The European Union is facing a new China shock, a looming crisis that threatens to disrupt local industries, displace jobs, and potentially lead to the de facto colonization of European manufacturing by Beijing. This is a stark reminder of the challenges posed by China's growing economic influence and the EU's increasing reliance on its imports. The term 'China shock' was coined 25 years ago to describe the impact of China's entry into the global trade stage after joining the World Trade Organization. It resulted in a surge of imports that displaced local industries and led to the loss of up to 2.5 million jobs in the US. Now, the EU finds itself in a similar predicament, with a plunging exchange rate and support for Chinese 'zombie firms' echoing the past crisis.
Jens Eskelund, the president of the European Chamber of Commerce in Beijing, highlights a critical aspect of the problem: the sheer volume of components being imported from China. He argues that Europe's growing dependency on Chinese imports goes beyond finished goods like electric vehicles (EVs). As these components become more integrated into the EU's industrial ecosystem, the bloc faces a series of difficult choices. The Financial Times reports that the EU is considering forcing European companies to source critical components from multiple suppliers, a move that could have significant implications for the manufacturing sector.
The issue is further complicated by state subsidies in China that make products cheaper and by exchange rate changes over the past five years, which could have left the yuan 40% undervalued against the euro. Oliver Richtberg, the head of foreign trade at VDMA, a trade organization for machinery and equipment manufacturing in Europe and Germany, acknowledges the unfair advantage Chinese products offer. He points out that when European companies face a choice between a Chinese supplier offering 95% of the quality of a European product at 30-50% lower costs, it becomes a rational decision, despite the negative impact on European industries.
The reliance on China is indeed hurting European industries, as evidenced by the loss of market share and significant pressure on the manufacturing sector. Germany, in particular, has seen a loss of 22,000 jobs in the machinery industry alone in the last year. The situation is further exacerbated by the fact that China is now Germany's top trading partner, with a surplus that doubled from $12 billion to $25 billion between 2024 and 2025. This surplus is driven by imports from China, which reached $118 billion, while exports dipped to $93 billion.
The data on amino acids and polyhydric alcohols is particularly concerning. The EU imports a significant portion of these ingredients and chemicals from China, with the volume of imports from China far exceeding the value of imports. This highlights the risk of Chinese products gradually making European production uneconomic, leading to a dependency on the very source that displaced local industries.
The EU has proposed legislative measures to safeguard its industries, such as the Industrial Accelerator Act and an updated Cyber Security Act. However, these measures will not be in force until 2027, leaving the bloc under pressure to find immediate solutions. The challenge is further complicated by the political dynamics, as any EU decision will be met with a careful calibration against China's potential hostile reaction. Beijing is seen as being in the driving seat, and China's strategy is to snarl up the process, ensuring the flow of exports.
The China shock poses a significant existential worry for the EU, with deindustrialization already occurring in Germany. The situation raises deeper questions about the balance of power in global trade and the need for the EU to reevaluate its strategies to protect its industries and jobs. As the EU grapples with this crisis, it must act swiftly and decisively to prevent further economic and security implications, ensuring that the bloc's industries remain competitive and secure in the face of China's growing influence.
