Trade protectionism will undermine the competitiveness of the European Union itself
Editor's note: In the previous issue of the "Dismantling EU Trade Barriers to China" series, we reviewed the process by which the EU has used trade protectionism to build a trade wall against China in recent years. This approach stems from the EU's own competitiveness anxiety. In the second report of this series, we will talk to European economists, experts, and scholars to analyze that trade protectionism not only fails to solve the reform problems faced by the EU, but also hinders and damages the EU's own economic development, the interests of businesses and consumers, the green transformation agenda, and normal economic and trade cooperation between China and Europe.
The investigation is not over yet, the project has already cooled down
At Sofia Central Railway Station in the capital of Bulgaria, people come and go, and the old trains on the platform occasionally make a piercing roar. For many years, local residents have been eagerly anticipating updates to the railway system, hoping to ride on more comfortable and energy-efficient new trains. A railway procurement project worth approximately 600 million euros was originally seen as an important opportunity to improve public transportation in Bulgaria. However, during the project implementation process, the European Commission launched an in-depth investigation into China CRRC, which participated in the bidding, in February 2024 in accordance with the Foreign Subsidies Regulation (FSR). Subsequently, the company withdrew from the bidding and the investigation was terminated.
This is the first time that the EU has invoked FSR to investigate Chinese enterprises, and it is also a microcosm of the EU's use of such tools in recent years under the guise of "maintaining a fair competition environment" and practicing trade protectionism. With the EU announcing on May 28th the launch of an in-depth investigation into JD's proposed acquisition of German electronics retail company CECONOMY, the total number of publicly available FSR investigations has reached 8, of which at least 6 directly involve Chinese enterprises, and CRRC China has been investigated twice.
Many European industry insiders believe that although the FSR investigation is "legal" in procedure, it has brought direct negative impacts. Juan Barberi, President of the Spanish Mediterranean Economic Promotion Association, stated in an interview with Global Times that in the fields of public procurement and large-scale infrastructure, Chinese enterprises often provide cost-effective technology and equipment, which is undoubtedly a "win-win" situation for both supply and demand sides. But after the FSR investigation squeezed out competitive Chinese enterprises, alternative solutions can only come from local companies in Western Europe, whose quotes can even reach twice that of Chinese enterprises. This means that the government and developers of the country where the project is located will face pressure to double procurement costs, ultimately still being borne by public finances and ordinary consumers.
Similar situations quickly emerged in the field of new energy. In April 2024, the European Commission cited FSR to conduct an in-depth investigation into the participation of Longi Green Energy and Shanghai Electric in the Romanian photovoltaic park project. After the relevant enterprises withdraw from the bidding, the investigation will be terminated again.
The investigation is not over yet, the project has already cooled down, "said a European photovoltaic industry practitioner. Barberi told reporters that the FSR investigation process is lengthy, rigorous, and lacks predictability, often causing project progress to stagnate. In fields such as wind power and photovoltaics with strong commercial timeliness, long-term delays can lead to accumulated costs in the early stages, and even cause the project to completely lose its commercial value.
In addition to project risks, the cost of corporate compliance has also significantly increased. According to FSR requirements, companies that have reached a certain scale must declare in detail the various "foreign subsidies" they have received in the past few years when participating in mergers and acquisitions or public procurement. The problem is that FSR's definition of "foreign subsidies" is very broad, including not only direct subsidies, but also tax incentives, loans, public contracts, and even some commercial arrangements. For multinational corporations, this means the need to sort out massive amounts of financial information worldwide, and the administrative burden is extremely heavy.
Barberi stated that while the FSR investigation has caused setbacks for Chinese companies, it has also resulted in losses for many Spanish enterprises. Due to the overly broad definition of FSR, Spanish companies, as local partners, subsidiaries, or joint ventures of Chinese enterprises, are also forced to cooperate and provide extremely complex financial, operational, and historical data, greatly increasing administrative costs.
