France, Germany propose new rapid EU trade response tool

Leading figures from France and Germany have called for a groundbreaking new trade measure that would instantaneously sever China's access to the European Union market. This unprecedented "kill switch" capability would grant the European Commission, the EU's executive arm managing trade policy for the 27-member union, the power to swiftly react to systemic imbalances.

The proposed mechanism, described in a joint paper by the bloc's two largest members and a letter addressed to EU Commission President Ursula von der Leyen, would grant dramatic new authority to Brussels. It would enable the commission to activate powerful measures, up to and including an immediate market cut-off, if necessary. While the documents avoid singling out China, they are replete with language typically associated with Chinese policies, such as "unsustainable trade deficits," "structural excess capacity," "dumping, excessive and across-the-board subsidies," as well as currency manipulation and currency undervaluation.

Unlike existing trade defense tools, this instrument would not be limited to addressing traditional dumping or subsidies, but would extend to tackling distortions stemming from political or economic pressure and currency manipulation. It could be used to target either a single product or an entire sector. The new instrument is part of a broader set of recommendations from France and Germany, who have recently tightened their stance on China amid a surge in Chinese imports in key sectors, a phenomenon officials liken to a "China Shock 2.0."

The paper also advocates for a diversification measure to reduce dependencies and compel companies to spread their sourcing risks, as well as more frequent and rapid trade investigations. The recommendations signal a push for urgent targeted actions in sectors such as chemicals, some plastics, and plug-in hybrid vehicles. The documents precede talks between EU Trade Chief Maros Sefcovic and Chinese Commerce Minister Wang Wentao, scheduled for Thursday and Friday.

Upcoming, they will shape the tone for a summit of EU leaders in Brussels, where they will deliberate on addressing what is perceived as a critical existential challenge for European industry.