EU moves to curb Chinese industrial overcapacity, warns of trade retaliation

The European Commission is developing an “overcapacity instrument” that would limit Chinese firms’ access to key EU markets such as electric vehicles, batteries, solar panels and chemicals. The move follows a widening trade imbalance, with China posting a $113 billion surplus with the EU‑27 in the first four months of 2026, up from $91 billion a year earlier, and a €359.9 billion EU deficit in 2025.

China has signaled it will respond with “immediate counter‑measures”, including anti‑discrimination probes and supply‑chain security investigations targeting European companies operating in China. The dispute centers on rare‑earth exports, which Europe relies on for EV batteries, defence hardware and semiconductors. EU Commission President Ursula von der Leyen highlighted China’s recent tightening of rare‑earth and battery‑material export controls.

French President Emmanuel Macron has urged EU leaders to consider invoking the Anti‑Coercion Instrument – a legal tool that could impose tariffs, curb Chinese investment and block certain market accesses – should diplomatic efforts fail.