It’s not just Hollywood that loves a sequel. Speak to anyone involved in European trade policy nowadays and it won’t be long before you hear the term ‘China Shock 2.0’.
European industrial policy thinkers with a long memory point to the experience of the continent’s steel industry. For a time in the mid to late 1990s and well into the 2000s, China became one of that sector’s greatest export markets. As China industrialised rapidly, and underwent a construction boom, Europe’s steel firms enjoyed a buoyant world market. But then, beginning in the early 2010s, China’s own steel mills began to export their wares. Chinese steel imports into Europe surged between 2013 and 2015 and many European plants either cut capacity or closed down in response. In a little over a decade China’s steel industry transformed one of Europe’s most important customers to one of its fiercest competitors.
At heart, the worries about a China Shock 2.0 are that something similar is either happening, or will happen soon, in other—often high value-added—industries and sectors. Much of the focus has been on cars and in particular electronic vehicles (EVs). The market share of Chinese branded new cars in European markets has risen from essentially zero in 2021 to more than 6% at the end of 2025. For EVs it rose to over 15%.
Across sectors as varied as cars, chemicals, power generation equipment and machine tools, European industrialists fret about how they can compete with cheaper Chinese imports. The worries take several forms. Some point to a widening bilateral trade deficit with China, others worry more about the impact on third parties if Chinese exports are able to out-compete European ones across Asia and Africa. Some fear a trade diversion impact from US tariffs—although the ECB appears to be relatively relaxed on this front.
National security considerations, both in terms of a worry on a reliance on Chinese imports and fears about Europe’s need to maintain sectors which would be vital to any future military build-up, play an increasing role in the debate amongst political leaders. Equally, it can seem—at a time when higher global energy prices have raised inflation—that worrying about low cost imports is not a pressing priority. Others fear that any restrictions or new duties on Chinese imports risk Chinese retaliation, perhaps in the form of restricted exports of critical minerals.
What, if any, is the appropriate policy response to all of this depends, in part, on diagnosis. Is the Chinese export surge a result of subsidies or an undervalued Chinese currency? Or does it simply reflect superior Chinese products?
For policymakers searching for answers, the poll this week of the Clark Center’s European Expert Panel did not offer much clear direction, but it does help to map out the contours of the argument.
Asked whether ‘a more assertive EU trade policy, including greater use of trade restrictions against countries engaging in market-distorting practices, would substantially strengthen Europe’s economic performance’? The panel was evenly split. Weighted by confidence, 2% of respondents strongly agreed, 31% agreed, 39% were uncertain and 27% disagreed.
Although the question did not directly mention China, it was clear to many panelists that China really is the elephant in the room. As Franklin Allen of Imperial College London—who disagreed—explained, ‘This is about China. They do provide subsidies but many of these are to do with innovation. They have been very successful in this, particularly in EVs, batteries, solar cells, and wind turbines. If Europe wants to meet green targets it needs cooperation with China not a fight’. John Van Reenen of the LSE went further, pointing to some of his research which suggests trade with China has been beneficial to Europe—although some EU geo-economic worriers would no doubt question whether the experience of the 2020s will follow that of the 2000s and 2010s.
Many of those expressing uncertainty—and several of those disagreeing—took issue with the use of the word ‘substantially’. As Chicago Booth’s Christian Leuz argued, ‘”Substantially” is a tall order, but if there are market-distorting practices, there are grounds to respond. Core challenge is determining such practices and to prevent that such policy turns into protectionism.’
The panel was also asked whether ‘the EU economy would benefit substantially from greater use of anti-subsidy duties against imports from countries that provide subsidies and/or other forms of government support to their domestic producers’? This is a narrower issue, focused more on the specific tool of anti-subsidy duties than on the more nebulous idea of ‘an assertive’ trade policy and ‘trade restrictions’. Perhaps because of this tighter focus, this proposition drew a little more support, although again the results were far from decisive. Again weighted by confidence, a weak plurality of 42% of respondents either agreed or strongly agreed, with around one third expressing uncertainty and another quarter disagreeing.
Pol Antras of Harvard noted that ‘Countervailing duties can be helpful, and are consistent with WTO rules. Of course, their desirability varies across sectors, and they come at a consumer surplus cost’. Although, as Jan Pieter Krahnen of the Goethe University Frankfurt argued, ‘anti-subsidy measures might be taken by other countries as well, and since subsidy is itself a fuzzy concept, the eventual outcome might be negative for EU companies as well’.
Much of the EU’s approach to international trade has, traditionally, rested on a self image that the continent plays by the rules and expects others to do the same. The EU is, at heart after all, a rules based order made up of more than two dozen sovereign member states. For years it has, sometimes successfully, sought to export its own rules via the so-called Brussels effect. Under Von der Leyen, the Commission has shifted, rhetorically at least, to a more geo-economic approach. One which emphasizes geopolitics, security and partnerships more than interdependence. The debate over how to respond to China’s surging high value exports is a test case for how real this rhetorical shift actually is.
