For decades, Europe’s China strategy rested on a simple premise: more than a billion people, a rising middle class, and an insatiable appetite for European goods. Improve political ties, secure market access, and European industry would thrive.
That logic is not just outdated. It is dangerously delusional.
The China-Europe economic relationship has undergone a structural transformation. China is no longer Europe’s complementary consumer market.
It is Europe’s primary, state‑backed industrial competitor, explicitly aiming to reduce dependence on European imports at home while challenging European manufacturing abroad.
The old model assumed mutual benefit. Europe supplied high‑value technology, specialized machinery and premium cars.
China supplied low‑cost manufacturing and vast demand. For years, especially in export‑driven economies like Germany, the arrangement worked.
Numbers behind the story
That division of labor is vanishing. China did not merely grow richer, it became an industrial and technological powerhouse.
It now leads in batteries, solar panels and electric vehicles, and is rapidly closing the gap in robotics, artificial intelligence and industrial machinery. Beijing’s drive for technological self‑reliance functions, in practice, as import substitution in many high‑value sectors that underpin European prosperity.
The numbers tell the story. In 2025, the EU exported NT$7.3 trillion (199.5 billion euros, US$231 billion) in goods to China and imported NT$20.5 trillion, leaving a goods deficit of nearly NT$13.2 trillion.
More tellingly, the two sides are moving in opposite directions. EU exports to China fell 6.5%, while imports from China rose 6.4%.
Germany, long the biggest European beneficiary of China’s rise, offers a sharper warning. Its exports to China dropped 14.5% in early 2025, driven in part by a 26.1% plunge in automobile shipments.
This is not a temporary cyclical slump. It signals the erosion of the industrial complementarity on which Europe’s China strategy was built.
BYD or Mercedes
Why, then, are China’s 1.4 billion people not delivering the consumer bonanza Europe once imagined?
Part of the answer lies in the structure of the Chinese economy. Beijing’s state‑led industrial policies channel enormous resources into manufacturing capacity, while household consumption remains unusually low as a share of GDP. The result is a double squeeze on European industry.
Inside China, state incentives, technological advancement and increasingly capable domestic firms are replacing European products with Chinese alternatives. A consumer who once aspired to a Mercedes may now choose a BYD. The same shift is underway across machinery, electronics, renewable‑energy equipment and other sophisticated goods.
Outside China, the problem reverses. Manufacturing capacity that cannot be absorbed domestically seeks markets abroad.
Chinese companies therefore compete not only with European firms in China but increasingly with them in Europe and in third‑country markets across Asia, Africa, Latin America and the Middle East. Europe is being squeezed at both ends, losing ground in the Chinese market it once expected to dominate while facing ever‑formidable Chinese competitors in its own backyard.
That is why the familiar European prescription, improve relations with Beijing to gain greater market access, is no longer sufficient. Even if China eliminated every tariff and trade barrier tomorrow, European industry would still face the deeper challenge of competing against highly capable Chinese firms embedded in a state‑supported industrial ecosystem.
Strait peace
The political implications are profound. For years, the promise of the Chinese market encouraged Europe to tread carefully on Taiwan, invoking its “one China policy” to justify caution. But the economic relationship is no longer so one‑sided.
China needs European markets as much as Europe needs China. The fear of displeasing Beijing should therefore carry less weight.
Indeed, a war in the Taiwan Strait could do far more damage to Europe’s prosperity than better relations with China could ever offset. Peace across the strait is not separate from Europe’s economic interests. It is essential to them.
Taiwan sits at the nexus of global semiconductor production and vital maritime trade routes. Bloomberg Economics has estimated that a war over Taiwan could cost the global economy about US$10 trillion in its first year, roughly 10% of global GDP, with Europe suffering severe consequences of its own.
The precise figure is necessarily hypothetical, but the broader conclusion is hard to dispute. A major conflict in the Taiwan Strait would deliver an economic shock dwarfing almost any commercial advantage Europe might gain through improved access to the Chinese market.
For European policymakers, preserving stability across the Taiwan Strait is therefore not an act of distant idealism, nor should it be understood simply as ideological solidarity with a small democratic state. It is a matter of economic self‑preservation. Spending decades negotiating incremental access to Chinese markets means little if an Asian geopolitical crisis can erase those gains many times over.
None of this requires Europe to decouple from China or enter an ideological cold war. China remains a major trading partner, and Chinese competition can spur European innovation.
Nor should Europe abandon dialogue with Beijing. The question is not whether Europe should engage China, but what assumptions should guide that engagement.
Nostalgia no longer works
European leaders must replace nostalgic expectations with a strategy grounded in economic security. That means responding selectively to heavily subsidized overcapacity when it threatens strategically important European industries.
It means reducing dangerous dependencies in critical raw materials, green technologies, pharmaceuticals, semiconductors and other essential supply chains so that commercial dependence cannot easily become political leverage. It also means taking a more active diplomatic interest in Indo‑Pacific stability, particularly the preservation of peace across the Taiwan Strait and the security of the maritime routes on which European trade depends.
The political temptation to revive the old promise will remain strong. China still has 1.4 billion people. The number is enormous, easily understood and electorally seductive.
Better relations mean better access. Better access means more exports. More exports mean more jobs and prosperity. But population is not a market strategy.
The promise of 1.4 billion Chinese consumers was enticing when China needed what Europe made. Europe must now adapt to a world in which China increasingly makes those goods itself and, in many cases, wants to sell them to Europe.
European strategy can therefore no longer begin by asking what Europe can sell to China. It must begin with the harder question: What can Europe continue to make when China can make almost everything Europe can?
John Cheng is a retired businessman from Hong Kong who lives in Taiwan and is the author of “Taiwan Is Taiwan.”
