Confronting EU protectionism, China hits a 'combination punch'

Editor's note: In recent years, the EU's trade protectionism towards China is no longer limited to traditional tariff barriers, but has shifted towards a composite containment path that combines regulatory barriers, green barriers, and "long arm jurisdiction". In the face of challenges, China has resorted to a combination of countermeasures: Chinese companies seek breakthroughs through rule adaptation and technological innovation, while the Chinese government has successively introduced multiple laws and regulations to build a legal countermeasure system. Some scholars have suggested that in response to the EU's trade pressure, we should not only actively respond and counter it, but also be good at utilizing the political system characteristics within the EU, uniting factions that can be united, and creating a "chilling effect" through precise countermeasures to warn politicians who vigorously promote protectionism.

Enterprises adapt to rules and break through technological innovation

In Jinhua City, Zhejiang Province, a well-established enterprise that produces vacuum insulated cups for export is exploring feasible paths to address the EU's green barriers. According to public reports, Zhejiang Hals Vacuum Vessel Co., Ltd., founded in 1985, has added a special label to its products sent to Germany since last year. Consumers only need to scan their smartphones lightly to have a clear view of the carbon emissions data throughout the entire lifecycle of the product - from the emission intensity of each production process to real-time records of energy consumption at each stage. Behind this is the time-division carbon factor accounting platform independently developed by State Grid Jinhua Power Supply Company. Many foreign trade enterprises in Jinhua are using this digital tool to cope with the EU Carbon Border Adjustment Mechanism (CBAM) officially implemented from January 1st this year.

CBAM is figuratively referred to as the 'carbon tariff' by the industry. According to this mechanism, the EU will impose taxes on products such as cement and steel imported from countries and regions with relatively relaxed carbon emission restrictions. Taking steel as an example, carbon emissions per ton may face tariffs ranging from 60 to 100 euros. In addition, the EU has proposed a legislative draft that plans to significantly expand the scope of application of CBAM to about 180 steel aluminum intensive downstream products from 2028, covering areas such as mechanical equipment and household appliances.

CBAM has obvious unilateralism and trade protectionism colors. Faced with the green barriers built by the European Union, Chinese companies have not passively waited, but actively sought a breakthrough path through rule adaptation and technological innovation.

According to the website of the European Union China Chamber of Commerce, in order to reduce the impact of CBAM on domestic related industry exports, Shenzhen Carbon Neutrality Company has successfully developed various products such as "Carbon Neutrality" brand industrial biogas biochar and carbon neutral steel. The company has applied for a series of carbon neutral industrial patents around these technologies, covering major industries and product categories affected by CBAM, in an active response to external market challenges.

Similar tests have also emerged in the field of batteries. In August 2023, the EU Battery and Waste Battery Regulation officially came into effect. According to relevant regulations, starting from February 2027, power batteries exported to the European market must be equipped with a "battery passport" that meets the requirements, detailing manufacturer information, material composition, carbon footprint, and supply chain data. After 2028, automotive power batteries and industrial batteries with a capacity exceeding 2 kWh are required to disclose the usage ratio of recycled metals such as lithium and cobalt.

In response to the above regulations of the European Union, China Automotive Research Institute has partnered with leading companies in the industry such as CATL and BYD to jointly develop and design the "Chinese version of battery passport" and build a battery ID platform to help domestic enterprises meet the requirements of EU battery regulations. In addition, with the application of blockchain traceability technology, companies such as EVE Energy have built a trusted data system for the entire chain from raw material mining to waste battery recycling, which has passed the EU's compliance audit and become one of the first battery manufacturers in China to obtain this certification.

Faced with the EU's restrictive measures, Zhu Ye, a scholar from the School of Europe at Shanghai Foreign Studies University, stated in an interview with Global Times that we also need to deepen the binding of industrial interests, promote the strategic upgrade from "exporting Chinese made products to Europe" to "deep integration of the China Europe industrial chain", encourage and promote advantageous enterprises to go abroad, invest and build factories in Europe, and transform the interests of Chinese enterprises into tax revenue, employment, and gross domestic product of local governments in Europe.

Using law to law, using rules to rules

On May 15th of this year, a ruling from the Chinese Ministry of Justice put unprecedented legal pressure on trade officials in Brussels. For the first time, China has implemented the recently effective "Anti Unfair Extraterritorial Jurisdiction Regulation", officially recognizing that the EU's use of the "Foreign Subsidies Regulation" (FSR) to conduct cross-border investigations on Chinese entities constitutes "improper extraterritorial jurisdiction measures", and its signal significance is self-evident.

In recent years, the EU's trade protection against China has shown significant new features. Relying on FSR, combined with multiple legislations such as CBAM and the Key Raw Materials Act, the EU has raised the cost of Chinese products entering the EU market from entry barriers and cost constraints to compliance review and supply chain control, and packaged trade protectionism through "rule legislation". Chinese companies such as Goldwind Technology and Longi Group have encountered EU investigations on their projects in Europe, and most of them have resolved compliance risks by withdrawing from the transaction.

Faced with the escalating trade bullying behavior of the European Union, China has broken away from fragmented and temporary countermeasures and chosen to use law for law and rules for rules. The first link in the countermeasure chain was actually initiated two years ago. In July 2024, at the request of the China Chamber of Commerce for Import and Export of Machinery and Electrical Products, the Ministry of Commerce officially launched an investigation into trade and investment barriers related to EU FSR practices in accordance with the Foreign Trade Law and the Rules for Investigation of Foreign Trade Barriers. After six months of comprehensive verification, the Ministry of Commerce has issued Announcement No. 3 of 2025, legally determining that the EU FSR investigation constitutes a "trade and investment barrier". With the characterization of "trade and investment barriers", all subsequent legislation and enforcement countermeasures have a factual basis and regulatory basis. Anchoring the security of the industrial chain, improper extraterritorial jurisdiction, and cross-border investment protection are the three main directions of EU regulation. China has successively introduced multiple laws and regulations to fill multiple institutional gaps in the field of foreign-related rule of law.

