European manufacturers face a two-pronged attack from China that has German industry associations warning of deindustrialization: on the one hand, artificially cheap Chinese goods are flooding Europe and, on the other, Beijing has demonstrated its willingness to abruptly cut off access to critical inputs such as rare earths and semiconductors.
Alarm intensified in October when China added five rare earth elements to its export licensing regime and then Banned exports of computer chips made by Nexperia.a Dutch-based but Chinese-owned chipmaker that supplies numerous European automakers, according to The Economist.
Several European companies warned of production stoppages and some German companies put their workers on unpaid leave. Germany’s trade deficit with China reached $76.52 billion last year and is expected to rise to around $100.87 billion this year, The Economist reported, driven by the collapse of German exports and a flood of imports in categories such as cars, chemicals and machinery that were once German specialties. Chinese brands now account for 20% of Europe’s hybrid market and 11% of electric vehicle sales. German cars dominate only 17% of the Chinese market, down from 27% in 2020.
Rare earth controls were suspended for a year after the United States and China reached a trade deal on October 30, but the EU found itself a bystander in negotiations that directly affected its economy. In an article in the Financial Times, Robin Harding argues that China’s explicit goal of self-sufficiency leaves Europe with few options. “There is nothing China wants to import, nothing it does not believe it can make better and cheaper,” he wrote, concluding that large-scale protectionism may be inevitable if Europe wants to retain any industry.
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