China Just Got Some Terrible News

Summary

Paul Warburg argues that a joint letter from French President Emmanuel Macron and German Chancellor Friedrich Merz marks a significant shift in Europe’s approach to China. It urges the EU to make it easier to restrict China’s access to the European market if Beijing uses trade pressure, such as limiting supplies of critical materials.

The proposal is not yet law, but it would change the EU’s current process. Instead of requiring a majority vote to impose restrictions, the European Commission could introduce default measures that member states would need a majority to block or lift.

Europe’s strategic concerns

Warburg says the proposal matters beyond trade. Europe is trying to expand its arms production, partly because of the war in Ukraine and concerns that it cannot always rely on the United States for weapons. That effort leaves Europe exposed to China’s dominance in processing rare earths and other materials needed for military manufacturing. China’s export restrictions on materials with potential military uses illustrate the leverage Europe fears.

Germany’s changing position

Germany’s support for the proposal is especially notable, Warburg says. The country has traditionally favored free trade and opposed measures such as tariffs on Chinese electric vehicles, partly because German automakers relied on sales in China.

Warburg says Germany’s automotive sector is now in deep trouble, with several major firms facing steep falls in profitability and job losses. But he argues that this is not simply a reaction to Chinese competition. German automakers have also lost ground in China as the market has shifted toward electric vehicles, while many German manufacturers remain more reliant on combustion-engine cars.

Warburg’s central explanation is that Germany’s changing position reflects a broader strategic concern: protecting Europe’s ability to produce weapons without being vulnerable to Chinese supply restrictions.

China’s response and Europe’s leverage

Warburg says China has already responded to the prospect of European countermeasures, reportedly agreeing to limit exports of hybrid cars to Europe and to speed up European access to Chinese rare earths. In his view, these concessions suggest that China takes the EU’s market power seriously.

He concludes that economic dependence cuts both ways. Europe needs some Chinese goods, but China also depends heavily on export markets, including Europe, to absorb its surplus production. The proposed EU measures could therefore provide meaningful deterrence by making it riskier for China to use supply chains as political leverage.

Presenter

Paul Warburg