The EU vs China: it’s complicated. With Bernd Lange

PodcastThe Economics ShowBernd LangeOct 9

Bernd Lange argues that the EU has leverage in its trade relationships with China and the US, but that responding to economic pressure requires coordination and careful use of countermeasures. He points to Europe’s dependence on China for critical-material refining and on the US and China for AI and cloud servers as vulnerabilities that greater European capacity could address. The discussion also highlights structural pressures on China’s export model and challenges facing Europe’s auto industry.

Trade Policy China Geopolitical Risk

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Key Takeaways

Ursula von der Leyen put the EU’s trade deficit with China at €1 billion per day, while Bernd Lange cited Chinese industrial subsidies above 4% of GDP and falling domestic demand as factors increasing China’s reliance on exports. The interviewer sees China’s export of excess production as a structural mismatch, while Lange says Europe’s auto-industry problems also reflect weak domestic demand and declining US exports, and that the EU would like Chinese automakers to invest and produce in Europe.

Bernd Lange says France and Germany recognize that China can use economic power coercively, and he says the EU could accelerate decisions under the Anti-Coercion Instrument or create an emergency instrument. Separately, the host describes a proposal for the Commission to exclude a company from the EU subject to a qualified-majority reversal, while Lange identifies tariffs and export restrictions as possible countermeasures—not actions already taken.

Bernd Lange says the US raised tariffs on steel- and aluminum-containing derivative products from 15% to 50% and opened an investigation into 20 more products; he links tariffs announced April 2 to inflation he estimates at about 4.8%. He expects no further US trade measures before the midterms, argues that EU-US talks can resume only after the tariff issue is resolved, and says negotiations should be conducted as a partnership; he also describes differing trade-policy priorities among US officials.

GEO-POLITICS

Trade Deficit — European Commission President Ursula von der Leyen put the EU’s trade deficit with China at €1 billion per day and described it as having reached a tipping point.

“The EU is trying to work it out as it plans to get tougher with China. Our trade deficit with China is now €1,000,000,000 a day…”—

Export Pressure — Bernd Lange says Chinese industrial subsidies exceed 4% of GDP, while falling domestic demand is making exports more important. With car sales down more than 20% and the US market largely closed, he argues Europe is a key market where the EU has leverage.

“On the one hand, the export from China is quite aggressive. We have a lot of subsidies…”—

Car Export Limits — Bernd Lange says China could limit exports or restrict particular cars. He argues that measures should make selling specific cars in the EU less profitable for Chinese companies.

“So yes, there could be some export restrictions in China. There could be some limitations for specific cars…”—

TECHNOLOGY

AI Dependence — Bernd Lange says the EU depends on the US and China for AI and cloud servers. He argues that greater European sovereignty and economic security are needed.

“Digital, we are really depending on AI, on cloud server, and so on, mainly also US, but also from China. So we have to work on that…”—

ECONOMY

Export Model — The interviewer argues that China’s support for companies exporting excess production rather than responding to price signals reflects a structural mismatch. From this perspective, an agreement would offer only temporary relief, not resolve the underlying challenge.

“It is a structural mismatch between that the way that the Chinese economy operates, it does support companies to just export their excess rather than responding to price signals to…”—

MARKETS

Rare Earth Dependence — Bernd Lange says China has leverage in rare earths and critical raw materials because Europe lacks refining capacity. European companies moved refining to China because wages and environmental obligations were lower, leaving Europe vulnerable. He says the EU needs refineries at home or in reliable partner countries and cautions against escalating a trade conflict over these materials because the outcome is uncertain.

“They closed refineries for in Germany and Europe, and brought the process to China because of the low wages, and mainly also because of the low environmental obligations…”—

EU-China Trade Imbalance

Lange rates the EU's trade-war position as challenging but sees leverage in China's dependence on European markets amid subsidized exports and falling domestic demand.

China Export Restraints

Lange says China could reasonably limit surging exports, but lasting change requires measures that alter incentives rather than a temporary agreement.

European Auto Industry

The speakers examine whether consumers will choose Chinese cars and Lange argues Europe must defend its auto industry while addressing weak local demand and exports.

EU Anti-Coercion Tools

Lange supports faster EU responses to economic coercion, describing proposals to speed up the anti-coercion instrument or create an emergency tool.

Rare-Earth Supply Risks

Lange says Europe’s reliance on Chinese rare-earth refining is a vulnerability created by past business decisions, and urges new refining capacity while warning against escalation.

Europe’s Trade Leverage

Lange acknowledges Europe’s dependence on US and Chinese digital infrastructure but argues that mutual trade dependencies give the EU countermeasures, while negotiations remain preferable.