The dilemma between climate targets and economic security calls for a pragmatic and nuanced policy. A strategy of sectoral protectionism would allow the EU to manage the risks of its relationship with China while harnessing its benefits.
This article is part of a series on “Eu-China Relations: Bound by Clean Tech or Divided by It?”. The articles reflect the opinions of their respective authors and should be read in the context of this series.
Competitiveness has now moved to the top of the European Union’s agenda, becoming a defining issue for its economic future and global standing. In an era marked by geopolitical shifts, digital transformation, and the urgent need for a green transition, the EU’s ability to compete on a global scale is under intense discussions. The von der Leyen Commission has repeatedly emphasized the need to bolster Europe’s industrial base and technological leadership. As the EU charts its course towards a more competitive future, its relationship with China emerges as a complex and pivotal factor. While often framed through the lens of rivalry, China’s role is not monolithic, it also presents potential opportunities to enhance European competitiveness, particularly in the critical domain of green technology.
For decades, the EU’s economic relationship with China was largely complementary: Europe provided capital and technology, while China offered a vast labor pool and a flourishing market. This dynamic has fundamentally changed. China is no longer just the world’s factory, it is a technological powerhouse in its own right, climbing the value chain and challenging European leadership in key sectors. This shift necessitates a recalibration of the EU’s strategy. A purely adversarial approach, however, risks overlooking the potential synergies that could bolster Europe’s own competitive edge. China’s immense market, its rapidly innovating ecosystem, and its central position in global supply chains can be leveraged to the EU’s advantage - if with strategic foresight. Enhanced collaboration in research and innovation, co-investment in third markets, and sustained dialogue on regulatory standards are all avenues through which China can contribute positively to the European economic landscape.
Chinese EVs Are Fundamentally Reshaping the European Automotive Market
The green technology sector serves as the most compelling example of this complex dynamic, and nowhere is this more visible than in the transition to electric vehicles (EVs). The EU has positioned itself as a global leader in the fight against climate change with its ambitious European Green Deal, which aims for climate neutrality by 2050 and mandates a phase-out of new combustion-engine cars by 2035. The speed and cost of this transition, however, present significant hurdles – and it is here that China’s role becomes essential. The arrival of technologically advanced and competitively priced Chinese EVs from brands like BYD, Nio, and MG is fundamentally reshaping the European automotive market, a traditional bastion of EU industrial strength. These vehicles accelerate consumer adoption of electric mobility and intensify pressure on traditional European automakers to accelerate their own electrification efforts.
The core of this competitive advantage lies in the battery supply chain, where Chinese firms are undisputed world leaders. CATL (Contemporary Amperex Technology Co. Limited), for instance, is the world’s largest manufacturer of EV batteries, supplying a significant portion of the global market, including major European car brands. Critically, CATL’s strategy is not limited to exports, it involves deep integration within the EU’s industrial ecosystem. The company is investing billions to build “gigafactories” on European soil, including major plants in Germany and Hungary. These facilities bring capital investment, create thousands of local jobs, and shorten supply chains for European car manufacturers, directly contributing to the competitiveness of the EU’s automotive sector as it navigates the EV transition.
Yet while this integration delivers clear benefits, it also raises concerns in Brussels. Green technology imports from China place immense pressure on European manufacturers. The near-total collapse of Europe’s own solar manufacturing sector in the 2010s serves as a cautionary tale for the automotive industry today. The prospect of Europe’s most iconic industry becoming dependent on a single external supplier for batteries is becoming a source of considerable strategic anxiety in Brussels. This anxiety has prompted investigations into Chinese EVs and shifted the focus on building a resilient domestic industrial base for the EV supply chain.
Building Strength Through Sectoral Protectionism
The dilemma between climate target and economic security calls for a pragmatic and nuanced policy response that moves beyond the false binary choice of either complete openness or sweeping protectionism. A viable path forward can be found in the concept of “sectoral protectionism.” This approach entails defending specific strategic segments of the industrial base, rather than a erecting a blanket barrier against foreign competition. For the EU, this would mean identifying the most crucial links in the EV value chain – those essential for its long-term economic security and technological sovereignty – and shielding them from unfair competition.
Such an approach could include robust support for European research and manufacturing of next-generation solid-state batteries, or safeguarding the supply of critical raw materials for battery production. Initiatives like the European Battery Alliance are already a step in this direction, aiming to build a competitive and sustainable domestic battery industry. The policy instruments for this are diverse: WTO-compliant subsidies, stricter enforcement of anti-dumping regulations, and the use of public procurement to favor local content. The key is that these measures would remain limited in scope, focusing only on the most strategically important areas, rather than applied indiscriminately.
Simultaneously, a policy of sectoral protectionism would deliberately leave other areas open for cooperation and trade with China. The EU could continue to benefit from the investment and expertise of companies such as CATL, particularly where they build local production capacity. Furthermore, this approach opens the door to strategic partnerships involving technology transfer, where, under specific conditions and with robust intellectual property protections, Chinese firms could license advanced manufacturing processes or battery chemistries to European partners. Such conditional transfer would accelerate the development of the EU’s domestic capabilities and foster a more integrated and collaborative green-tech ecosystem. This dual-track approach allows the EU, in effect, to have its cake and eat it too: it protects the crown jewels of its future industrial base while still benefiting from the global division of labor and Chinese technological advancements. It also creates a structured framework for continued China-EU cooperation in the green transition, recognizing that tackling climate change remains a shared global responsibility that transcends economic competition.
Managing the Risks of EU-China Relationship While Harnessing Its Benefits
Chinese firms lower the cost and accelerate the timeline of the EU’s green transition.
In conclusion, the EU’s quest to enhance its competitiveness in the 21st century is inextricably linked to its relationship with China. The electric vehicle sector serves as a powerful illustration that China is not merely a rival, but a multifaceted partner that can significantly contribute to Europe’s economic strength and resilience. By providing access to affordable, cutting-edge green technologies, Chinese firms lower the cost and accelerate the timeline of the EU’s green transition, a cornerstone of its future competitiveness. At the same time, direct investments from companies like CATL bolster the EU’s industrial base, while the competitive pressure from innovative Chinese EV makers stimulates European counterparts to greater heights of efficiency and innovation. A pragmatic strategy of sectoral protectionism allows the EU to manage the risks of this relationship while harnessing its benefits.
Ultimately, by strategically engaging with China, the EU can leverage Chinese scale, investment, and competition not as a threat, but as a vital catalyst for its own competitiveness agenda - ensuring the green transition reinforces Europe’s economic future on the global stage.
This article is part of a series on “EU-China relations: Bound by Clean Tech or Divided by it?”. The articles reflect the opinions of their respective authors and should be read in the context of this series. We recommend reading this article together with the article “Green Technology: Compete, De-Risk, Decarbonize - On Europe’s Terms” by Dr. Aya Adachi.
