At the October European Council, leaders discussed the EU’s relationship with China. Their meeting followed the second EU-China Trade and Investment Consultation on 8 and 9 October, which resulted in an “understanding” on hybrid vehicle exports, potential tariff reductions worth at least €225 million in duty savings1, and continued facilitation of rare earth export licences. These are welcome first steps, but marginal in the face of a trade deficit that reached €360 billion in 2025.
Europe risks spending too much time negotiating better terms for its dependence on China, rather than building the capacity to reduce it. Trade negotiations can ease immediate pressures, but they cannot resolve the underlying vulnerabilities that leave European industries exposed to potential economic coercion. Securing more favourable export licences or limited tariff concessions offers temporary relief. It does little to change Europe’s control of critical components of clean technologies, materials and industrial capacity on which Europe depends.
The EU’s China strategy must therefore develop a vision beyond trade rebalancing and unfair competition, both of which demand urgent action. Europe must build the industrial capacity and international partnerships that allow it to negotiate from a position of strength. The EU and China can remain partners where interests align, above all on climate action, and the run-up to COP31 is the moment to say so. Reducing dependency is what makes that cooperation sustainable, not a way out of it. The clean energy transition offers an opportunity to strengthen European competitiveness, security and independence, but only if Europe develops the capacity to innovate, manufacture and deploy strategic clean technologies. Otherwise, it risks replacing dependence on imported fossil fuels with excessive dependence on clean technology supply chains and critical raw materials.
Trade defence measures are relevant, but their credibility ultimately depends on Europe’s ability to withstand retaliation and secure alternative supplies. A successful strategy must combine a credible trade strategy, targeted investment in European industrial capacity and international partnerships that reduce concentrated dependencies. The EU must use the time and leverage to strengthen its position, rather than allow temporary concessions to become permanent substitutes for action.
Speed matters: every month without action erodes European industrial capacity further, eliminates jobs, and raises the cost of catching up.
Trade defence requires the capacity to withstand retaliation
The EU should maintain constructive trade consultations with China, but in a “results-oriented” approach as demanded in the October Council Conclusions3. China’s economic model, which relies on export-led growth, constrains the rebalancing it can credibly offer. Negotiations also risk buying time while China’s self-reliance programmes mature. The EU should engage but cannot let dialogue be a substitute for action or modest concessions pass for strategic progress.
Where dialogue falls short, trade defence must be credible. The Franco-German proposal for a rapid-response market-access instrument, which would allow the Commission to act unless a qualified majority of Member States opposed its measures, signals important political alignment. Their call for more investigations under existing trade defence instruments, alongside exploration of a Section 301-type tool modelled on the United States’ approach, reinforces this shift. These proposals should be a priority for EU action.
Yet Europe’s ability to use these tools depends on its capacity to absorb the consequences. China retains considerable leverage through its position in critical supply chains. If European industries cannot access alternative materials, components or technologies, the prospect of Chinese retaliation will continue to constrain the EU’s willingness to act.
Instruments are meaningless without political will to use them, and the EU has been reluctant to deploy tools it already has. To secure unity among Member States, the Commission must deliver ambitious proposals on supply-chain diversification and a solidarity mechanism to support countries and sectors hit hardest by potential retaliation. Without effective protection, the most exposed countries may break ranks and weaken the EU’s deterrent.
The EU should also set measurable milestones for the diplomatic track and escalate trade defence measures if China fails to meet them. These benchmarks should measure more than concessions at the negotiating table. They should also assess whether Europe is reducing the industrial dependencies that weaken its bargaining position. Otherwise, trading partners can prolong negotiations, offer marginal concessions and leave the underlying economic imbalances unchanged.
Build the industrial strength to make de-risking possible
A credible China strategy should not be purely defensive. Europe’s industrial strategy must provide the economic foundation for a more assertive trade policy. Without competitive domestic industries and reliable alternative suppliers, the EU will struggle to turn its political ambitions into credible action.
The EU must create the conditions for clean industry to innovate, scale and manufacture in Europe. It must mobilise private capital through smart public financing and de-risking instruments, use public procurement to direct demand towards companies that build genuine European value chains, and address the structural barriers holding European industry back. These include high energy costs, fragmented capital markets, slow permitting and inconsistent regulatory signals.
Access to abundant, affordable and reliable electricity is central to this effort. Europe must expand its electricity grids, accelerate electrification and support a technology-neutral mix of renewable and other low-carbon energy sources. Industrial competitiveness depends on the ability to produce and access clean electricity at scale. Europe will struggle to attract strategic manufacturing investment if its industries face persistently higher energy costs than their international competitors.
This ambition requires financing. The negotiations on the 2028–2034 Multiannual Financial Framework, including the scale of the European Competitiveness Fund, will be decisive. A credible China strategy will fail without adequate European investment that attracts sufficient private capital. Weakening support for European clean technologies would undermine the very industrial capabilities the EU needs to reduce its external exposure. Funding structures must be faster, simpler and capable of mobilising private investment at scale.
