Europe sharpens its weapons in case trade negotiations with China fail

BrusselsIt is the last opportunity to negotiate. Brussels already has ready trade defense measures in case China does not agree to limit its exports to Europe and reduce the trade deficit, which the European Commission estimates at 1 billion euros per day. European Commissioner for Trade, Maroš Šefčovič, meets this Thursday in Beijing with his Chinese counterpart, Wang Wentao, who is to present his counter-proposal.

In the last meeting, held in July, Brussels and Beijing gave themselves a three-month deadline –which expires this October– to demonstrate "tangible results" in reducing the trade deficit. At that time, the EU gave an ultimatum to Beijing and proposed that it self-impose an export limit (around 15% of the European market) to curb the deindustrialization of the European automotive industry. This week closes "the last window for negotiation" and, therefore, the result of the meeting will determine whether an agreement is reached or if, on the contrary, the European Commission presses the button for unilateral retaliation.

The main obstacle is the flood of Chinese hybrid vehicles that have arrived in Europe. After the EU imposed tariffs on 100% electric Chinese vehicles, manufacturers in China reoriented their strategy towards hybrid and plug-in hybrid vehicles. Now, sales of hybrid vehicles manufactured in China have multiplied in the European market: they represented in August 2026 nearly 25% of all hybrid sales and a third of plug-in hybrids in the EU.

What will happen, then, if China rejects the European proposal? The EU has warned that it will deploy its weapons unilaterally. The first instrument on the table, as reported by Bloomberg, is to establish an import quota. Up to a certain volume, hybrid vehicles could enter the European market, but once this threshold is exceeded, tariffs would be applied to additional imports. These are levies similar to those imposed on 100% electric vehicles with the aim of making Chinese vehicles more expensive so that they are less competitive compared to European ones.

Neither the import threshold nor the tariff that would be applied has been decided yet, but the community executive proposes to use the hybrid vehicle as a pilot test to replicate it in other sectors. If this system works to reduce imports and rebalance the trade relationship, it could be applied subsequently in other areas.

Franco-German pressure

Details are not yet known about what China's stance will be, but on the European side, the rhetoric has hardened. Earlier this week, French President Emmanuel Macron and German Chancellor Friedrich Merz sent a letter to the President of the European Commission, Ursula von der Leyen, in which they requested an even tougher instrument to use in the trade war with China. The two strongest economies in Europe proposed a clause that would allow the EU to exclude China "immediately" from the single market, through an emergency procedure.

In the joint document, they denounced that the "systemic market-distorting practices" endanger the economy and the industrial base of the bloc, a fact that requires urgent action. Although the missive did not directly name Beijing, it did mention the situation of structural trade imbalance of the EU with "key partners." The Chinese Ministry of Commerce responded by urging Paris and Berlin not to "over-politicize" economic and trade issues, to avoid "taking a wrong path that ends up turning against them."

The Franco-German letter marks a shift in the position that Berlin has maintained until now regarding Beijing. Traditionally, the German government had been a brake within the community bloc when it came to imposing tariffs, as it relied heavily on the Asian market to sell its products. But lately, Chinese manufacturers have become direct competitors to German industry. While demand in the Chinese market has fallen, the German trade deficit with the country has soared to historic highs.

Another sign of the direction negotiations will take is that this Wednesday the European Parliament advocated for hardening policy towards China. In a resolution, the community chamber keeps the door open to dialogue with Beijing, but warns that the Asian giant poses an "existential threat to the EU" and encourages leaders to confront it "when necessary to protect European interests." At the same time, it qualifies the trade practices it uses as hostile and unfair, and urges Brussels to use "the tools it has" against China.

Spain, however, is swimming against the tide regarding its relationship with Beijing and, unlike the major European economies, opts for a conciliatory and pragmatic stance. In fact, the Spanish Prime Minister, Pedro Sánchez, showed his opposition to the EU's trade escalation with Xi Jinping's executive and called for the withdrawal of tariffs on electric vehicles. The Spanish state, which is the main exporter of pork to China and sees Chinese investments as an opportunity for reindustrialization, will have to defend this position at the next EU leaders' summit, which will be held at the end of next week in Brussels.