The European Union (EU) is facing a new China shock, a phenomenon that threatens to disrupt local industries and displace European factories with Chinese imports. This is not a mere concern but a critical issue that could lead to job losses and a de facto colonization of the EU's industry by Beijing. The fear is that the plunging exchange rate and support for Chinese 'zombie firms' could have a similar impact as the crisis in the US 25 years ago, when the term 'China shock' was coined. The concern is that the sheer volume of components being imported from China is making Europe increasingly dependent on the country, and this could have far-reaching consequences.
One of the most worrying aspects of this situation is the reliance on Chinese imports for critical components. For instance, the EU imports 52% of its amino acids, which are used extensively as flavor enhancers and in pharmaceuticals, from China by value, but this figure soars to 88% by volume. Similarly, the data on polyhydric alcohols, used in plastics, cosmetics, paint, and antifreeze, is even more concerning, with about 96% of EU imports by volume coming from China. This is the less visible part of the China trade story, and the risk is that low-priced supply gradually makes EU production uneconomic, leaving the union dependent on the very source that displaced it.
The situation is further complicated by the fact that China is now Germany's top trading partner, having overtaken the US. China's surplus with Germany doubled from $12 billion to $25 billion between 2024 and 2025, as imports from the world's second-largest economy to Europe's largest hit $118 billion while exports dipped to $93 billion, according to Chinese customs data. This growing reliance on China is an existential worry for the EU, and it is already leading to deindustrialization in Germany, with the loss of around 10,000 to 15,000 jobs a month.
The EU has come up with two legislative proposals to try to safeguard industry: the Industrial Accelerator Act, nicknamed the 'made in EU' law, and an update of the Cyber Security Act of 2019 that would allow companies to stop buying Chinese on security grounds. However, these will not be in force until 2027 and beyond, leaving Brussels under pressure to come up with immediate lifelines for EU industry. The question is where the member states stand on all of this, and whether tariffs will be a viable solution. While anything the EU decides will be carefully calibrated against the inevitable hostile reaction from China, Beijing is seen as being in the driving seat.
In my opinion, the EU's growing reliance on China is a critical issue that needs to be addressed urgently. The situation is not just about economic concerns but also about security. The EU needs to take a more proactive approach to safeguarding its industries and ensuring that its trade relationships are balanced and mutually beneficial. The future of the EU's industry and its economic security depend on it.