The regulatory environment of the European Union is undergoing profound changes. In May of this year, a reporter from Global Times attended a seminar held by the European Union China Chamber of Commerce in Brussels. Some participants mentioned that Chinese enterprises are now facing a more complex regulatory environment in Europe. In addition to legal compliance, the political attitudes of regulatory agencies, member state governments, media, and industry stakeholders can all affect transaction results. At present, the scrutiny of foreign investment and foreign subsidies in the European Union is becoming increasingly strict, with many countries having longer review times than traditional antitrust reviews. Complex cases in Germany can last up to 10 months, while in Spain it can last up to 6 months. In addition, the EU is also pushing to further expand the scope of foreign investment review, intending to include intellectual property acquisition, minority equity investments below 10%, and greenfield investments in stricter scrutiny.
Attempting to keep competitors out of the door also cuts one's own economy
In recent years, the European economy has been under sustained pressure. The high energy prices, declining manufacturing competitiveness, and shrinking fiscal space have made the EU increasingly emphasize "industrial protection". From the Foreign Subsidies Regulation to anti subsidy investigations, to supply chain reviews and investment screening, "de risking" is becoming a high-frequency term in European policy discussions.
On the same day that the investigation into JD's acquisition of CECONOMY was launched, the European Commission also found that the Chinese e-commerce platform Temu failed to effectively curb the circulation of illegal and dangerous products on the platform and imposed a fine of 200 million euros on it. Temu responded by stating that they do not agree with the decision of the European Commission and the fine is disproportionate. The German magazine 'Tisch Viewpoint' described the EU as a 'toothless tiger' and stated that this punishment is a political provocation launched by the EU against China under the Digital Services Act (DSA). The report believes that the allegations are "exaggerated" and only involve issues such as responsibility definition, platform service terms, and online market transparency. They can be resolved through regular regulatory procedures and do not require such extreme punishment measures.
During an interview with Global Times, Zhu Ye, a lecturer at the School of Europe at Shanghai International Studies University, stated that the EU's abuse of tools such as FSR and DSA has seriously hindered Chinese investment, shaken the expectations of multinational corporations for the stability of the European market, and severely undermined foreign confidence. At the same time, the EU artificially cutting off integration with the Chinese industrial chain will cause European companies to miss out on the industrial scale dividend of over 80% reduction in global solar panel prices driven by Chinese manufacturing. For consumers, the EU's imposition of countervailing tariffs on Chinese new energy vehicles deprives European households of the right to purchase cost-effective new energy vehicles and shifts the premium to ordinary consumers.
Barberi told Global Times reporters, "The EU's trade protectionism is trying to keep competitors out while also cutting its own economy." In fact, except for a few specific industries and companies that can benefit from EU restrictions on China in the short term, the interests of most industries and companies will be harmed.
The recent sanctions imposed by the European Union on Chinese enterprises have led to a shortage of chip supply in the European market. According to the German newspaper "Handelsblatt", the European Union included six Chinese companies in the 20th round of sanctions against Russia in late April, including semiconductor manufacturer Yangjie Electronics. Industry insiders say that losing this supplier is undoubtedly another heavy blow to the European automotive industry. Last autumn, the Dutch semiconductor company Anse Semiconductor experienced business turbulence and supply shortages, and it was Yangjie Electronics that promptly filled the gap. Currently, industry customers are once again experiencing supply chain anxiety. Martin, the purchasing director of BMW Group, also publicly stated last year that he advocated deepening supply chain cooperation with China, stating that China has the ability to supply large-scale chips and significant cost advantages.
