Europe Doesn’t Have a China Card: Détente With Beijing Would Be a Disaster

Amidst concerns over potential US isolationism and trade disruptions under a second Trump presidency, some European politicians are considering closer ties with China, including potential tariff reductions and revival of the Comprehensive Agreement on Investment; however, the article argues that China's economic and security threats to Europe are increasing, exemplified by a record trade surplus driven by diverted exports and China's support for Russia's military, suggesting that the EU should instead focus on strengthening alliances and trade agreements with other partners and increasing pressure on China to curtail its support for Russia.

Analysis

The initial hundred days of a hypothetical second Trump presidency have exacerbated European anxieties, driven by concerns of U.S. disengagement from Ukraine and the imposition of unprecedented tariffs, leading some European policymakers to explore closer ties with China as a potential counterweight. Brussels has initiated negotiations with Beijing on reciprocal tariff reductions and a potential revival of the Comprehensive Agreement on Investment (CAI), put on hold in 2021. China, in turn, is strategically positioning itself as a more cooperative global power, contrasting with its previous 'wolf warrior' diplomacy and emphasizing shared interests in multilateralism. However, this rapprochement is viewed critically, as China's economic and security threats to Europe are perceived to be escalating. China achieved a record trade surplus with Europe in Q1 2025, largely by diverting heavily subsidized, low-cost exports – previously U.S.-bound – to European markets. These goods, particularly in sectors like automotive, electronics, industrial machinery, and clean energy, directly compete with and undercut European producers already facing margin pressures and U.S. tariffs, potentially creating a 'China shock' effect. Furthermore, China's support for Russia's war effort in Ukraine remains a significant security concern, with allegations of Chinese factories in Russia producing weapons and exports of gunpowder and artillery. Reports estimate China was responsible for roughly 90% of goods sustaining Russia's war effort in 2023 and 80% of all sanction circumventions. The article posits that Europe's optimal strategy involves strengthening alliances with other partners—such as joining the CPTPP, enhancing the EU-Canada CETA, finalizing an EU-India FTA, and implementing the EU-Mercosur agreement—and deepening economic and technology security coordination with advanced democracies, rather than relying on China. This includes attracting R&D talent and pressuring China to curtail its support for Russia by leveraging Europe's market importance.

Key Decisions for Investors

• Investors should closely monitor escalating geopolitical tensions between the US, EU, and China, as shifts in trade policies, tariffs, and sanctions could significantly impact European market stability and specifically expose sectors like automotive, manufacturing, and clean technology to increased volatility.
• Consider re-evaluating exposure to European companies heavily reliant on exports to the US or facing direct competition from subsidized Chinese imports, particularly in the automotive, electronics, industrial machinery, and clean energy sectors, while looking for firms with diversified supply chains and markets.
• Identify potential opportunities arising from Europe's strategic pivot towards new trade agreements with blocs like CPTPP, India, and Mercosur, and increased investment in domestic R&D and innovation, particularly in dual-use technologies like AI, quantum computing, and biotechnology.
• Factor in the heightened security risks in Europe due to China's alleged support for Russia, which may prolong the conflict in Ukraine, potentially leading to increased defense spending and impacting investments sensitive to regional instability.