Since the beginning of this year, three regulations have been implemented intensively, with a fast pace and strong targeting that was not seen in previous economic and trade games. On March 31st, the "Regulations of the State Council on Industrial Chain and Supply Chain Security" were officially announced. This is the first special administrative regulation in China aimed at industrial chain and supply chain security, which systematically integrates relevant rules scattered in multiple laws and regulations, and establishes a complete procedural chain from investigation, identification to disposal. More importantly, it established for the first time a key area list system in the form of administrative regulations, authorizing investigations and countermeasures against foreign actions that threaten the security of China's industrial chain.

On April 7th, the State Council announced the "Regulations on Combating Improper Extraterritorial Jurisdiction by Foreign Countries", which clearly declared China's principle of not accepting improper extraterritorial jurisdiction by foreign countries in the form of legislation, established countermeasures and restrictive measures at the national level, and established a new system of "malicious entity list". The regulation stipulates that the Chinese government can evaluate the implementation of inappropriate extraterritorial jurisdiction measures by relevant countries, determine the risk level, and take countermeasures and restrictive measures in accordance with the law in foreign affairs, exit and entry, trade, investment, international cooperation, foreign aid, etc., providing clearer legal authorization for relevant parties to take measures.

The promulgation of the "Regulations on Anti Foreign Improper Extraterritorial Jurisdiction" marks the shift of China's response to "long arm jurisdiction" from passive to proactive legislation, from individual case counterattacks to institutional defense, providing a rigid legal weapon for blocking EU FSR and other extraterritorial improper jurisdiction measures. ”Professor Huo Zhengxin from China University of Political Science and Law told reporters this.

On June 1st, the "Regulations of the State Council on Outward Investment" was released to the public, which improved the main systems of outward investment services, management, and protection with 34 articles. It stipulated that relevant departments of the State Council should strengthen monitoring, early warning, and risk assessment, guide and assist investors in safety risk prevention, establish an investment barrier investigation system, and effectively safeguard the safety and legitimate rights and interests of investors and their outward investments, as well as the overseas interests of the country.

From the qualitative preparation of the Ministry of Commerce's trade barrier investigation, to the intensive introduction of three administrative regulations, and then to the implementation of the ban, China has completed the construction of a systematic legal countermeasures system. This means that China has bid farewell to the passive response mode of mainly negotiating and expressing its opinions in economic and trade frictions, and instead relies on the increasingly perfect foreign-related legal toolbox, using rules to hedge rules, and building a solid institutional firewall for overseas enterprises.

The cicada effect should be created through precise countermeasures

In fact, Chinese companies have already taken up legal weapons to protect their interests. After the EU announced tariffs on electric vehicles imported from China at the end of October 2024, Chinese companies such as SAIC Group and BYD filed lawsuits against the European Commission in the EU General Court. China has also taken countermeasures against some of the trade protectionism measures previously adopted by the European Union. Starting from June 20, 2025, the European Union will restrict Chinese companies and products from participating in its public procurement of medical devices. In July of that year, China also decided to impose equivalent restrictions on some medical devices imported from the European Union in government procurement activities.

There have been many reports from EU media on other countermeasures that China has taken or may take. Some argue that China's strategy will be "precise and surgical". The German retail news website commented that China's future countermeasures may include imposing retaliatory tariffs on European companies, strengthening regulation, and even restricting the export of key strategic raw materials. At present, the EU is particularly concerned about China's policies on rare earths and other key materials that are crucial for batteries, semiconductors, and green technologies.

To address EU trade barriers, it is not only necessary to actively respond and counteract, but also to be adept at utilizing the political system characteristics within the EU. Zhu Ye told Global Times reporters that in the face of the complex interest representation structure of the EU establishment camp, China needs to go beyond the traditional logic of commodity trade. The decision-making level of the European Union does not serve a single entity, but represents multiple interests such as transnational capital, geopolitical ideology, bureaucratic system itself, and core member states. Political correctness supersedes economic laws, and Brussels bureaucrats are detached from the realities of the economic front. These structural contradictions have given rise to contradictory policy expressions within the European Union.

For this reason, China should implement precise diplomacy, unite the factions that can be united within the EU, and exert pressure on Brussels from within. Zhu Ye said that we should also establish more economic and trade ties with local governments of EU countries. When Chinese enterprises invest to create local employment, anti China politicians naturally face pressure from local votes. In addition, we should establish a "chilling effect" through precise countermeasures to make politicians who vigorously promote trade protectionism aware that this unfair practice will cost them.

Conclusion:

In the series of in-depth cognitive reports on "Dismantling EU Trade Barriers to China", we explored the underlying reasons for the continuous escalation of EU trade protectionism towards China in recent years, revealed that this move will ultimately harm the EU's own transmission logic, and also sorted out the measures that China has taken or may take in response. Some EU politicians keep clamoring for restrictions on trade with China, but in the face of a complex and changing international environment throughout 2025, China's exports have withstood the headwinds and reached a scale of 26.99 trillion yuan, a year-on-year increase of 6.1%. The European side should understand that protectionism has no way out, and win-win cooperation is the right path.