Facing a worsening bilateral trade deficit set to top €400 billion in 2026, Europeans have given Beijing an ultimatum: find a solution by mid-October or face unprecedented tariff barriers. The uncertainty is no longer about whether new protective measures are coming, but how far-reaching the shift will be and how intense the resulting tensions will prove.

A European response to the second China shock takes shape

The second China shock refers to the new wave of Chinese exports that began in the early 2020s. The term echoes the “first shock” of low-cost exports that followed China’s accession to the WTO in 2001.

This new wave of Chinese goods is the product of the techno-industrial pivot launched under Xi Jinping. It cements China’s position as the world’s leading supplier of manufactured goods, at levels unmatched in 50 years. Meanwhile, Chinese imports and consumption, discouraged under an economic model built around production and self-sufficiency, have not kept pace.

For Europe, the challenge is all the greater because this second China shock hits its strongest sectors, from chemicals and machine tools to green industries and cars. And this time, the other major developed economy, the United States, is partly closed to Chinese goods, leaving Europe as the main outlet for China’s many excess capacity in the mid- and high-end segments.

Chinese goods benefit from subsidies with no equivalent anywhere else in the world (4.4% of GDP a year, according to the IMF) and a currency undervalued by 20% (also per the IMF). This influx is also deepening Europe’s dependence on China, a country that routinely resorts to economic coercion and remains the main backer of Russia’s war effort in Ukraine.

After a relative lull in 2025, Europeans have revived the trade-defence measures first launched in 2024.

Tariffs have been imposed this year on around a dozen categories of Chinese goods (chemicals, steel, tyres and agriculture), and roughly ten investigations have been launched in the same sectors. New measures are almost certain to be taken by the end of October, covering chemicals, hybrid vehicles and machine tools.

At the same time, the EU has finalised extraordinary measures against small parcels (€50 billion worth of EU imports in 2025), 90% of them tied to Chinese e-commerce, cutting that flow by nearly half. Its steel sector has also benefited from exceptional measures, cutting China’s quota by two-thirds, doubling the out-of-quota tariff and introducing anti-circumvention safeguards, extending in places to certain downstream sectors.

Europe’s response to the influx of Chinese goods goes beyond tariff barriers. The Foreign Subsidies Regulation has already hampered several Chinese players’ access to the single market by blocking the acquisition of a German electronics retail chain, excluding China’s leading rolling-stock manufacturer from public tenders, and taking action against suppliers of scanners and wind turbines.

On a different front, several pieces of legislation under negotiation aim to introduce a European preference in public procurement and subsidies, feeding into this broader response to Chinese competition. Measures are likewise being finalised to reduce the EU’s dependencies and vulnerabilities in three key areas: critical minerals, new information technologies and green industries.

Planned tightening of environmental standards on the European market would also hit Chinese products particularly hard, covering goods at risk of driving deforestation, and the carbon costs captured under the Carbon Border Adjustment Mechanism (CBAM). The same goes for the forced-labour regulation, which should come into force in the coming months.

Lastly, investigations into Chinese e-commerce players for breaching digital rules have multiplied, resulting in roughly €2 billion in fines since early 2025.

Threats of retaliation, negotiation and a deadline

True to its culture of retaliation, Beijing has threatened countermeasures in response to each of these steps. However, in late June both sides launched a dedicated negotiation framework built around working groups on trade and investment, export controls, intellectual property and WTO reform, with mid-October as the deadline. According to European officials, voluntary export restraints have been discussed.

European leaders have placed conclusions on trade relations with China on the agenda of the 15-16 October European Council. The Commission is expected to receive final clearance for some of the new barriers under consideration, with their scope depending on the first results of the negotiations.

Whatever happens, unilateral measures are now unavoidable. The EU’s chief trade-defence official, Denis Redonnet, put it plainly: “dialogue alone will not be enough.”

Germany, on the front line of this second China shock and now under pressure from large parts of its own industry, is close to abandoning its traditional opposition to protectionist measures. Berlin signalled its support for strong measures in late August. A broader package addressing this trade challenge is due to be approved by the chancellery before the mid-October European summit.

The Netherlands, Belgium and Sweden, historically among the more reluctant to erect new barriers, are also pushing for action. The remaining resistance comes mainly from Slovakia and Spain, both keen to preserve a privileged relationship with Beijing.

Barriers and a looming flashpoint

The uncertainty now lies in how intense the coming tensions will be. The ball is largely in Beijing’s court. What concessions will be made? What retaliatory measures will be adopted?

Chinese authorities will almost certainly want to test Brussels’ resolve. Europeans should keep in mind that China, with its fragile domestic demand, cannot afford to lose its leading export market, especially for its higher-end output, which is central to its techno-industrial ambitions.

October opens a stretch of sharp tensions that will inevitably settle into a modest rebalancing of a relationship neither side can escape.