Returning from what was his fourth state visit to China at the end of last week, French President Emmanuel Macron has threatened Beijing with tariffs in the coming months if it does not take measures to reduce its enormous trade surplus with the EU.
In an interview with French business newspaper, Les Echos, he claimed that China was “striking at the heart of the European industrial and innovation model”, which has historically been based on machine tools and automobiles, adding that President Donald Trump’s protectionist stance was only making matters worse.
“The American response is inappropriate and exacerbates our problems by redirecting Chinese flows massively to our markets,” Macron pointed out.
As a result, “we are caught between the two, and it is a matter of life and death for European industry. We have become the adjustment market, and that is the worst-case scenario.”
The EU’s trade deficit with China is estimated to have surpassed €300 billion in 2024. The 27 European Union members cannot set trade policy, including tariffs, individually, instead being represented by the EU Commission.
Macron underlined that China’s rise and the unrivalled competitiveness of its industry was a serious issue for Europeans. Nevertheless, he remained hopeful that there was still a way to amicably resolve the “unsustainable” trade surplus between Europe and China and expressed his willingness to adopt a ‘give and take’ approach with the Xi Jinping regime.
However, he had warned the Chinese that if they did not respond, Europe would be forced, in the coming months, to take decisive action and follow the example of the U.S., such as imposing tariffs on Chinese products.
Macron indicated that he had discussed this with the President of the European Commission, Ursula von der Leyen.
Automobiles: First-ever Trade Deficit
In 2025, for the first time, Europe will have a trade deficit with China in the automobile sector, and the situation is deteriorating even more rapidly for automotive parts according to OEM sub-contractors.
And this development is not just down to the steady growth in Chinese car volumes heading for markets in the EU and the UK but also exports of vehicles such as the BMW Mini, Volkswagen Cupra and Tesla Model 3 ‘made in China’ - a result of Western manufacturers seeking out lower-cost manufacturing conditions.
As recently as 2022, the balance was positive, in Europe’s favor, at €15 billion.
Evening Out the Playing Field
While Macron has nailed France’s colors to the mast, convincing its EU partners to do the same, to form a united European front, will be no simple task. For example, German firms still have a strong presence in China. And he admits that Europe’s biggest economy is not yet fully on board with the French approach. However, under Chancellor Merz, it too is becoming aware off the imbalances that exist with China.
Macron goes on to argue that the path to restoring balance between Europe and China requires efforts on both sides.
First, Europe must re-commit to a policy of competitiveness, which requires simplification, deepening of the single market, investment in innovation, fair protection of its borders, the completion of its customs union, and a strong European economic security agenda, through the establishment of European preference and an adjusted monetary policy.
Secondly, China should increase its consumption and open up its domestic market by lowering trade barriers.
Reversing FDI Flows
For Macron, the real revolution is the reversal of foreign direct investment (FDI) flows. China GDP’s is six times that of France’s, but French investment in China is four times greater than that of Chinese companies in France.
“The Chinese need to do in Europe what Europeans did 25 years ago when they invested in China, which involved technology transfers in areas such as civil nuclear power and aviation. We recognize that they are very good in certain areas. But we cannot constantly import. Chinese companies must come to Europe, just as (French state energy utility) EDF and Airbus came to China before and create value and opportunities for Europe.”
Sectors ripe for Chinese investment in Europe could include batteries, lithium refining, wind power, photovoltaics, electric vehicles, air-to-air heat pumps, consumer electronics, recycling technologies, industrial robotics and advanced components.
But he warns: “Chinese investment in Europe must not be predatory and not made for the purposes of hegemony and creating dependencies.”
However, there is still room for conciliation in Macron’s approach, as he proposes “the mutual dismantling of our aggressive policies, such as restrictions on exports of semiconductor machinery on the European side and limitations on exports of rare earths on the Chinese side.”
Even if he can secure a consensus among EU member states to his position on trade and economic relations with China, given its global industrial powerhouse status, there are no guarantees it is ready to make any concessions.
Time for EU to Play to Its Strengths
Macron also emphasizes that Europe must actively strengthen itself in terms of competitiveness and also rediscover the high value of its domestic market and make full use of it. “Europe has the largest ‘mature’ market in the world and has the largest savings reserve on the planet.”
He also advocates that it is time for the European Union to bring its assets fully into play. But to do so, certain changes in policy must be made, particularly at the European Central Bank (ECB), which continues to sell the government bonds it holds, at the risk of pushing up long-term interest rates, slowing down economic activity and causing the euro to rise.
Risk of Financial Crisis Emerging
With the US dollar and Chinese renminbi serving as weapons and growth stalling on this side of the Atlantic, he considers that “European monetary policy could be significantly adjusted today. Revaluing the European internal market means that inflation cannot be the only objective; growth and employment must also be taken into account.”
This is necessary because the risks of a financial crisis are emerging. “The growing deregulation of crypto-assets and stablecoins in the U.S. is creating significant potential for financial instability. Our monetary space and financial players must continue to be protected. Europe must and intends to remain an area of monetary stability and credible investment.”
All of this should enable the euro to strengthen its position among reserve currencies provided there is an offer of liquid and secure assets through European bonds.
“This is consistent with a massive European investment plan in innovation and defense, but in an aggregated and non-fragmented manner. This would enable us to position ourselves in the global race for innovation,” Macron observed, who fears greater divergence between European economies in the coming years.
Europe’s place in tomorrow’s world will depend on negotiations with Beijing and Washington but also and above all, on the decisions taken in Brussels, he concluded.
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