Brussels wants industry to ditch Chinese suppliers. Businesses are pushing back

European businesses are opposing EU plans to force them to diversify away from Chinese suppliers as a new package of measures aimed at reducing dependency on Beijing is set to be unveiled later this year. The European Commission will present three instruments designed to lessen reliance on China, though none will specifically target the country.

One tool, DiversifyEU, could compel businesses in key sectors to broaden their supplier base, possibly through tariffs or incentives like public contracts and subsidies. Another instrument is a solidarity mechanism that would provide compensation for companies facing retaliation in a trade dispute, while the third is a rapid response trigger to close the EU market to countries engaging in distortion or coercion.

However, numerous business groups and prominent companies have voiced concerns that these plans could lead to regulatory overreach, higher costs and difficult decisions. The European Automobile Manufacturers' Association argues that Europe lacks the ecosystem to replace China in producing critical materials. The Federation of German Industries expressed skepticism, stating that binding mandates and new reporting requirements are inadequate tools for promoting diversification.

Commission President Ursula von der Leyen confirmed that DiversifyEU will be neutral to countries, helping European companies diversify their supply chains, and aims for "no critical dependence on a single supplier." Officials admit their main concern is China's influence, as European companies are seen to have been too slow in expanding their supplier base, leading to deep reliance in sectors that can be easily weaponized.

While many organizations have come around to the idea of a more robust approach to China, there remains widespread doubt about the feasibility of the plan. Feasibility concerns include the lack of alternatives for certain critical materials, the need for transition periods, and the potential for trade restrictions or tariff-driven cost increases to penalize trusted vendors and inflate costs for essential infrastructure.