Europe Unable to Cope with China’s Lightning-Fast Responses

Europe is experiencing a ‘China shock 2.0’ and cannot cope with it. Expert François Godement makes this finding in his article entitled ‘From the China shock 2.0 to the European shock 2.0: faced with the global trade imbalance, the EU must go on the offensive’ (Du Choc chinois 2.0 au choc européen 2.0 : face au déséquilibre du commerce mondial, l’UE doit passer à l’offensive), posted on the Institute Montaigne website.

Most Europeans have forgotten the euro crisis of 2010-2011, a direct consequence of the 2008 subprime crisis that spread from the United States. We are now on the verge of a ‘European shock 2.0’, and its immediate cause is again external: it is China that uses exports to come out of its internal growth crisis.

This time, it is not credit tightening and an interest rate increase that hits Europe but a deflation of prices and costs, originating from China. China has been lowering the prices of all its products for decades. But the trend has both accelerated and expanded – to encompass all kinds of goods including high-end sophisticated products. The scale of production surpasses everything that the world has known until now. And China has not abandoned its low-end industries, either. It pursues a comprehensive industrial range and exports of a magnitude that Japan, at its peak, could only dream of.

The growth of Chinese exports far exceeds that of global trade in goods. Europe is their primary destination. Chinese customs statistics indicate that China's exports to the EU rose by 18 percent year-on-year in the first quarter of 2026, surpassing exports to ASEAN countries and far exceeding China’s overall foreign trade growth. EU imports from China reached EUR 145.3 billion in the first quarter of 2026, an increase of some 20% from the first quarter of 2024. Only one of four containers shipped full to Europe returns loaded.

After a recent meeting of the EU Council and a meeting between Maroš Šefčovič, European Commissioner for Trade and Economic Security, and Wang Wentao, Chinese Minister of Commerce, on 29 June 2026, some signs indicate that the European Union is serious about this.

Hopes are pinned on the Industrial Accelerator Act (IAA), to be finalized in October at the earliest (the official deadline is the end of this year). Approval by Parliament and the Council will take even longer. With Chinese exports growing at the current rate, this gives China ample time to oust many European companies – and to attract European customers with the promise of super-cheap products.

Europeans too easily delude themselves into believing that protectionist and defensive solutions will correct this ‘global imbalance’ on their own. Even if Europe starts taking quicker action, it is no match for lightning-fast responses by China that takes preventive measures even before EU decisions are finalized. These include e.g. instant changes in small parcel logistics or a shift of emphasis on plug-in hybrids and internal combustion engine vehicles after Europe opposed electric vehicle dumping.

The energy and land costs in China are low, and the country boasts substantial savings, particularly given low household consumption. Money creation is at twice the rate of GDP growth.

And what about Europe? For a decade, European interest rates were low, at 1% or even negative for some: what did we do with that? We have weakened the deepening of a European capital market. It is difficult to rise to the challenges when the EU budget amounts to 1% of European GDP, the author says.

A Europe that cherishes its belief in the virtues of the market economy and competition cannot follow the Chinese model – where a massive transfer of resources to centralized and largely public or semi-public financing prevails.

Original publication: https://www.institutmontaigne.org/expressions/du-choc-chinois-20-au-choc-europeen-20-face-au-desequilibre-du-commerce-mondial-lue-doit-passer