EU Says Ready to Use All Trade Tools to Defend Against China

(Bloomberg) — The European Union is prepared to deploy all the tools available to defend its economies if China fails to offer fair access to its markets, European Commission President Ursula von der Leyen said after talks with Xi Jinping in Paris.

She added that heavily subsidized Chinese products such as electric vehicles and steel are flooding Europe, and said the world cannot absorb China’s surplus production.

Von der Leyen spoke following a meeting on Monday with French President Emmanuel Macron and Xi, who is on a state visit to France before heading to Serbia and Hungary in his first trip to the bloc in five years.

“For trade to be fair, access to each other’s market also needs to be reciprocal,” she said. “We discussed how to make real progress on market access. I remain confident that more progress can be achieved. At the same time, we stand ready to make full use of our trade defense instruments if this is necessary.”

The EU is becoming tougher on trade relations with China, echoing US concerns about state-fueled overcapacity in green industry. The rhetorical shift was already put into practice when the EU launched an investigation into subsidies for Chinese EVs in the fall of 2023 that could see new tariffs introduced by July. It’s also scrutinizing other industries like wind energy, solar and railways.

Von der Leyen said the EU could deploy tools including the International Procurement Instrument, which was created in 2022 and used for the first time last month to launch a probe into China’s sourcing of medical devices. Brussels could ultimately restrict Chinese access to tenders if it finds a lack of reciprocity.

“Europe cannot accept market-distorting practices that could lead to deindustrialization,” von der Leyen said.

China has denied generating overcapacity and accuses the EU of protectionism. According to the official Xinhua News Agency, Xi reiterated that position in talks with Macron and von der Leyen, saying there is no capacity issue viewed from the perspective of comparative advantage or global market demand.

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France has been a key champion of the EU’s firmer approach. In a speech last month laying out his vision for Europe’s future, Macron called for the EU to do more to echo subsidies in the US and introduce preferences for its homegrown industry in strategic sectors including artificial intelligence and green tech.

French Finance Minister Bruno Le Maire has said the changes mark an end to the era of “happy globalization” and that the EU must now show its teeth. Addressing a conference of French and Chinese business leaders coinciding with Xi’s visit, he said achieving a balance is still far away as France alone has a €46 billion ($49.6 billion) trade deficit with China.

In response to the French minister, Yu Yuantang, head of the Europe department at China’s Ministry of Commerce, said his country never pursued imbalances.

“We only believe that when the two nations conduct trade, we play our own competitive advantages then our enterprises can trade in an open, fair, stable and non-discriminatory environment,” he said.

China hasn’t stood idly by as Europe becomes more assertive. In January, Beijing launched an anti-dumping investigation into liquor products, a move that could hurt France’s cognac producers disproportionately. They called for a deal to resolve the issue during Xi’s visit, warning that the beverage represents 70,000 direct and indirect jobs in the country.

“The European Commission’s actions send negative and wrong signals which caused worries in industries in China and EU, and caused negative impact on the trade ties,” Yu said.

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Von der Leyen said she encouraged the Chinese government to address “structural overcapacities” as China “continues to massively support its manufacturing sector” while domestic demand fails to grow.

“A China that plays fair is good for all of us,” she said. “At the same time, Europe will not waver from making tough decisions needed to protect its economy and its security.”

Moments before the Chinese president arrived at the Elysee Palace on Monday, Le Maire signed a pact with France’s auto sector that seeks to safeguard and ramp up production of EVs on French soil. That includes commitments to continue limiting cash support for consumers to vehicles with the lowest environmental footprint — a move that de facto excludes many Chinese EVs.

Yet with Xi’s visit, Macron is also seeking to balance frictions with friendliness as France looks to lure Chinese investment it needs to bolster its domestic car industry.

Speaking alongside representatives from the French auto sector, Le Maire said the government is in favor of China’s BYD Co. opening plants in France, as Japan’s Toyota Motor Corp. has in the past.

“BYD is welcome in France and the Chinese auto industry is welcome in France,” he said.

Von der Leyen added that she and Macron urged Xi to use his influence over Russia’s Vladimir Putin to end the war on Ukraine, adding that China’s stance on the conflict is affecting relations between Beijing and the EU. She also said China can help limit Iran’s missile and drone proliferation.

–With assistance from Katharina Rosskopf.

(Updates with Xi comments reported by Xinhua starting in eighth paragraph, comments from China official starting in 11th paragraph.)

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