In addition to capitalism and the modern rule of law, the U.K. gave the world Pax Britannica, a period of nearly 100 years in which the Royal Navy controlled international waterways, secured global trade, and avoided any great power wars. During that period, Britain used the steam engine to revolutionize its own industry, export its abundance abroad, and become the richest economy in world history.
Prior to the peak of the British Empire, the Turks and the Ottoman Empire dominated Eastern Europe and the Middle East for centuries, while the navies of the Spanish and Portuguese empires opened and controlled major Atlantic, African, Asian, and American trade routes. Later, and in parallel to the British, Germany combined technology from the industrial revolution with one of the most skilled workforces in the world to become an industrial powerhouse in its own right. And throughout those five hundred years or so, there was always the French. They revolutionized the world’s art, food, fashion, and urban planning, while contributing a good bit of modern legal grounding, themselves, with the Napoleonic Code.
All that history is offered today because in at least one area, European states are trying to rediscover their power and influence—and they might even pass a few new laws.
Chemotherapy and Evian
Europe is in crisis, at least according to its leaders. Two weeks ago, the EU’s top diplomat, Kaja Kallas, likened European dependence on Chinese goods to a disease and said the continent needs “chemotherapy.” Last week, EU trade chief Maros Sefcovic made a presentation to his EU colleagues that was focused on Chinese trade and “described a bloodbath of trade data, job losses and industrial decline.” This past Saturday, Manfred Weber, the German leader of the conservative European People’s Party, told Bild, “Either we protect ourselves or China will destroy parts of our industry. The EU must deploy its trade tools decisively and without hesitation.” On Sunday, Politico’s EU bureau wrote that, “China is killing Europe’s chemicals industry.”
Next week world leaders will convene in Évian-les-Bains, France, home to both world-renowned water and the 2026 G7 Summit. China will be on the agenda and France’s Emmanuel Macron has already made outreach to Chinese officials for a video call to discuss global trade imbalances. Simultaneously, in Brussels, the EU Council will hold a summit where “the 27 members will decide on the future direction of the European Union’s China policy.”
Led by EU President Ursula von der Leyen, policymakers have floated proposals for a variety of laws and tools that would protect jobs and critical industrial sectors, in addition to a “Made in Europe” law that would limit Chinese foreign investment and impose “local content” requirements for strategic European sectors—not unlike the requirements imposed on foreign and domestic businesses operating in China.
I’ve mentioned the problems with China’s exports a few different times on Sharp Text (including a bit last week), but the upshot of the problem for the rest of the world is that the deflationary benefit of cheap, high-quality goods tends to be short-lived when domestic businesses contract and employment bases erode. The European continent lost an estimated one million manufacturing jobs from 2019 to 2025, as China’s exports exploded, with another report estimating that Germany alone lost 400,000 jobs (earlier this year, Germany was losing 10,000 jobs per month). Those dynamics become even more problematic when it’s not just jobs that disappear but entire companies, and countries are then left dependent on China for industrial inputs that are essential to both their economies and their security. In Europe, this is already happening. As Soapbox Trade explains: “electric cars, solar inverters and Chinese e-commerce parcels get the headlines … [but] the quieter story is in chemicals, feed ingredients and pharma-adjacent inputs.”
For Beijing, fueling this dependence is at least in part deliberate. Chinese companies have massive economies of scale and manufacturing expertise that would make Chinese goods competitive in global markets regardless; the CCP, though, supercharges those advantages in strategic sectors using tax credits, depressed currency, and subsidies, favoring industrial producers over its own consumers. In rare earths, for example, Chinese companies regularly manipulated prices and made it impossible for Western firms to survive without state support. “We must tighten international production chains’ dependence on China,” Xi Jinping said in 2020, “forming a powerful countermeasure and deterrent capability against foreigners who would artificially cut off supply.”
When President Trump’s trade war began in 2017 and continued last spring, China was targeted by name and identified as a problematic actor. One underappreciated consequence of the resulting trade barriers imposed by the U.S. was that immediately after the China problem was made explicit for the whole world, the problem was then compounded in foreign markets.
To wit: when bilateral trade between the U.S. and China fell dramatically in 2025 (not withstanding transshipments), many Chinese goods were diverted to the EU, where 2o25 imports from China were up 108% year-over-year in Germany, 23.9% in France, and 32.9% in Italy, with the EU as a whole seeing an 18.1% uptick. The first two months of 2026 then saw massive gains on those 2025 numbers:
Now here, we should be clear: Chinese trade is not responsible for all of the political and economic instability that Europe has encountered in recent years. There is a war in Ukraine, for one, and there are problems everywhere else: the U.K. has cycled through six prime ministers across nine years, and could easily go for a seventh sometime in the next few months. Germany voluntarily de-energized and has lost its shirt. The French cycled through four prime ministers of their own across twelve months in 2024 and 2025, and today face a mountain of debt, escalating pension liabilities, and semi-regular spasms of riots and protests throughout the country.
