Cheap Chinese products have flooded European markets, transforming China into a formidable technological rival that Europe critically underestimated, according to a new report. The findings highlight a structural shift in global trade — one that is now forcing Brussels to rethink its industrial and trade defence strategy.

China's Manufacturing Dominance

China now accounts for roughly 30 per cent of global manufacturing output while representing only 13 per cent of global consumption — a gap that analysts say is the root cause of the overcapacity problem spilling into European markets. Beijing is no longer competing solely on price; it has moved aggressively into innovation-driven, high-value-added sectors including artificial intelligence (AI) and energy, according to the report.

Car Exports Surge Despite Tariffs

Chinese car exports to Europe rose 26 per cent between 2024 and 2025, reaching almost 1.2 million vehicles, even as the European Union (EU) imposed sector-specific tariffs the previous year. Those levies included 17 per cent on BYD, 18.8 per cent on Geely, and more than 35 per cent on SAIC. Notably, the tariffs failed to significantly slow Chinese market penetration — underscoring the limits of trade barriers when cost advantages remain structural.

Brussels Steps Up Trade Investigations

The EU launched 33 trade investigations in 2024, and a similar number in 2025, many of them targeting China, according to the report. This comes amid mounting pressure from member states — particularly France — to take a more assertive posture. French President Emmanuel Macron recently warned that Europe could be forced to 'decouple' from China in strategic sectors if Beijing fails to address widening trade imbalances. Paris has also pushed to place currency distortions and global imbalances back onto the Group of Seven (G7) agenda.

Steel Quotas and the Overcapacity Instrument

Beginning in July 2025, the EU will cut tariff-free steel quotas by 47 per cent — from roughly 33 million tonnes to 18.3 million tonnes — and will double out-of-quota duties from 25 per cent to 50 per cent through 2031. Beyond steel, the bloc is also advancing what is being called the 'overcapacity instrument,' a proposed mechanism that would effectively serve as the EU's equivalent of Section 301 of the US Trade Act — giving Brussels sweeping authority to act against unfair foreign industrial subsidies.

The Balancing Act Ahead

According to the report in Le Monde, the EU is attempting to 'build a strategy that protects its industrial base without triggering a full-scale trade dispute with Beijing.' The Atlantic Council report reinforces the urgency, noting that conventional tariff tools have proven insufficient. With the EU moving toward active industrial policy — rather than reactive trade defence — the next phase of the Europe-China trade relationship will likely be defined by regulatory instruments, not just import duties.