalued against the euro, limiting procurement choices for European businesses.
The trade imbalance has resulted in substantial job losses in Europe, particularly in Germany’s machinery industry, which saw a decline of 22,000 jobs last year alone. The trade website Soapbox, in collaboration with the Mercator Institute for China Studies, revealed alarming data showing a potential for industrial cannibalization. For instance, the EU imports 52% of amino acids, crucial in pharmaceuticals, from China by value, but this jumps to 88% by volume. Polyhydric alcohols, used in various products, see an even higher dependency with 96% of EU imports coming from China.
The escalating trade surplus China enjoys with the EU has raised concerns, especially since the impact of upcoming 2024 EU tariffs on Chinese electric vehicles seems negligible due to exchange rate fluctuations. Andrew Small, the director of the Asia program at the European Council on Foreign Relations, pointed out that the tools deployed by the EU are inadequate against the current import levels. The trade surplus between China and Germany, the EU’s largest economy, has doubled, with significant job losses in the car manufacturing sector.
European attempts to address these challenges include legislative proposals like the Industrial Accelerator Act and updates to the Cyber Security Act, aimed at strengthening the local industry. However, these measures won’t be implemented until 2027 at the earliest, leaving Brussels under immense pressure to find immediate solutions. Small noted the complexity of the situation, highlighting the political challenges in imposing tariffs and the strategic maneuvers by China to maintain its export flow amid the EU’s countermeasures. The ongoing debate underscores the urgent need for a comprehensive strategy to address the multifaceted challenges posed by the “China shock” in European industries.