Where EU–China trade friction goes after France and Germany align

Three years: from an EV investigation to industrial bargaining

This round of friction began with European concern that electrification could shift automotive production to China. Three years later, the argument also concerns what Europe can sell to China, how much it imports and who controls critical supply chains. Several turning points explain the change.

4 October 2023: the investigation begins. The Commission opened its anti-subsidy investigation into battery electric vehicles made in China. The proceeding examined subsidies and the risk of injury to European industry. Its scope follows production origin and therefore also covers European brands manufacturing in China.^[1]

October 2024: duties arrive, with Berlin and Paris divided. Germany opposed the measures while France supported them. At the end of the month, the EU imposed definitive countervailing duties for five years, with company-specific rates of 7.8%–35.3%, an additional import charge. Germany was more concerned about Chinese business and retaliation; France supported stronger protection for European production.^[2][3]

July 2025: a negotiated route emerges in another industry. China issued its final anti-dumping determination on EU brandy while accepting price undertakings from participating companies. Automotive disputes and pressure on European spirits exports ran alongside one another. The arrangement illustrated how measures could remain in place while commitments enabled conditional trade.^[4]

January–February 2026: an exemption route becomes concrete for EVs. After issuing guidance on price undertakings, the Commission accepted the CUPRA Tavascan arrangement from Volkswagen Anhui. Minimum import prices, volume limits and EU investment commitments secured an exemption for that model. This was not an industry-wide removal of duties.^[5]

29 June: the agenda formally broadens. The first EU–China Trade and Investment Consultations established four workstreams: trade and investment balance, export controls, intellectual property and WTO reform. Market-access lists were exchanged. The automotive case was now part of a wider economic negotiation.^[6]

17 September: hybrid export restraints enter reporting. Reuters, citing the Financial Times, reported that the EU was seeking voluntary Chinese restraints on hybrid exports. This described a negotiating request, not an operational quota.^[7]

5–8 October: joint pressure accompanies continued talks. Macron and Merz jointly advocated new trade tools. On 7 October, the Commission acknowledged the letter and said it aligned with its work. On the evening of 8 October, China’s commerce ministry confirmed that Wang Wentao met Maroš Šefčovič in Beijing. Stronger political pressure and continued negotiation are proceeding together.^[8][9][10]

Germany’s shift reduces an important source of restraint

German companies have substantial commercial interests in China. Those interests have often been treated as a constraint on European trade escalation. The same industrial companies, however, must also protect orders, capacity utilisation and suppliers in Europe. Profits in China and employment at home do not necessarily support the same policy.

Eurostat shows the economic backdrop: EU goods exports to China fell 6.5% in 2025 while imports rose 6.4%, leaving a deficit of roughly €360 billion. Stronger import competition alongside weaker export returns undermines the political case that existing openness will deliver greater sales. A deficit does not itself establish unlawful subsidies, but it increases pressure for action.^[11]

For Germany, opposing tariffs alone cannot solve manufacturing costs, product competitiveness or insufficient orders. If Chinese companies serve European growth mainly through imports, it becomes harder to explain to domestic industry what continued restraint achieves. Supporting common instruments strengthens bargaining power with China and signals protection of the production base. This is the central commercial logic behind the shift.

Franco-German alignment makes it easier for the Commission to assemble support and harder for China to moderate pressure by winning over either government. Neither country can decide for the entire EU. Nevertheless, Chinese automakers should no longer base investment budgets on an assumption that Germany will ultimately block restrictions.

European manufacturers should not book protection as a permanent source of profit either. Import restrictions can buy time; they cannot automatically reduce factory costs, accelerate software development or improve product portfolios. Businesses that fail to use that time will still face technology and cost gaps.

Where the next pressure could fall

According to Euronews’ account of the joint letter and accompanying paper, France and Germany want broader market-access restrictions and supply diversification. They also propose activation unless a qualified majority opposes it. These remain proposals rather than enforceable new rules.^[8]

The direction is clear: Europe wants to turn market size into greater bargaining power. Traditional countervailing investigations concern particular products and legal evidence. Broader industrial instruments could bring supply concentration and economic security into access conditions. For automakers, exposure could extend beyond the tax paid at customs to permitted growth and dependence on particular supply sources.

The existing EU Anti-Coercion Instrument is distinct from the new proposal. It addresses a third country’s use of trade or investment pressure to induce policy changes in the EU or a member state and requires a determination process. A trade deficit does not automatically trigger it.^[12] The relevant business conclusion is that Europe is seeking wider grounds for intervention, not that unlimited retaliatory powers have already taken effect.

This also explains why switching to plug-in hybrids may not create a durable policy advantage. Even where a model falls outside the original BEV duty’s scope, political attention can follow import growth that displaces European production. A different powertrain can alter tariff exposure without removing market-access risk.

The likely direction: more restrictions, with conditional trade continuing

The most probable path is conditional trade negotiated by sector and company. Europe wants production and employment while still needing competitive products and supplies. Chinese companies need European revenue and a return on investment. Both sides have reasons to maintain commercial ties, but the terms will become more specific.

The approved Volkswagen Anhui arrangement shows that commitments can purchase greater certainty. The commercial costs are equally clear: a price floor reduces promotional flexibility, a volume constraint limits growth and investment commitments absorb capital. Project economics must compare more than duty payment with exemption. They must include forgone volume, pricing freedom and cash flow.

Even if talks achieve near-term results, they are more likely to resolve selected product or access issues than transform the entire relationship. Europe wants greater exports to China; China will seek relief from European restrictions. Annual goods imbalances span many industries, so a few procurement commitments or an individual model agreement cannot easily remove political pressure.

China’s capacity to respond will affect European choices. However, broader retaliation can encourage European companies to treat supply dependence itself as a risk, building support for restrictions across more industries. Exchanges grounded in specific products, investments and verifiable commercial benefits offer a better prospect of lasting results than widening confrontation.

The immediate signals to track are concrete results from the 8–9 October consultations, any formal EU legislative text, and whether the hybrid issue enters a defined proceeding. The joint letter has already changed expectations. Subsequent terms will determine the costs companies actually face.

Three calculations Chinese automakers need to revisit

Unit economics. Export plans should test continued tariffs, price undertakings and constrained volume growth. Dealer discounts, inventory financing and aftersales costs belong in the calculation. Products dependent on repeated price cuts to gain scale will face the greatest pressure when both price and volume are constrained. Brand premiums, differentiated products and established distribution offer more room to adjust.

The fixed cost of local production. A European plant can create local commercial interests, but large new capacity before rules and orders are clear risks converting policy uncertainty into underutilisation. Compare existing facilities, contract or joint production and independent factories on total cost. Stage investment against verifiable orders and check whether the particular production arrangement meets applicable origin requirements. Moving final assembly cannot simply be assumed to secure an exemption.

How value is shared with suppliers and partners. A project that creates durable income for local suppliers, engineering teams and plants is more likely to build a constituency for continued operation. Procurement, development responsibilities and long-term service capability should be designed into the European business. Treating a local partner solely as a sales agent creates a more limited alignment of interests.

With France and Germany jointly seeking stronger instruments, success in Europe will depend more on organising local production, partnerships and profit sharing. Chinese automakers retain product and cost strengths, but converting those advantages into stable revenue will require higher access and operating costs. European strategy should move from maximising export growth to measuring returns on capital under policy constraints.