China Shock 2.0: How France Leads the EU to Reshape Trade Defenses

Opening: A Shock That Is Changing the EU's Trade Philosophy

When French President Macron chaired the G7 summit in Évian, the term "global economic imbalance" was placed at the core of the agenda. This is no coincidence. In Brussels, the European Commission is brewing a stricter tariff system targeting Chinese imports, including "overcapacity tools" and local procurement rules. These tools—long regarded as trade weapons of former US President Trump—are now being seriously considered by European politicians.

The question is: What has driven the EU—the world's largest free-trade economy—to turn to defensive trade policies? The answer is the second "China shock."

Background: From Textiles to Electric Vehicles—A Leap in the Scope of the Shock

The first China shock occurred from the 1990s to the 2000s, when the rise of Chinese manufacturing devastated low-end industries such as textiles, toys, and furniture in the US and Europe, leading to the loss of millions of manufacturing jobs. Now, the target of the second shock has shifted: automobiles, chemicals, machinery, clean technologies—once the core areas of European competitiveness and pride—are facing the spillover effects of Chinese overcapacity.

Data reveal a harsh reality: In 2025, China's trade surplus reached a record $1.2 trillion. US tariffs have forced Chinese exports to divert to Europe, resulting in all EU member states experiencing trade deficits with China for the first time. European Commission President Ursula von der Leyen stated bluntly: "This is an unsustainable force."

Underlying Logic: Why France Has Become the Driver of This Change

It is no coincidence that France plays a key role in setting this agenda. As the second-largest economy in Europe, France has traditional advantages in automobiles, aerospace, luxury goods, and other sectors—industries that are direct competitors to China's industrial upgrading.

• The deeper reason lies in the inherent contradictions of the French economic model:
• Industrial structure pressure: French companies in chemicals (e.g., TotalEnergies), automobiles (e.g., Renault), and machinery (e.g., Alstom) face price wars and subsidy competition from Chinese counterparts. China's soaring global market share in electric vehicles, photovoltaics, batteries, and other fields directly erodes the market space of French enterprises.
• Political-economic balance: The French government has always emphasized "economic sovereignty." The Macron administration is well aware that if Chinese import shocks are left unchecked, domestic deindustrialization will accelerate, increasing unemployment and weakening social cohesion.
• Ambition for European leadership: France has long sought to play a leadership role within the EU. Especially given the divergent attitudes toward China within German industry, France hopes to use the G7 to build consensus and promote a unified EU stance on trade with China.

Impact on the French Economy: Corporate Strategy and Industrial RestructuringFor French companies, the shift in EU trade policy has brought a dual effect: - Short-term protection: Higher tariffs and local content requirements help alleviate competitive pressure from Chinese counterparts, buying time for French companies to adjust. For instance, the French automaker Renault-Nissan alliance can delay the loss of market share under the electric vehicle offensive in China. - Long-term pressure: Protectionism may reduce the urgency for French companies to improve efficiency, while triggering Chinese retaliatory measures that hit French luxury goods (e.g., LVMH), wine (e.g., Pernod Ricard), and aerospace (e.g., Airbus) businesses in China.

The deeper change lies in supply chain restructuring. French companies are forced to accelerate their "de-risking" strategy: shifting from reliance on Chinese imports to building factories in the EU or nearshore regions. For example, France has planned a large battery factory in Dunkirk to align with the EU's clean technology localization goals. However, this requires time and massive investment, and in the short term, rising costs will affect profits.

European and Global Impact: Tearing Apart or Restructuring?

• The EU's trade defense shift is reshaping internal European dynamics:
• Germany's delicate position: Germany's automotive industry (Volkswagen, BMW) has huge interests in China and is reluctant to escalate trade conflicts with China. Policy differences between France and Germany may deepen.
• Dependence of Eastern European countries: Central and Eastern European countries like Poland and the Czech Republic rely on exports of components to China and may oppose comprehensive tariffs.
• Global ripple effects: If the EU significantly raises tariffs, China may divert more goods to Southeast Asia and Africa, triggering a new round of trade diversion. Meanwhile, the US and EU are converging on China policy, but specific tools differ: the US emphasizes tariffs and export controls, while the EU leans toward industrial policy and anti-subsidy measures.

Long-term Trends: The Future of European Industry and France's Role

• Looking ahead 3-10 years, the trade policies of France and the EU will show the following trends:
• Industrial policy normalization: The EU will increasingly rely on non-tariff tools such as subsidies, local content requirements, and carbon border adjustment mechanisms to protect key industries. France will push for these tools to be more favorable to energy-intensive and high-end manufacturing.
• Accelerated decoupling in China-EU relations: Although full decoupling is unrealistic, French companies in critical areas (e.g., semiconductors, batteries, medical equipment) will be forced to establish "China+1" parallel supply chains.
• Reshaping French competitiveness: After losing cheap Chinese intermediate goods, French companies must improve productivity through innovation and digital transformation; otherwise, rising costs will weaken their global competitiveness. Whether the French government can support this transformation through the "France 2030" investment plan will be key.Ultimately, the second China shock is not just a trade issue, but a stress test for France and Europe’s economic governance. As president of the G7, France has seized the agenda-setting power, but the real challenge lies in how to withstand the impact of external trade imbalances without compromising its own openness. This requires a far more sophisticated strategy than tariffs alone—and France’s current political uncertainties (budget deficits, social protests) may make this task even more daunting.