EU leaders to ‘urgently’ call for new trade weapons to tackle China shock

European Union leaders are set to urge Brussels to urgently develop new trade tools to counteract the economic imbalances caused by China's policies, according to a draft statement being negotiated ahead of this week's European Council summit in Brussels. This comes after a surprise deal was struck in Beijing last week, which caps the number of Chinese hybrid cars imported into the EU at 350,000 per year.

While the deal has helped to ease the immediate threat of a trade war, officials and diplomats in Brussels emphasized that it is insufficient and that the EU intends to maintain pressure on China to moderate its exports in other sectors.

A senior EU diplomat stated that "one swallow does not make a summer," emphasizing that the deal is a first result and the beginning of a process to get China to moderate its exports. The statement, which does not directly name Beijing, uses language often associated with the perceived harm that China's industrial might has inflicted on the EU economy.

The European Council expressed the need to continue engaging in results-oriented dialogues and to enhance the EU's toolbox with new instruments to address these imbalances more effectively.

Leaders will discuss these imbalances during a meeting over lunch and are expected to ask the European Commission, which manages trade policy for the 27 member states, to create new instruments by the end of the year. Two such instruments have already been announced: a diversification tool that will compel companies to broaden their supplier pool and a "solidarity mechanism" to compensate firms affected by Chinese retaliation.

However, diplomatic sources anticipate that many leaders will endorse a Franco-German proposal for a "kill switch," which would swiftly expel countries and firms from the EU market if they engage in coercive behavior.

Despite the recent agreement on hybrid cars, there is no indication that EU members are less inclined to take action. Sources confirm that the deal demonstrates the "two-track" model of engaging with China and working on behind-the-scenes trade tools simultaneously. The involvement of Germany in proposing strong measures may have been a turning point, according to several diplomatic sources.

German Chancellor Friedrich Merz stated that his country will no longer remain passive when other states harm the economy through high subsidies, artificially low currencies, overcapacity, and aggressive pricing. Merz emphasized that "anyone who seeks a trade conflict with us will find that we are now prepared to fight back – and with appropriate responses."