The EU must also be realistic about what it cannot achieve alone. It cannot compete in every sector, and scattering limited resources across too many fronts will prevent it from making a decisive difference where it matters most. The goal is to secure the technologies and the supply chain segments that are most important to Europe’s security, competitiveness and clean energy transition. In other sectors, diversification through reliable international partners offers a more effective and urgent path.
The Clean Technology Partnerships Initiative (CTPI), established by Catalyse Europe and IPPR, examines critical clean-technology supply chains in batteries, electricity grids, offshore wind components, green steel and green ammonia, identifying opportunities for international cooperation. The EU should use targeted financing, trade cooperation and investment frameworks to turn these opportunities into concrete partnerships. The Commission’s forthcoming diversification instrument should build on this logic and extend beyond raw materials to processed components and manufactured products where concentration risks are equally important.
Diversification must also produce alternatives that European companies can actually use. New partnerships must translate into investment, production capacity and commercially viable supply chains. Otherwise, Europe risks announcing new relationships without materially reducing its exposure to concentrated suppliers.
Without this positive dimension, the EU’s China strategy will remain defined by what it opposes, leaving the underlying dependencies in place. Chinese companies are already expanding into new markets and establishing greenfield manufacturing inside the EU. Europe must act now to build competitive domestic industries and diversify supply through international partnerships before these dependencies become harder and more expensive to address.
Protect the technologies and industrial assets that matter most
The EU must choose strategically where it cannot accept dependency. Not every sector carries the same risk. It must prioritise technologies where dependency creates genuine vulnerability to coercion and security threats. The question is where concentrated foreign control gives another country the power to disrupt Europe’s economy, constrain its political choices or undermine its security.
Batteries are one of the clearest strategic priorities. They are essential to electricity storage, electrification, data centres and defence, yet their supply chains remain heavily concentrated in China. Europe must strengthen its own battery industry, including cell manufacturing, materials processing and recycling, to secure a technology central to its industrial competitiveness and energy security.
The same applies to critical raw materials, particularly refining and processing capacity, where China’s dominance is most acute. China’s stated willingness to continue facilitating rare earth export licences2 through its fast-track mechanism offers temporary relief, not a long-term solution. A more predictable licensing process may help European manufacturers today, but it does not remove third country’s ability to restrict supply tomorrow. The EU must build its own capacity and alternative supply chains.
This extends to foreign ownership and control of strategic industrial assets in Europe. The Industrial Accelerator Act’s foreign direct investment conditionalities offer an opportunity to address this gap.
The EU should welcome investment that creates genuine European added value, strengthens domestic capabilities and delivers meaningful technology transfer. However, where investments threaten strategic control or reinforce critical dependencies, the EU must be prepared to impose restrictions. Catalyse Europe set out this approach in its second memo on the Industrial Accelerator Act.
The location of a factory alone does not determine Europe’s industrial sovereignty. What matters is whether European companies and workers gain lasting capabilities, whether Europe retains meaningful control over strategic assets and whether investment strengthens or reinforces existing dependencies.
From managing dependence to reducing it
The EU is increasingly united in recognising the scale of the challenge. The October European Council called for stronger tools to tackle global trade imbalances, but political agreement must now translate into action.
The central question for Europe’s China strategy is whether it leaves the EU less vulnerable to Chinese economic pressure. Trade agreements that secure temporary concessions, investment programmes that fail to build competitive industries and partnerships that do not diversify actual production will leave the underlying balance of power largely unchanged.
Europe must set clear benchmarks for negotiations with China, deploy trade defence when talks fail to deliver and back its economic security ambitions with a coherent industrial strategy. That means investing in strategic technologies, securing affordable clean energy, diversifying supply chains and providing adequate financing through the next EU budget.
Europe should judge progress by the industrial capabilities and alternative supply chains it creates, not simply by the concessions it secures. The EU will negotiate more effectively when it can withstand economic pressure and make independent choices. Building that capacity must now become the priority.
- European Commission, Press remarks by Commissioner Šefčovič at the second meeting of the EU-China Trade and Investment Consultations, 9 October 2026. https://europa.eu/newsroom/ecpc-failover/pdf/statement-26-2124_en.pdf
- European Commission, Joint Statement at the second meeting of the EU-China Trade and Investment Consultations, 9 October 2026, Annex, point 12. https://europa.eu/newsroom/ecpc-failover/pdf/statement-26-2122_en.pdf
- European Council, Conclusions on competitiveness, the next multiannual financial framework and enlargement and reforms, 16 October 2026, paragraph 12. https://www.consilium.europa.eu/en/press/press-releases/2026/10/16/european-council-conclusions-on-competitiveness-the-next-multiannual-financial-framework-and-enlargement-and-reforms/