Europe’s China Problem Is a Production Problem
Tariffs may slow imports. They cannot build factories, supplier networks, or continental-scale production.
Europe’s economic relationship with China is usually discussed through the language of trade: deficits, tariffs, subsidies, and de-risking. That framing is incomplete. This matters because the EU–China economic relationship is not simply a bilateral trade relationship. China is simultaneously one of Europe’s largest commercial partners, a major source of manufactured imports, and a strategic competitor in sectors that Brussels increasingly considers essential to economic security.
Europe therefore faces a difficult balancing act: preserving the benefits of trade and investment while reducing dependencies that could weaken its industrial base or expose it to geopolitical disruption. The deeper challenge is that the European Union buys at continental scale but still produces through a patchwork of national systems.
The imbalance has become difficult to ignore. In 2025, the EU exported €199.6 billion in goods to China while importing €559.4 billion, leaving a €359.8 billion bilateral deficit. More important than the headline number is what sits underneath it. Electrical machinery, mechanical equipment, and vehicles now account for a major share of European imports from China. This is no longer mainly a story about cheap toys, textiles, or household goods. It is increasingly a story about industrial capacity.
The same pattern appears in industries that will shape future economic power. The International Energy Agency reported that China supplied almost 60 percent of the EU’s electric-car imports in 2025. China also produced more than 80 percent of the world’s battery cells. These sectors matter beyond trade statistics. Batteries, electric vehicles, grid equipment, and power electronics are tied to energy security, technological leadership, and critical infrastructure resilience.
Europe, however, is not an industrial lightweight. It has globally competitive automakers, engineering companies, research institutions, skilled workers, and a market of roughly 450 million people. The problem is not a lack of assets. It is a failure to organize those assets at the same scale as the market they serve.
A company can sell across the Single Market, but building a cross-border industrial ecosystem still means navigating different national subsidy programs, permitting rules, procurement systems, financing conditions, and political priorities. The result is a European paradox: demand is deeply integrated, while production remains fragmented.
This helps explain why tariffs, although sometimes justified, are not enough. A tariff can make a Chinese electric vehicle more expensive. It cannot create a European battery supply chain. It cannot coordinate factories in several member states. It cannot guarantee enough demand for a new strategic supplier to reach scale. And it cannot decide when public support for an uncompetitive project should end.
The EU therefore needs to move from defending its market to organizing production where scale matters strategically. One option would be a European Strategic Production Authority: a specialized EU institution with a narrow mandate to identify production gaps in selected strategic sectors and organize EU-wide responses.
Such an authority would not decide that every product must be made in Europe. Nor would it hand permanent subsidies to politically favored national champions. Instead, it could run open competitions for cross-border production projects, connect public financing to measurable targets, and aggregate public demand where large orders are necessary to make new production commercially viable. Projects that fail to improve costs, productivity, output, or resilience would lose support.
Electric vehicles and batteries are obvious candidates because Europe already possesses automakers, suppliers, engineering expertise, and a large consumer base. Power electronics and grid equipment offer another case where European capabilities exist but remain dispersed. Solar panels show why the policy must also have limits. If European producers cannot approach competitive costs even after coordination and innovation, reshoring an entire industry may simply waste public money.
That distinction matters because industrial policy is easiest to defend when every sector is labeled “strategic.” A credible European strategy must be selective enough to say no. The goal is not autarky, and it is not eliminating trade with China. Chinese products will continue to benefit European consumers and firms, and economic ties between the two markets will remain extensive.
The real objective should be competitive rebalancing: reducing dangerous concentrations in sectors where dependence can become a geopolitical vulnerability, while preserving the benefits of trade elsewhere.
Europe has spent years asking how to de-risk from China. The more difficult question is whether it can learn to produce at scale. If the EU wants greater strategic autonomy in a world increasingly shaped by industrial policy and economic statecraft, it will need more than trade defenses. It will need institutions that can turn European economic size into European productive power.
Author bio: Georgios Sotiriadis is an incoming M.A. in International Affairs student at Northeastern University. His research interests include European strategy, geoeconomics, industrial policy, EU–China relations, and the intersection of technology and international affairs.