If Europe wants to use its trade leverage with China, now is the time

An analysis of customs data shows that Europe still has real collective clout when it comes to managing its trade relations with China. But Andreas Mischer warns Chinese dependencies on imports from the region are falling steadily. 

New MERICS research shows that China is dependent on twice as many types of products from the European Union as from the US. But while Washington has aggressively leveraged its so-called chokepoints – for example, in high-end semiconductors – to secure Chinese trade concessions, Europe continues to negotiate with Beijing over a flood of state-subsidized Chinese imports that is threatening to put many European companies out of business. At the same time, MERICS data also suggests that Europe’s window of opportunity is closing.  

China’s pursuit of economic self-sufficiency is steadily reducing the country’s reliance on European imports. MERICS research shows that the number of product categories in which China 1) recorded a big trade deficit 2) relied on the EU for at least 30 percent of imports, and 3) had limited access to alternative suppliers (see methodology), fell to 110 in 2024 from 225 in 2000. Across the roughly 5,000 product categories covered by the HS6 customs classification system, even Germany’s individual contribution has become more marginal, with China’s dependencies dropping to nine from 12 over the period.

China still depends on EU imports

But Europe should not despair. China still depends on EU imports for many more products as it does on imports from the US – it relied on the US for only 56 HS6 categories in 2024, the latest year for which data are available (see exhibit 1). Excluding non-essential goods like wigs and focusing on strategic goods like pharmaceuticals shows Europe to be even stronger. 

Admittedly, HS6 codes are not granular enough to catch some important dependencies. Chinese imports of cutting-edge US semiconductors, for example, are grouped with widely made legacy chips. But this undercounting applies to Europe as well – crucial Dutch semi-conductor lithography machines are also subsumed within broader, less critical categories. 

In the absence of a universally accepted catalogue of strategic HS6 products, MERICS has identified more than 300 categories crucial for economic or national security, including critical raw materials, dual-use goods, semiconductors, active pharmaceutical ingredients. In 2024, China depended on the EU for 15 of these products (see exhibit 2), including hormones and steroids; alkaloids used in pharma and pesticides; vaccines; zirconium, a corrosion-resistant metal used in the nuclear industry and medical devices; gas turbines; certain machine tools; and helicopters and airplanes. In contrast, China relied on the US for only three strategic products – two borates used in nuclear coolants and fiberglass, and airplanes. 

Europe is finally reducing its own reliance on China 

Europe should also be buoyed by signs that it is finally reducing its own reliance on China. For a long time, the EU’s import dependencies on China expanded, but this trend appears to have reached a tipping point, with dependencies decreasing from a peak of 422 product categories in 2022 to 411 in 2024. Similarly, the number of the EU’s strategic dependencies on China peaked at 20 in 2022, before dropping slightly to 19 in 2024. Strategic dependencies still include graphite, fluorspar, some antibiotics, amino compounds, and heterocyclic compounds used as pharmaceutical precursors. (The EU imported a large share of rare earths from China but, according to BACI data, Australia and Vietnam were also major exporters, reducing global market concentration.) 

These insights  have important implications for Europe. First, if the EU wants to exploit its leverage in a trade conflict with China, the time to do so is now, as Beijing’s pursuit of import substitution through domestic production will likely further reduce its dependencies. The Anti-Coercion Instrument (ACI) is the EU’s principal tool for responding to economic coercion, allowing it to impose export controls and other measures. But Brussels can currently only activate the ACI after lengthy EU Council approval and a formal request for the coercing country to cease its pressure. Allowing the Commission to act on its own would make the EU’s threat of restricting exports of products on which China relies more credible.

Germany needs to fall in line with a common EU strategy

Second, if the EU acts collectively, it has a much better chance of deterring China than any one country on its own, as even Germany’s limited trade leverage demonstrates. That means that even the bloc’s largest economy must fall in line with a common strategy. Germany’s traditionally more cooperative approach and its footdragging over tougher trade measures risk undermining this objective. But Berlin appears to have recognized that. The German government in July published a plan to revive Germany’s economy that included calls for protection against unfair competition and a faster, sector-wide application of anti-dumping and anti-subsidy measures at the European level. 

If this current round of negotiations between the EU and China fails to sufficiently rebalance the trade relationship, the EU will have to decide which measures to take. It would be important to ensure that its recent decline of import dependencies on China represents a genuine turning point. One option is a local sourcing requirement, which Brussels is already considering as a way to require companies in sensitive sectors to maintain at least three different sources of critical supplies. European Commission President Ursula von der Leyen used her annual State of the EU address in September 2023 to announce an anti-subsidy probe into electric vehicles from China. Were the EU to go on a trade offensive, it would need to get more serious about defense – namely, economic derisking – as well.

Methodology

MERICS’s research on trade dependencies identifies import dependencies based on the six-digit Harmonized Commodity Description and Coding System (HS6) of the World Customs Organization, which classifies the international goods trade into more than 5,000 distinct product groups. A country is regarded as dependent on imports of a specific product category if three criteria are met:

• Imports of that product are at least twice as high as exports of that same product,
• One specific trading partner accounts for at least 30 percent of the country’s imports of that product,
• The product is subject to a high degree of market concentration, with the Herfindahl-Hirschman Index (HHI) recording a score of 0.25 or higher.

This research uses data from the Base pour l’Analyse du Commerce International (BACI) database, developed by France’s Centre d’Études Prospectives et d’Informations Internationales (CEPII). BACI provides standardized data on trade between countries, based on the United Nations Commodity Trade Statistics Database (UN Comtrade).

Learn more in our report “Growing asymmetry: Mapping the import dependencies in EU and US trade with China”.