At the 2026 Conference on EU-China Relations in Beijing this month, Jens Eskelund, president of the EU Chamber of Commerce in China, described the economic relationship he is paid to promote as “a 400-metre-long giant container ship loaded with 24,000 containers going to Europe and coming back almost empty.”
Over the past five years, the EU’s goods trade deficit with China has ballooned, and in 2022 it reached a peak of nearly €400 billion. At the same time, the EU’s services surplus remains meager, and net positive FDI stocks have stagnated too. While the Chinese market is shrinking for both European products and investment, its output is not slowing at all—and Beijing is increasingly looking to Europe to absorb these goods.
But the Brussels machine is slowly cranking up to deal with Chinese manufacturing overcapacity. The European Commission has committed to presenting new economic security tools by September 2026, and tomorrow, on May 29, it will hold a policy orientation debate on the issue. The meeting is being closely watched as five member states—Spain, Italy, France, the Netherlands, and Lithuania—have just signed a joint paper calling for more aggressive action against “systemic and structural industrial overcapacity.”
Among the measures being prepared for discussion, the EU is weighing tighter public procurement rules that would require companies to source from at least three different suppliers, with no single supplier accounting for more than 30 to 40 percent of critical components. These rules—building on existing provisions under the Critical Raw Materials Act, which already limits sourcing from any single non-EU country to 65 percent for strategic materials—would apply to sectors such as chemicals, industrial machinery, and green technologies, where China often dominates input supply.
Against this background, any proposals emerging from the debate will need to strike a delicate balance between protecting European firms and preserving their profit margins. At the same time, they will need to complement the separate advances under the Industrial Accelerator Act (IAA)—adopted by the Commission in early March—which will expand rules on public procurement, FDI screening, and input diversification.
In a twist of irony, Brussels may quietly borrow from the US tariff toolkit
Meanwhile, a variety of factors have prevented the EU from exploring a more muscular tariff mandate: from the Commission’s own qualms about undoing the multilateral trading system to member states with trade surpluses which, until recently, believed their firms had more to lose from China’s retaliation than they had to gain from protective tariffs.
During the first Trump administration, the EU’s longstanding opposition to the US use of the unilateral Section 301 unfair trade statute—then directed at China—limited meaningful transatlantic alignment on countering Beijing. Only now, as China’s overcapacity begins to threaten core European industries beyond solar panels—which Brussels failed to adequately protect through piecemeal anti-dumping measures—are EU policymakers beginning to rethink the risks of inaction.
The October 2024 decision to impose countervailing duties on Chinese electric vehicles is perhaps the strongest case for a shift toward more assertive tariff instruments. Although it required months of work by dozens of trade and competition economists to assess the subsidies received by Chinese brands and come up with WTO-compatible duties, the endeavor increased the EU’s room for maneuver. And it forced China to come to the table—at least to an extent—with minimum pricing commitments. However, measures like this cannot feasibly be repeated across all the sectors that are at risk. Nor have they slowed the flow of Chinese products into the European market as much as policymakers had hoped.
The tools at the EU’s disposal are limited—and arguably they are already being stretched to their limits.
The EU’s trade defense toolbox remains fragmented at best
Alternative tools exist but they are either sticking plasters—such as the incoming €3 surcharge on parcels below the €150 de minimis threshold—or require blanket application across all trading partners. The tariff-rate quota system for steel, for instance, is already causing friction with countries the EU wants to keep close, like the United Kingdom, Ukraine, and even the United States.
Meanwhile, the Foreign Subsidies Regulation reaches only as far as the EU’s internal market. It can be used to eject a Chinese rail manufacturer from a Lisbon metro tender, but it cannot touch its subsidized factory in Wuhan that made the bid so competitive in the first place. The Carbon Border Adjustment Mechanism, by contrast, helps level the playing field on emissions, but it was never designed as a trade defense tool and applies only to a narrow set of carbon-intensive goods.
Faced with these constraints, national capitals are increasingly concluding that the EU needs a more direct way to address the drivers of Chinese overcapacity—state subsidies and less-than-humane working conditions—and a tariff mandate that can actually be used in practice, unlike the current Anti-Coercion Instrument (ACI).
To be compatible with EU law, such a mechanism—the EU’s version of Section 301—would need to be strictly proportional, subject to regular judicial and political review, and allow only for temporary tariffs. Under these circumstances, it could even exist within an expanded ACI framework.
Sceptics will argue that without modernizing and revitalizing Europe’s industrial offering, tariffs will simply increase prices. That is why careful coordination with the procurement rules in the IAA is needed. Of course, companies tend to resist additional compliance and cost burdens, as was already the case under the EU’s Critical Raw Materials Act. Yet this shouldn’t deter the EU from acting. Especially since the regulatory trajectory is clear: more rules are coming.
The potential—and limits—of transatlantic coordination on China
Could this herald closer cooperation with the US? History suggests caution. After all, US-EU coordination on non-market economy practices has always been challenging. While the EU has generally considered unilateral trade measures to be objectionable, the US operates with far broader statutory authority under Section 301 and 232.
Even as European thinking shifts, Brussels will continue to hedge against US unpredictability in its China policy—especially given that the Trump administration has also imposed trade measures against the EU, often with little regard for transatlantic alignment.
If the EU ultimately does decide to equip itself with the authority to impose sector-wide tariffs on China, coordination with the US will become both more possible—and more complicated. Overlapping priorities in steel, semiconductors, and medical goods will collide with different legal and political constraints on each side of the Atlantic.
In that case, the US will have to refrain from growing impatient with the EU’s slower legal processes and measures that may differ from US measures. The Supreme Court decision that struck down IEEPA tariffs should serve as a reminder that even US trade tools face judicial limits that cannot forever be ignored.
Another obstacle lies in negotiation dynamics. When the US proposes cooperation—which it has done on numerous occasions—the EU often treats it as a transactional request requiring compensation. Washington increasingly interprets this as a lack of strategic seriousness on confronting non-market economy policies and practices.
Cooperation should therefore be framed narrowly in terms of shared self-interest: the goal is to improve the effectiveness of protective measures vis-à-vis China, not to bargain over them indefinitely.
For that very reason, the parties should prioritize bilateral discussions, between Washington and Brussels. While there is no question that, in terms of the impact of cooperation, the more parties involved, the better, there are just too many divergent interests when it comes to countering China. Involving too many actors risks paralysis. Instead, bilateral coordination should be gradually expanded to include other like-minded partners on particular issues.
From tariffs to talks
Reacting to the ever-louder chorus of calls for protectionist measures within Europe, China’s Ministry of Commerce has cautioned the EU “to face reality, return to the right track of dialogue and consultation, and take actions that truly benefit the development of China-EU economic and trade relations.”
That Beijing feels compelled to issue such warnings is itself a signal that the new tools could inflict economic pain. A coordinated transatlantic tariff mandate would sharpen that signal considerably—and may be precisely what is needed to bring China to the table.
Existing G7 and G20 processes on global economic imbalances already provide Beijing with a face-saving off-ramp: coordinated multilateral policy on overcapacity rather than all-out tariff war.
Charles Lichfield is the director of economic foresight and analysis and the C. Boyden Gray senior fellow at the Atlantic Council’s GeoEconomics Center.
L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative.
Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center.
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