The European Union is drafting new trade rules that could shut out Chinese products entirely, following its move to curb hybrid vehicle imports. The push is seen as an escalation after low-cost Chinese exports eroded the competitiveness of European manufacturers and widened the bloc's trade deficit.
EU leaders meeting in Brussels on the 15th discussed new regulatory powers to counter unfair trade practices by competitors such as China and asked the European Commission to prepare proposals by the end of the year, Bloomberg reported. The central idea is to allow the bloc to cut off access to its internal market entirely in extreme cases where China or others inflict severe damage on the EU economy.
"If China engages in certain unfair trade practices, we can restrict the entry of Chinese products into the European market, and that could include closing the market completely," Lithuanian President Gitanas Nauseda told reporters. He stressed that it would be an extreme step and a very powerful instrument.
The South China Morning Post also reported that the EU is considering a so-called "kill switch" that would let it rapidly push Chinese companies out of the bloc's market. The idea, first floated last week by France and Germany, would give the Commission strong authority to respond immediately to structural market distortions or economic coercion. The SCMP said Commission President Ursula von der Leyen presented the kill switch as an option in her opening remarks at the summit and that it drew broad support among member states.
The EU is also moving quickly on measures to limit imports of Chinese goods. The Commission recently began analyzing trade data to assess whether the cap on hybrid vehicle imports agreed with China could be extended to other industries. The two sides earlier agreed to limit European imports of Chinese hybrid vehicles to 350,000 units a year starting in 2027. Building on that, the Commission is examining safeguard measures that would impose quotas or tariffs on products facing a feared surge in imports.
Chemicals and machinery have been identified as candidates for protection. Von der Leyen told the summit that these industries need swift protective measures against the inflow of low-priced Chinese products, and France, Germany, Belgium and Denmark are understood to have voiced support. The wind turbine industry was also cited as an area requiring further action.
The EU is turning to a tougher trade stance because the imbalance is widening rapidly. The bloc's trade deficit with China hit a record $34.8 billion in September, according to China's General Administration of Customs. China's total exports jumped 36% from a year earlier. China's full-year trade surplus is expected to exceed the record $1.2 trillion set last year.
There is particular alarm that Europe's core manufacturing industries are losing ground to China's export drive. Chemicals is a prime example. European chemical makers are struggling with deteriorating profitability as high energy prices and weak demand combine with China's capacity expansion. Major companies including Germany's BASF have begun restructuring, and specialty chemicals maker Lanxess has announced plans to cut about 550 more jobs this year.
The wind turbine industry also points to the rapid growth of Chinese firms as a threat. Backed by a huge domestic market, Chinese companies have quickly scaled up production and sharpened their price competitiveness. Local manufacturers still hold a dominant 94.5% share of the European market, but concerns are mounting that Chinese firms could erode that position as they expand abroad.
Foreign media are also watching Germany's shift in position. Berlin had long been cautious about trade restrictions on China because of its export-driven economy and heavy reliance on the Chinese market. But it has turned to a harder line as Chinese companies gain competitiveness in Germany's core manufacturing sectors. In a parliamentary speech on the 14th, Chancellor Friedrich Merz said he would no longer stand by while massive subsidies, artificially undervalued currency, excess capacity and aggressive pricing damage the German economy.