Proposal modeled on US Section 301 could also target the US
The proposed instrument would serve as a “second-strike weapon” to respond to coercive measures such as massive, sudden, or arbitrary tariffs or export bans that pose a substantial threat to the economy, one German official said. The official suggested the tool should serve as a deterrent to persuade Beijing to engage in talks about ways to rebalance the China-Europe trade relationship.
In their letter to the European Commission, Macron and Merz wrote that the proposed tool would “allow for decisive and systemic reaction…and for powerful measures up to an immediate cutoff from the internal market if needed.” It could be used if a trading partner deliberately undermines fair-market conditions and distorts the bloc’s market, the letter said.
The proposal aims to restore the balance of power between two of the world’s biggest trade blocs by giving the EU an instrument similar to the US Section 301 tool, which gives Washington broad leeway to impose tariffs on trade partners, according to senior German government officials. It would allow Brussels to respond swiftly and strongly should China restrict critical exports to Europe. Chinese rare-earth restrictions last year rippled through global supply chains, causing disruptions that European officials said forced some Western plants to curtail production.
The initiative marks a shift in Berlin’s position. Paris and Berlin had been at odds for months about how to protect European manufacturers from cheap Chinese imports because of Germany’s traditional reluctance to interfere with free trade. The competition has hit Germany, the EU’s largest economy and its manufacturing heartland, particularly badly. Flagship companies, including carmaker Volkswagen, have announced massive job cuts in recent months, changing minds in Berlin and paving the way for the Franco-German initiative, according to officials.
The instrument would not be limited to China. German officials said it would not target a specific country and could be directed at the United States should the trade war ignited by President Trump last year flare up again. Paris and Berlin argue that the use of trade as a political weapon by the world’s big powers — including last year’s so-called liberation-day US tariffs — requires Europe to act. Such moves were endangering “not only the European economy, in particular its position as a key industrial producer and its ability to innovate, but also the EU’s position as a sovereign and key international actor,” the two governments wrote in a joint document also released Monday.
The EU has kept its market more open to Chinese imports over recent years than the United States, which imposed high tariffs on electric vehicles and other products in an effort to shield domestic manufacturers. But European officials are increasingly alarmed by a sharp rise in certain imports that they say is putting the bloc’s industrial production at risk. European businesses have lost market share in China over recent years and say they are being pummeled in their home market by low-cost Chinese products.
“There are important sectors of our economy facing sustained and abnormal import increases,” including machinery, textiles, basic metals, and chemicals, Denis Redonnet, who is in charge of trade enforcement at the European Commission, said last week. “China and Chinese origin is the main driver of these import increases,” Redonnet said.
The EU has for years called for China to change its export-led growth model, with top officials advocating the bloc “derisk” economic ties by diversifying the bloc’s supply chains and its export markets. The Franco-German paper also advocates derisking, although it doesn’t name China.
The EU’s trade deficit with China reached 360 billion euros last year, equivalent to more than $400 billion, or more than $1 billion a day. Curbing that reliance remains difficult because the bloc relies heavily on China for critical raw materials, including those needed for rebuilding its defense industries.
The EU several years ago created a so-called anticoercion instrument that allows officials to impose tariffs and other trade restrictions if they determine that a foreign government is trying to use economic coercion against the bloc or its members. That instrument has never been used, however, and some officials believe the threshold for implementing it is too high. It requires backing from more than half of the EU’s member countries, which must together represent at least 65% of the bloc’s population.
While Paris and Berlin want to let the Commission work out the details of any new instruments, one option would be to retool the anticoercion instrument so that it could be invoked by the Commission unless member states block its use. That would make it much easier to trigger. Paris and Berlin also recommended the creation of a diversification instrument to curb European trade dependencies. German officials suggested it could involve a cap on the percentage of certain products that can be sourced from a single country.
The China Chamber of Commerce to the EU said it was concerned by the proposal for a new trade instrument modeled on Section 301, which it said could increase uncertainty and undermine mutual trust.
Noah Barkin, an analyst with Rhodium Group in Berlin, said the Franco-German proposal reflects a new consensus. “We now have a broad European consensus on how to respond to China. This is extremely important as we head into the most consequential few weeks in EU-China relations in years,” Barkin said. “The next few months will be extremely challenging. The EU can expect Beijing to retaliate if it presses ahead with new trade cases and new instruments.”
Oliver Richtberg, the head of foreign trade at European machine manufacturers’ association VDMA, welcomed the proposal. “It is a good idea to put forward a new instrument that can be enacted faster,” Richtberg said, adding that Europe needs to act to avoid losing more industrial jobs. “We don’t want a trade war,” Richtberg said. “We just want a fair, level playing field in Europe.”
With the EU’s two largest economies now on the same page, an agreement to ask the Commission to come up with tougher measures at next week’s summit seems likely. A Commission spokesman said the letter aligns with the Commission’s work and is a valuable contribution to a continuing debate over how to address economic risks and imbalances. He added that the topic would be discussed further during next week’s summit.
Šefčovič is due to travel to Beijing later this week. European officials have said his meetings will be a key moment for Beijing to show that it takes the bloc’s concerns seriously.