Europe’s industrial landscape faces an unprecedented strategic challenge as China deploys a sophisticated two-pronged economic strategy that threatens the continent’s manufacturing base and supply chain security. European policymakers now confront a complex dilemma: how to counter Beijing’s dual approach of flooding markets with subsidized goods while simultaneously restricting access to critical materials essential for European industry.
Understanding China’s Dual Economic Pressure
China’s economic offensive against Europe operates on two distinct but interconnected fronts. The first involves systematic market penetration through heavily subsidized exports that undercut European manufacturers, particularly in sectors like electric vehicles, solar panels, and steel production. This strategy threatens to hollow out Europe’s industrial capacity through what economists term “predatory pricing.”
The second front represents a more strategic chokehold: China’s deliberate restriction of rare earth elements, critical minerals, and advanced semiconductor components. Beijing controls approximately 60% of global rare earth production and 85% of processing capacity, giving it unprecedented leverage over European manufacturers dependent on these materials for everything from wind turbines to defense systems.
Europe’s Strategic Response: Building Economic Resilience
The European Union has begun mobilizing comprehensive countermeasures to address China’s economic coercion. Central to this response is the EU’s Anti-Coercion Instrument, activated in 2023, which enables coordinated retaliation against countries that weaponize trade dependencies. EU member states are now developing joint strategies to diversify critical material sourcing, with particular focus on partnerships with Australia, Canada, and African nations rich in rare earth deposits.
The bloc is also accelerating its Critical Raw Materials Act, which aims to secure supply chains for 34 strategic materials by 2030. This legislation mandates that no single third country should supply more than 65% of the EU’s annual consumption of any strategic raw material—a direct response to Chinese dominance.
“We cannot afford to fall into new and dangerous dependencies. Europe must build its strategic autonomy while remaining open to fair competition.”
Ursula von der Leyen, European Commission President
China’s Dual Circulation Strategy: Implications for Global Trade
Beijing’s “dual circulation” economic model fundamentally reshapes global trade dynamics by prioritizing domestic consumption while maintaining selective international engagement. This strategy enables China to reduce vulnerability to external shocks while maximizing its leverage over trading partners through controlled resource flows.
For European industries, this shift creates a paradox: while China becomes less dependent on European technology and services, European manufacturers face increased reliance on Chinese-controlled supply chains. This asymmetric relationship gives Beijing significant geopolitical leverage, particularly during diplomatic tensions.
The Economic Stakes: Beyond Trade Deficits
The EU-China trade relationship extends far beyond the €396 billion trade deficit Europe recorded in 2023. The deeper concern lies in structural dependencies that could compromise European sovereignty in critical sectors. Chinese restrictions on gallium and germanium exports—materials essential for semiconductor production—have already forced European chipmakers to seek alternative suppliers at significantly higher costs.
This economic pressure campaign coincides with China’s broader geopolitical objectives, using trade dependencies as diplomatic leverage in disputes over Taiwan, human rights, and technology transfer policies.
Key Strategic Implications
- China’s dual economic strategy combines market flooding with resource restriction to maximize pressure on European industry
- The EU’s Anti-Coercion Instrument and Critical Raw Materials Act represent Europe’s most significant response to economic weaponization
- Supply chain diversification efforts require massive investment but are essential for long-term European economic security
- China’s dual circulation model signals a permanent shift toward economic nationalism with global implications
Navigating Forward: Europe’s Strategic Imperative
Europe’s response to China’s economic pressure will define the continent’s industrial future and geopolitical autonomy. Success requires a delicate balance: maintaining profitable trade relationships while building resilient supply chains that cannot be weaponized. The EU must accelerate domestic production capabilities in critical sectors while forging strategic partnerships with democratic allies to create alternative supply networks.
The stakes extend beyond economics to encompass European sovereignty itself. As China’s dual circulation strategy matures, Europe’s window for building strategic autonomy narrows. The continent’s ability to respond decisively to this challenge will determine whether it emerges as an independent global power or remains vulnerable to economic coercion from authoritarian regimes.
