Beijing Vows To Retaliate As EU Warns Of China Shock 2.0

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Others said the prospect of all 27 EU member states agreeing on joint trade measures against Beijing remained slim, given the deep commercial ties many capitals had built with the world's second-largest economy and their reluctance to jeopardize them.

Trade war fears mount

Over the years, the EU has imposed anti-dumping and anti-subsidy duties on a broad range of Chinese goods, from electric vehicles and steel to solar components, chemicals and industrial materials, in an effort to shield European producers from cheaper competition.

In June 2025, the European Parliament said in a research report, requested by its International Trade (INTA) committee, that the EU's traditional anti-dumping and anti-subsidy investigations were too slow and fragmented to counter structural foreign overcapacity. Because probes currently take between nine and 14 months to conclude, cheap or state-subsidized imports often inflict severe damage on local industries before any defensive tariffs take effect.

“The European Commission should initiate anti-dumping investigations within one month of receiving a complaint, ensuring a swift response to potential unfair trade practices,” it said.“Provisional measures should be implemented within a maximum of six to seven months when justified, in line with WTO recommendations.”

The report singled out the US, China and India for deploying aggressive industrial subsidies to boost their manufacturing and export sectors.

Since 2026, the situation has changed. China posted a record global trade surplus of US$1.19 trillion last year, driven by a manufacturing machine that has increasingly redirected exports to Southeast Asia, Africa and Latin America to sidestep US tariffs. The figure is the largest ever recorded by any single economy.

The surplus also reflects weak import demand and domestic consumption in China. With excess industrial capacity finding fewer outlets in the US, more Chinese goods have flowed toward Europe, intensifying what Brussels is now calling“China Shock 2.0” and fueling debate over whether the current trade order is sustainable.

“The six sectors, including automobiles, electric machinery, general machinery, rubber and plastics, special machinery, and medicines, saw rising export shares and accounted disproportionately for China's export growth to the EU,” the European Parliament's researchers said in a report titled“Industrial Overcapacities, with a Focus on China” in March 2026.

“While our empirical analysis does not allow for a precise assessment of the role of active state involvement in industrial overcapacity, the findings point to indicative patterns including state-owned enterprises (SOEs)' role in adjustment mechanisms,” it added.

The report concluded that:

The EU's trade defense instruments (TDI) must be paired with industrial upgrading policies, or companies will simply pocket tariff protection without modernizing; Anti-dumping investigations should be expanded, with importers required to disclose full value chain ownership data; The yuan's depreciation against the euro since 2022 has significantly widened the EU's trade deficit, and exchange rate rebalancing measures should be considered; Blanket measures targeting overcapacity across all sectors would invite large-scale retaliation and should be avoided in favor of targeted, sector-specific instruments; China's own efforts to curb overcapacity remain uncertain, meaning competitive pressure on European firms is likely to persist or intensify.

EU-China trade tensions continued to escalate after European Commission President Ursula von der Leyen said on May 29 that the current state of the trade and investment relationship was“not sustainable.”

Speaking after an orientation debate among commissioners dedicated to reviewing EU-China relations, she said economic and security interests had become increasingly intertwined and required a more robust and coherent response.

She stressed that the Commission's overarching approach remained de-risking rather than decoupling, and that China was still considered a critical partner. The debate's conclusions will feed into discussions at the G7 summit on June 15-17 and a European Council meeting of all member state leaders on June 18-19.

Tu Xinquan, director of the China WTO Institute at the University of International Business and Economics, said two EU bills introduced this year shared the same goal: systematically excluding companies from certain countries from core positions in the EU market.

The Industrial Accelerator Act would push Chinese technology out of critical infrastructure supply chains, requiring investments from a country controlling more than 40% of global capacity in a given sector to meet at least four of six criteria for approval:

Equity: foreign ownership capped at 49%; Structure: mandatory joint venture with an EU entity; Technology: licensing of intellectual property to European partners; R&D: minimum investment committed within the EU; Workforce: more than 50% local employees; Procurement: at least 30% of inputs sourced from the EU.

The second, a draft revision of the EU Cybersecurity Act, would for the first time write the“high-risk supplier” concept into a legally binding EU instrument, blocking Chinese capital from strategic industries through equity caps and localization conditions, requiring exclusion across 18 critical sectors and giving mobile operators 36 months to phase out affected equipment.

“Regardless of the final form these two bills take, the fact that the Commission chose to introduce them at this moment sends a clear policy signal,” Tu said.“The EU is prioritizing local industry protection and imposing conditional restrictions on foreign investment from specific countries.”

Pot calling the kettle black?

“China and the EU are equal partners with important and mutually beneficial trade and economic ties,” the spokesperson of China's Commerce Ministry said in the ministry's official statement May 30.“We hope the EU will abide by World Trade Organization (WTO) rules, uphold free trade and fair competition, and firmly oppose protectionism and unilateralism.”

He added:

While Beijing's Commerce Ministry condemned the arrangements as discriminatory investment barriers that violated WTO principles of most-favored-nation and national treatment, some observers noted similarities between the Industrial Accelerator Act's six criteria and the conditions Beijing itself imposed on foreign automakers seeking to enter the Chinese market between 1994 and 2018.

Since China joined the WTO in 2001, the opening of some sectors has remained limited.