The global trade war continues to evolve, and a new front has emerged, one that doesn't involve Donald Trump. Europe, facing a deluge of cheap Chinese imports, is now at the forefront of this battle, with two significant meetings looming next week. The G-7 summit in Évian, France, will address global trade imbalances, while the subsequent European Union summit in Brussels will focus on diversifying supply chains in critical sectors, particularly in relation to China.
Europe's vulnerability to Chinese imports is a direct result of Trump's trade wars and the protective tariffs he imposed on the United States. The EU is considering legislation to reduce reliance on single suppliers, especially those in China, and is exploring measures to ensure at least three sources of 'critical supplies' to safeguard against disruptions. This shift in strategy is a response to the swelling trade deficit with China, which reached a record €360 billion in 2025 and €98 billion in the first quarter of 2026.
The EU's push for a more self-reliant economy is evident in its recent plan to boost domestic technology supply chains and reduce dependence on the US and China for AI, data centers, semiconductors, and cloud computing. This move could potentially create friction with the US, as Europe's cloud sector is dominated by American companies. However, the primary focus remains on China.
The OECD's report on trade subsidies highlights the scale of Chinese industrial support, with Chinese companies receiving three to eight times more government assistance than their OECD counterparts. This has contributed to China's growing market share, with almost 60% of gains attributed to subsidies. Since Trump reignited the trade war, China's export volumes and trade surpluses have soared, reaching over $1 trillion annually.
President Xi Jinping's commitment to a mercantilist economic strategy, coupled with the weakening of China's domestic economy and the property sector implosion, has intensified the trade imbalance. Europe, already under pressure from Trump's tariffs, is now forced to confront China independently. The EU's efforts to diversify its supply chains and protect domestic industries are a direct response to this challenge.
However, the EU's unity on trade issues with China is questionable. Germany, with its export-oriented economy and significant trade with China, may resist measures that could disrupt its trade relations. The EU's strategy, therefore, must balance the need for protection with the potential for Chinese retaliation, especially given China's control over rare earths and critical minerals.
In conclusion, Europe's new front in the global trade war is a complex and pressing issue. While the EU seeks to protect its industries and sovereignty, it must navigate the delicate balance between economic protectionism and the potential for a Chinese backlash. The outcome of these meetings will significantly impact the future of international trade relations and the global economy.
