France, Germany call for new weapon allowing ‘immediate cut off’ of China from EU market

In the strongest sign yet of a shifting European Union policy on China, the leaders of France and Germany have demanded a new trade weapon that would cut off access to the EU market when third countries cause severe distortions.

The tool would effectively act as a kill switch, allowing Brussels to respond rapidly to systemic distortions, potentially immediately. It would grant dramatic new powers to the European Commission, the EU’s executive branch, which manages trade policy for the 27-member union.

The strategy was laid out in a joint paper written by the bloc’s two largest members, as well as a letter to European Commission President Ursula von der Leyen – both of which have been seen by the South China Morning Post – ahead of a crucial period of EU-China negotiations.

“We need a credible instrument in the hands of the Commission to allow for decisive and systemic reaction, i.e. activation by reversed qualified majority, and for powerful measures up to an immediate cut-off from the internal market if needed,” the letter, signed by German Chancellor Friedrich Merz and French President Emmanuel Macron, said.

While neither document names China, and both make clear that any new instruments would have to be country-agnostic, they are laden with language ordinarily seen as bywords for China’s policies, including “unsustainable trade deficits with key partners”, “structural excess capacity”, “dumping, excessive and across the board subsidies”, and currency manipulation and undervaluation.

Unlike existing trade-defence tools, this tool would be designed to tackle distortions beyond traditional dumping or subsidies, including political or economic pressure and currency manipulation, and could apply from a single product to an entire sector.

In order to prevent single capitals from blocking its use, the commission could deploy the instrument unless a qualified majority of EU members oppose it.

The unnamed instrument is one of a suite of new recommendations by the French and German governments, which have previously sparred on China policy but have come closer together in recent months, with Berlin’s position shifting notably amid a surge in Chinese imports in key sectors, which officials say amounts to a “China Shock 2.0”.

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The paper also calls for a new diversification instrument to reduce dependencies and force companies to spread their sourcing risks, and the more frequent and rapid deployment of trade investigations. Berlin and Paris specifically call for urgent targeted measures in chemicals, some plastics and plug-in hybrid vehicles.

The documents set the stage for talks between the EU’s trade chief Maros Sefcovic and Chinese Commerce Minister Wang Wentao on Thursday and Friday. Next week, they will help set the tone for a summit of EU leaders in Brussels, where they will discuss what to do about what is considered an existential problem for European industry.