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Presently, the geo-political disturbances have marked a new phase in the EU-China trade patterns through the so-called “second China shock”. The new stage of the global competition, that stretches to the core of the EU’s growth base, requires deeper understanding of both the global shifts in economics and in “China’s shock” for the EU growth. Unlike the “first China shock”, driven largely by low-cost manufacturing, the new one includes high-tech and capital-intensive industries, e.g. electric vehicles, solar panels, advanced machinery, semiconductors and AIs.
Background
China’s rise within the global economy has had a new turn, at least for the European prospective growth patterns. Backed by large-scale domestic investment and strategic industrial policy, China is rapidly expanding its global market share in frontier sectors traditionally led by advanced economies.
Even though the so-called second China’s shock is expected to deepen the EU-wide structural challenges, the new developmental trade patterns are leading to altering the continental industrial background, both in the short- and long-term.
The “second China shock” refers to a surge of high-end, low-cost Chinese exports, specifically EVs, solar, machinery and digital, flooding European markets due to China’s industrial overcapacity and weak domestic demand. Unlike the first shock, this affects Europe’s industrial core, creating intense price competition and threatening manufacturing jobs, particularly in the EU’s driving economy’s giants, like Germany, France, Italy, etc.
China’s trade surplus topped presently $1 trillion for the first time ever, as manufacturers seeking to avoid the US President Trump’s tariffs shipped more to non-US markets by the end of 2025, with surging exports to Europe, Australia and Southeast Asia; whereas, shipments to the US at the time dropped by about one-third from the same month a year before.
Reference to: https://www.reuters.com/world/asia-pacific/chinas-november-exports-top-expectations-imports-underperform-2025-12-08/
Our comment. Besides, China is entering a new demographic era, with rapid population ageing and a shrinking workforce reshaping its growth model and social contract. The EU decision-making structures have to keep in mind the policy trade-offs that China is facing – from pension and healthcare reform to productivity, migration and family policy; these choices could change China’s economic trajectory and global markets. Then, China’s decarbonization ambitions will significantly influence the global energy transition and the competitiveness of clean technologies. It is vital to assess China’s progress toward the 2030 and 2060 goals, the policy levers that are driving change, and the tensions between climate ambition, growth and energy security, with a focus on what it means for global markets and climate outcomes.
Key elements in the new China’s growth patterns
The so-called “second China’s shock” is going to have dramatic consequences for the EU and the member states; the following growth patterns shall be mentioned specifically:
= core industrial sectors through the following “vulnerabilities”, i.e. unlike the previous shock in 2000s (which focused on low-cost consumer goods), the present “wave” targets advanced manufacturing like automotive and machinery sectors, digital and “green” technologies.
= price and trade pressures: Chinese imports are flooding the EU markets: some reports over 17o percent rise in industrial robots and car imports (more than doubling in certain periods), while prices dropped, creating severe dumping pressures.
= declining German dominance in some sectors: Germany’s auto industry is experiencing a historic shift, moving from a net exporter to China to losing market share as Chinese consumers switch to domestic brands, while German machinery faces rising Chinese competition.
= policy response: The EU has had limited means “to reflect”: i.e. it is responding with anti-dumping surveillance and tariffs on Chinese electric vehicles.
= strategic dilemma: European Union faces a challenge of balancing the need for cheap green technology to meet climate goals with the necessity of protecting its industrial base, leading to potential “managed competition” or increased protectionism.
And a final note: existing and perspective China–Europe competition is increasingly about the rules governing subsidies, market access, carbon pricing and investment screening, notes the IIF’s Global Macro Views edition.
Source: https://www.iif.com/LinkClick.aspx?fileticket=P0zl7_rvJjs%3D&portalid
EU’s traditional industrial sectors: looming dangers
Chinese overcapacity and the drop in U.S. demand due to tariffs introduced already at the end of 2025 have revived fears in Europe of a second China shock, which could potentially be much worse than the first shock. While the European continent was flooded with low-value consumer goods after China joined the World Trade Organization (WTO) in 2001, present time’s disruption hits Europe’s industrial core: auto sectors, machinery and high-tech equipment.
The European Commission has set up recently a Surveillance Task Force to monitor trade diversion, which could be more accurately described as price dumping. Its data show Chinese exporters increasingly targeting the EU with apparel, appliances, furnishings, industrial raw materials and high‑tech products.
Note. The European Commission established an Import Surveillance Task Force in April 2025 to monitor and combat harmful trade diversion. This initiative uses an automated dashboard to track import surges and protect the EU internal market from products diverted from other markets due to high tariffs.
Source: https://policy.trade.ec.europa.eu/enforcement-and-protection/trade-defence/monitoring-trade-diversion_en
Thus, as was already mentioned, imports of industrial robots from China (during 2025) have risen 171%, while prices fell 31%; imports of integrated circuits were up 84%, with prices down 6%; car imports have more than doubled while prices dropped 15%.
The EU has threatened targeted tariffs on Chinese imports to level the playing field, similar to its 2024 measures on Chinese electric vehicles (EVs); yet, those EV tariffs were “a cautionary tale”: they narrowed and did not erase China’s price advantage, and Chinese EVs continue to gain market share in the EU, albeit at a slower pace.
Source: https://www.reuters.com/markets/global-market-data/industrials/europes-second-china-shock-is-blessing-disguise-2025-12-09/
Possible EU’s reaction
There are three reasons, notes Reuters’ analytics, why the EU is unlikely to opt for a broad-based escalation with China.
=First, Europe is heavily dependent on China, much more so than the US, both as an export market and as a source of vital inputs. Retaliatory Chinese tariffs could hurt EU manufacturers abroad more than higher EU tariffs would help them at home.
= Second, the EU desperately needs to lower energy costs; the EU industrial electricity prices average €0.199 per kilowatt-hour, about twice as much as in the US and 50 per cent more than in China, according to the International Energy Agency. One way to address this is accelerating the build-out of wind and solar energy, but both are highly reliant on Chinese components and equipment. Aggressive tariffs risk slowing or reversing the green transition and making it more expensive.
= Third, and probably most vital, some EU member states’ leaders are increasingly advocating a European central point in dealing with China, which opens a “vision” as several EU states do benefit from large Chinese investments. For example, Hungary, Spain, and Germany are now hosting large Chinese factories for batteries and EVs. These plants create jobs and tax revenues, but also shift political influence away from traditional European manufacturers, mainly, towards Chinese competitors. E.g. during 2025, the price of Chinese imported goods has declined by an average of 20 percent; these imports directly influence prices in about a quarter of the euro zone’s inflation basket.
Bottom-line. The EU is heavily dependent on China for critical raw materials, green technology (solar panels, batteries, EV motors) and manufacturing components, with China accounting for over 50% of the EU’s 129 strategic import dependencies. This reliance poses significant economic and security risks, prompting the EU to pursue a “de-risk, not decouple” strategy to secure its supply chains, particularly in high-tech and green sectors.
Reference to: https://www.gisreportsonline.com/r/europe-dependence-on-china/