EU-China Trade Tensions Escalate as Commission Calls Relationship 'Not Sustainable'

"Do not make 100% of your supplies in one country," Séjourné told EU businesses after a meeting with the EU's 27 trade ministers on May 22. He added that companies' ability to source from abroad "must also depend on other types of countries and also on European production" .

Supplier Diversification: The 30-40% Rule

Among the most concrete proposals under discussion are new supply-chain rules that would fundamentally reshape how European companies source critical components. According to preliminary drafts, the legislation would:

• Cap procurement from a single supplier at 30-40% of total purchases
• Require companies to source critical components from at least three different suppliers
• Prohibit those three suppliers from being based in the same country

The rules are specifically designed to reduce dependence on Chinese manufacturers and enhance the EU's economic security . These proposals were expected to be presented at the May 29 Commission meeting on China, with potential endorsement by EU leaders at the June summit .

France-Led Coalition Pushes for Faster, Broader Tools

Days before the Commission debate, a coalition of five EU member states circulated a joint paper calling for significantly tougher trade defense tools. The group—France, Italy, Spain, the Netherlands, and Lithuania—urged Brussels to respond more aggressively to what they termed "systemic and structural industrial overcapacity," a phrase widely understood as diplomatic shorthand for China .

The paper advocates for :

• Faster emergency tariffs
• Broader use of safeguard measures across entire sectors
• New anti-circumvention powers to prevent evasion of existing duties
• Adding "economic security" as an official criterion for launching trade investigations

The five countries remain committed to open markets and WTO rules but argue existing instruments are too slow and narrow to counter what they see as state-subsidized overcapacity flooding European markets .

Spain's Abrupt Reversal

In a dramatic twist, Spain reversed its position within days of signing the coalition paper. On May 29, Spanish Minister of Economy and Trade Carlos Cuerpo stated that Madrid had not provided political support for the French-backed initiative, marking a sudden reversal from its stance just days earlier .

Spain's withdrawal exposed significant fractures within the EU's approach to China. Spanish Prime Minister Pedro Sánchez had visited Beijing for the fourth time in as many years in April 2026, elevating bilateral relations to a "Strategic Dialogue"—China's highest designation for close partners . Spain has been noticeably less adversarial toward China than other large EU economies, seeking to position itself as a bridge rather than a bulwark .

This pattern has led analysts to describe Madrid's posture as a "Europeanist hedge"—accepting the EU's problem diagnosis and de-risking language but privileging negotiated off-ramps and risk-managed engagement over unilateral hardening .

China's Retaliation Warnings

Beijing has responded to the EU's escalating rhetoric with repeated threats of retaliation. On May 21, Ministry of Commerce spokesperson He Yadong warned that China would take "resolute countermeasures" if the EU introduced a new trade tool targeting Chinese companies or products .

"If we label trade surpluses as 'overcapacity,' does the EU have overcapacity in cars, pharmaceuticals, wine and cosmetics?" He asked pointedly during a regular press briefing .

China renewed these warnings on May 30, after the Commission's internal debate, with the Ministry of Commerce stating: "If the EU insists on unilaterally introducing new trade instruments and imposing discriminatory restrictions, China will resolutely retaliate and take effective measures to safeguard its own interests" . The ministry added that China-EU communication channels remain open, signaling a parallel diplomatic track alongside the threats .

China's Foreign Ministry separately urged the EU to "honor its commitment to free trade," arguing that whatever the label—"de-risking," "reducing reliance," or "trade imbalance"—the policies amount to protectionism that will ultimately hurt European consumers and weaken industrial competitiveness .

Broader EU Policy Context

The trade-defense escalation does not exist in isolation. The European Commission's 2026 work programme announced it would present a public procurement act in the second quarter of 2026 to revise current rules . A European Parliament draft report has separately urged stronger action against non-EU entities exploiting state subsidies to gain unfair advantages in procurement processes, including mandatory independent cost assessments for abnormally low bids .

The EU has already deployed anti-subsidy tools against China: in 2024, the Commission imposed provisional countervailing duties on imports of Chinese battery electric vehicles following an investigation .

What Comes Next

The concrete proposals discussed on May 29 are expected to be finalized ahead of the June 18-19 EU leaders' summit, where heads of state will weigh the full package. French President Emmanuel Macron has set the June summit as a deadline for agreeing on an economic relaunch package, warning that without "concrete prospects and tangible progress," France would pursue "enhanced cooperation" with a smaller group of willing countries .

German Chancellor Friedrich Merz has said Berlin and Paris are aligned on trade strategy toward China—supporting measures against unfair competition while "firmly rejecting outright protectionism" . That careful phrasing captures the central tension facing the EU: how to shield European industries from Chinese overcapacity without triggering a full-scale trade war that neither side can afford.