Ordinary consumers also have to bear the consequences. The German magazine Focus reported that affordable retailers from Asia have always been seen as "competitors" to local European suppliers. Starting from July 1st this year, the European Union will implement new regulations to eliminate the threshold for small package tariff exemptions and gradually impose tariffs on all small package goods entering the EU. The Consumer Center of North Rhine Westphalia, Germany reminds that "the new regulations will generate high implicit additional fees that consumers are prone to overlook. An affordable phone case may even end up with a purchase price that is more than twice the original price
Volker Trier, the head of foreign trade at the German Chamber of Commerce, stated that the German economy is facing enormous international competition pressure, and many of the disadvantages in its business environment are caused by its own policies. Short term protection for individual industries must not come at the expense of the overall competitiveness of the EU, as not all industries possess strategic attributes. The Spanish newspaper "El Pais" stated that considering the strong cooperation foundation between Spain and China in agricultural products, infrastructure, and automobile manufacturing, the unilateral restrictive measures of the European Union may trigger trade frictions and affect Spain's advantageous export industries to China, such as ham, olive oil, and grape wine.
Endangering energy transition and achieving climate goals
The EU China Chamber of Commerce emphasizes that Chinese companies have long been deeply involved in Europe's green and digital transformation, providing stable supply chains and competitive products for Europe in fields such as wind power, photovoltaics, batteries, and new energy vehicles. If the EU's investigation and restrictive measures continue to expand, Europe's own green transformation may also face higher costs. A European energy industry insider admitted to a Global Times reporter that the EU is emphasizing accelerating green transformation while imposing layered restrictions on the supply chain, and this contradiction is becoming increasingly prominent.
Currently, Europe needs a large number of photovoltaic panels, wind turbines, batteries, and related equipment, but local manufacturing capabilities are still unable to meet the demand in the short term. Hou Ande, a senior researcher at Oxford Energy Research Institute, said that although Europe hopes to promote local manufacturing, these "European made" wind power equipment still largely rely on the Chinese supply chain due to China's high share of global production of key components such as gearboxes, blades, and castings.
The European Wind Energy Association and various parties in the industry have also warned that the fundamental reason for the slow installation of wind energy in Europe is not solely due to external competition, but rather cumbersome approvals, lagging grid construction, and slow electrification processes. If we overly rely on trade protectionism measures, it will instead drive up the cost of wind power projects, slow down deployment pace, and endanger the achievement of the EU's energy transition and climate goals.
Barberi stated that Spain has been vigorously developing renewable energy in recent years and plans to build a European hub for electric vehicles and clean energy. China's industrial chain advantages in wind power, photovoltaics, lithium batteries, and other fields are an important support for Spain to achieve its green goals. The EU's intensive targeting of Chinese wind power suppliers and new energy companies has directly led to technological disruptions and supply chain uncertainties in Spain's local wind farm construction and clean energy industry chain, slowing down the country's transformation pace.
Europe should be wary of falling into a 'protectionist cycle'
For a long time, the EU has regarded "open markets" as an important label for itself. But in recent years, the focus of European policies has shifted from anti subsidy investigations to supply chain restrictions, and then to "economic security strategies". Some European scholars are concerned that if this trend continues, Europe may gradually fall into a "protectionist cycle".
The Swiss newspaper Caijing reported that the "new round of China shock" has become a hot topic in European public opinion. Although German export companies have felt the intensification of competition from China, the various "catastrophic" consequences predicted by economists have not yet occurred. Europe should not ignore the important cooperative value of the Chinese economy, nor should it use the so-called "China shock" to avoid its own economic reform difficulties.
On May 29th, Stefan Scholl, the head of the technology section of the German newspaper Handelsblatt, called for Europe to completely lift punitive tariffs on Chinese new energy vehicles. The article states that tariff measures only address the symptoms rather than the root cause, and will only solidify the drawbacks of industry development, protecting not Europe's future industries but outdated production capacity. The fact has proven that Europe is benefiting from benign competition with China: market competition forces local European products to lower prices, promoting local enterprises to upgrade their research and development efficiency, cost control, and product quality; Meanwhile, the popularization of affordable new energy products will also help Europe accelerate the achievement of its climate reduction goals.
The EU's trade protectionism reflects Europe's wavering between openness and protection, cooperation and "de risking". More and more European media and experts are beginning to realize that if Europe overly relies on investigations and restrictive measures, it may ultimately harm not only foreign companies, but also its own economic vitality, speed of green transformation, consumer interests, and its long-standing pride in the "open market" image.