Without offering myself as an expert on the U.K. and 27 distinct EU member states, I will merely observe from afar that mass immigration seems to have changed the demographics of many of these countries and continues to spur political unrest, just as it did in America. At the same time, spending on strained social safety nets has vastly outstripped defense spending at a time when Russia is prosecuting a land war in Ukraine and the U.S. is justifiably demanding more NATO parity. Finally, an obsession with regulation has throttled innovation, while a voluntary pivot to green energy has left industrial players reliant on external energy and vulnerable to expensive energy shocks. Those costs have made European products less competitive in the global market and European businesses harder to sustain at home.
China, though, is compounding many of these problems and frustrating any attempts to rebalance and recover. The EU’s stated goal to raise manufacturing’s share of the bloc’s GDP to 20% by 2035, up from 14.3% last year, will be incredibly difficult without actions to protect its industry incumbents. Likewise, rebuilding and maintaining the defense industries of these countries will be impossible without chips, critical minerals, or steel.
Selbstverzwergung
Exemplifying the continental awakening these modern conditions have inspired, the Federation of German Industries recently penned a memo outlining several paths forward for Germany and China and concluded that “the only tenable path” is “a much more forceful de-risking policy—even if this comes with substantial costs, including retaliatory measures. In the long run, passivity would be far more costly, economically and for our security.”
We’ll see. As noted by Noah Barkin’s terrific Watching China in Europe newsletter, alongside that memo “[German] Minister Katherina Reiche just returned from a trip to China in which she spent her time heaping praise on China for its technological advances, taking digs at Germany for its lack of dynamism and assuring her hosts that Berlin would temper any measures coming out of Brussels.” A subsequent commentary in Germany’s Handelsblatt newspaper described the trip as an exercise in “Selbstverzwergung,” which, Barkin explains, means “self-dwarfing for those who aren’t familiar with this wonderful German expression.”
And indeed, there are a variety of reasons to be skeptical of the potential for any towering progress. Friedrich Merz and top German officials are apparently dithering and did not join Spain, Italy, the Netherlands, France, and Lithuania in signing onto a recent letter to the EU Commission pushing for tougher defenses against China. Without German support, any EU Council proposals are likely DOA before the European Parliament could conceivably make them law. Spain, too, recently rescinded its signature from the China letter. As a reflection of the varied interests that will complicate this journey: Spain’s leadership has in fact been looking to deepen ties with Beijing, while Germany exports nearly $100 billion in goods to China every year and is separately vulnerable to the inflationary shocks a trade war may yield. Meanwhile, language from next week’s summit is already being watered down (“the draft EU Council conclusions which are circulating among reporters—a version of which will be issued after the summit—do not make a single mention of China.”).
Even with German support, of course, any of the EU Council’s proposals would still need to go to Parliament to be negotiated among 27 member states with wildly divergent interests and vulnerabilities to China. The path from next week’s summit to Parliament and eventually to actual legislation is long, and full of opportunities for interested parties to interfere with any shift to the status quo that might invite blowback from Beijing.
Finally, the threat of Chinese reprisal is not hypothetical. Europe is China’s largest and second-richest export market and Beijing can’t afford to tolerate a precedent under which trade barriers are erected in the EU and modeled for the rest of the world. Beijing has already signaled it will enact countermeasures, and last year, it did: when the Netherlands tried to wrest back control of a Dutch chip company whose Chinese investors planned to lay off 40% of European staff and relocate machinery to Guangdong, China responded by suspending shipments of legacy chips that were packaged in China and then withheld from automakers all over Europe.
In general, China’s critical inputs leverage over the U.S. is just as powerful in Europe, but Europe lacks the mutual leverage that the U.S. has used to moderate Chinese responses to trade barriers. Instead, Europe exports more than twice as much to China as the United States does — roughly €200 billion to $106 billion — adding another layer of dependence and vulnerability. Put differently: If America’s China problem is that it has no factories, one of Europe’s problems with China is that its remaining factories could shut down without Chinese purchases. Meanwhile, two weeks ago, the CCP’s State Council imposed a sprawling rule that, among other things, formally empowers Beijing to respond with sanctions to precisely the sorts of protectionist policies being mooted by European leaders:
Where any country (or region) or international organization, in violation of international law and the basic norms of international relations, takes discriminatory prohibitive or restrictive measures or other similar measures against the People’s Republic of China in matters such as investment and business operations, the Chinese government and its relevant departments may take corresponding measures in light of the actual circumstances to protect the security and legitimate rights and interests of investors and their outbound investments and to protect the state’s overseas interests from threats and harm.
All of that is why, despite headlines in the New York Times warning of a looming Europe-China trade war, many observers of Europe and China do not expect anything terribly dramatic to emerge over the next several months. That was the general takeaway of our conversation about these trends on an episode of Sharp China last week, and it tends to be the takeaway anytime Europe starts talking tough in this area.
The phrase “China’s final warning” was once a running joke across the Soviet Union, used to describe China’s approach to making loud, boisterous threats to the United States around Taiwan, while the whole world, or at least the Soviets, knew full well China wouldn’t act on any of the rhetoric. That phrase has been adapted over the past few months to describe Trump Truth Social posts on Iran (“Trump’s final warning!”), but it fits just as well with modern European posture. Europe’s warning on Chinese trade arrives every six to twelve months with promises of new urgency and bespoke tools to address the crisis, yet thus far there hasn’t been much in the way of tangible action. The smart money says that trend will continue next week.
When, Not If
That noted… even if a trade war is not necessarily imminent, my guess would be that it’s probably inevitable. I’m reminded here of the economist Herbert Stein, who famously said, “If something cannot go on forever, it will stop.” There was also Ayn Rand, who wrote, “You can ignore reality, but you cannot ignore the consequences of ignoring reality.” And finally there is Alex Balk, founder of a now-defunct hipster literary blog, the Awl, who wrote of the Internet, “If you think the Internet is terrible now, just wait a while.”
That last quote applies just as well to Europe’s China relationship. The latter party has spent the last several years materially supporting Russia’s land war in Europe while its export-driven economy slowly clubs various European industries to death (steel, chemicals, automobiles), yet I have no doubt that in a few years the dynamics between Brussels and and Beijing will be even more dysfunctional.
Zooming out, it’s both incredible and instructive that in a year when Europe would be thrilled to look to an alternative superpower that isn’t the United States, China has made that effectively impossible. Beijing won’t moderate its exports across key sectors because it can’t afford to and it’s strategically beneficial not to; the Party needs factories open to provide jobs and maintain political stability, so rather than suffer unemployment at home, that problem is exported abroad and trade partners only become more dependent on Chinese inputs. Likewise, China won’t moderate on support for Russia or its supply chain aggression because so far it hasn’t had to. What’s Europe really going to do? Write another white paper? Hold another summit?
But that tendency to study, dither and slowly wither is not necessarily permanent. For one, while unresolved rare earth vulnerabilities make this unlikely in the next year, it’s possible that at some point America chooses to escalate its own Cold War with China by using U.S. market access as leverage and pressuring Europe to implement trade barriers of its own. CCP leadership has been worried about this possibility since last April.
And regardless of the U.S., the real problem that European leaders have encountered over the past 12 months is that Chinese actions almost always undermines any friendly rhetoric that might be offered in furtherance of maintaining the status quo. Whether on trade, rare earths, in Xinjiang, or in the South Pacific, tolerating these malign behaviors as they all get worse is simply not viable. Bloomberg reported this week that Europe’s economy will suffer a $2 trillion hit in the event of a war in Taiwan. Meanwhile, as the EU Observer put it last week: “The EU’s yawning trade deficit with China poses a long-term, systemic threat to the bloc’s economy that far outweighs the dangers from U.S. president Donald Trump’s tariff threats.”
The ultimate threat here is not merely to jobs or companies, but to sovereignty. European countries are not prosecuting espionage trials for fear of upsetting China and jeopardizing economic ties, and the same risks will arise when they attempt to retain control of core technologies, defend telecom infrastructure, diversify supply chains, protect European jobs, enjoy freedom of navigation in the Taiwan Strait, or, at any point, in addition to 20 rounds of sanctions on Russia, sanction the country that is sustaining Putin’s wartime economy. To the extent European resolve has wavered on those issues and continues to, then at what point are these closer to vassal states than equal, autonomous partners who have principles and development interests of their own? That question could apply just as well to various compromises that America has made to appease Beijing, but Europe is under more duress and has done far less to defend itself.
The compromises to security, stability, and sovereignty are a window into what a Chinese Century actually looks like in practice. And that vision leads back to the call from the Federation of German Industries, warning that the only tenable response is “a much more forceful de-risking policy—even if this comes with substantial costs, including retaliatory measures.” That’s my bet on where Europe will end up. These are proud countries full of smart people, and the costs of doing nothing are already obvious.
Of course, it’s entirely possible that my instincts are wrong. Maybe I’m giving too much credit to the leaders of these countries, the people voting in these countries, and the imagination, clarity or mettle that remains among longtime American partners. What Europeans need right now is a bit of both reason and romanticism, and they could start by remembering where those movements began. Then again, it’s fair for skeptics to note that all of that happened 200 years ago.
Sharp Text is extension of the Stratechery Plus podcasts Sharp Tech, Greatest of All Talk, and Sharp China. We’ll publish once a week, on Fridays. To subscribe and receive weekly posts via email, click here.