For years, Europe’s China policy rested on a carefully balanced phrase: de-risking, not decoupling. It was a useful formula. It signaled that Europe did not want a Cold War-style rupture with China, but also did not want to remain naïve about strategic dependence. It allowed Germany to protect export interests, France to speak the language of industrial sovereignty, smaller member states to avoid choosing sides too openly, and Brussels to frame the issue as prudence rather than confrontation.
That phrase has now reached the edge of its usefulness.
Reuters reported on June 19 that the European Commission plans to propose a law requiring EU companies to diversify sources of key supplies as part of a wider attempt to reduce dependency on China. Commission President Ursula von der Leyen said voluntary corporate action could make such a law unnecessary, but that progress has been too slow. This is the important point: Europe is discovering that de-risking cannot remain a slogan if the private incentives of firms still reward concentration.
The issue is not only China. The issue is the institutional mismatch between political risk and corporate behavior.
Companies optimize for cost, reliability, scale, supplier relationships, and quarterly performance. Governments worry about coercion, wartime resilience, industrial hollowing, social stability, and the vulnerability of democratic systems to external pressure. In calm periods, those priorities can coexist. In periods of geopolitical fragmentation, they diverge sharply.
Europe is now confronting that divergence.
The numbers have become political
Eurostat reported that in 2025 the European Union exported €199.6 billion in goods to China and imported €559.4 billion, leaving a goods trade deficit of €359.8 billion. Exports to China fell 6.5 percent from 2024 while imports from China rose 6.4 percent. Eurostat’s latest partner-trade data also show the EU goods deficit with China worsening from €65 billion in the first quarter of 2024 to €98 billion in the first quarter of 2026.
These figures do not prove by themselves that Europe is being defeated. Trade deficits are not moral verdicts. They can reflect supply-chain geography, consumer demand, multinational production, currency conditions, energy prices, and investment patterns.
But deficits become politically explosive when they are concentrated in sectors that governments have declared strategic. Europe is not merely importing cheap toys or seasonal consumer goods. Its China exposure sits inside machinery, electrical equipment, clean technology, batteries, industrial inputs, rare earths, and components used in advanced manufacturing. The problem is not the existence of trade. The problem is dependence without credible alternatives.
That is why this debate is no longer just about tariffs on cars or complaints from old industries. It is about whether Europe can remain an open economy while rebuilding the capacity to say no.
Critical minerals changed the argument
The G7’s June 2026 declaration on securing supply chains for critical minerals made explicit what had long been implicit: materials policy is now security policy. Reuters reported that G7 leaders agreed to coordinate critical-minerals supply chains, align stockpiling strategies, and work through an International Energy Agency platform, with a reported aim to reduce dependence on any single non-G7 supplier for rare earths and permanent magnets to below 60 percent by 2030 and eventually to 50 percent.
The International Energy Agency has already described the underlying concentration problem in stark terms. In its Global Critical Minerals Outlook 2025, the IEA said China was the dominant refiner for 19 of the 20 strategic energy-related minerals it analyzed, with an average refining market share of around 70 percent.
This is not a marginal vulnerability. It is a structural one.
A modern economy does not run only on oil, gas, and semiconductors. It runs on magnets, graphite, lithium, nickel, cobalt, gallium, germanium, indium-related compounds, battery materials, optical components, and specialized processing capacity. A country can have excellent engineering talent, ambitious climate targets, and sophisticated capital markets, yet still be vulnerable if the materials layer below its industrial base is concentrated elsewhere.
Reuters also reported on June 19 that China has tightened checks on indium exports as demand rises from AI-related uses, including high-speed optical chips for data centers. Indium itself has not been formally added to China’s export-control list, so this should not be described as a legal ban. But the reported increase in customs scrutiny matters because it shows how supply-chain pressure can operate below the level of formal embargo. Paperwork, licensing uncertainty, end-user checks, and inconsistent processing can be enough to change corporate behavior.
That is the new world Europe is trying to govern: one in which economic statecraft often works through administrative friction, not dramatic declarations.
Voluntary diversification was never enough
The European Commission’s planned diversification law matters because it is an admission that voluntary de-risking has underperformed.
The reason is simple. Diversification is costly before it is useful. A company that builds alternative suppliers may face higher prices, lower scale, slower delivery, weaker quality control, and pressure from investors to justify the expense. The benefit appears only when a shock arrives. In normal times, redundancy looks inefficient. In crisis, it looks like survival.
Markets are good at pricing today’s cost. They are much worse at pricing tomorrow’s coercion.
This is why governments create strategic reserves, defense procurement systems, banking capital rules, food-security policies, and emergency infrastructure. They exist because societies sometimes need resilience that private actors would underprovide if left alone.
Europe’s mistake was not that it traded with China. Trade with China has lowered prices, supported European firms, and integrated global production. The mistake was assuming that interdependence would discipline political risk by itself. That assumption looked plausible in the 2000s. It looks much weaker after Russia’s weaponization of energy, the pandemic supply shock, U.S.-China technology controls, and China’s growing use of export restrictions on sensitive materials.
The lesson is not that all dependence is dangerous. It is that concentrated dependence on strategic inputs creates political exposure when the supplier state has both market dominance and geopolitical conflict with the buyer.
Brussels has rules; it needs capacity
The EU’s strength is legal architecture. It can write rules, investigate subsidies, impose anti-dumping duties, regulate competition, set standards, and use market access as leverage. These are real powers.
But legal power is not the same as industrial capacity.
A tariff can slow a surge of imports. It cannot create a rare-earth separation plant. A diversification mandate can force companies to map risk. It cannot instantly produce non-Chinese refining capacity. A procurement preference can support trusted suppliers. It cannot solve permitting delays, energy costs, capital-market fragmentation, or the shortage of skilled industrial labor.
This is the hard institutional truth: Europe is trying to use regulatory instruments to solve problems that also require production, finance, infrastructure, and speed.
That does not make regulation useless. It means regulation must be tied to investment. A serious de-risking strategy cannot simply order firms to diversify and then leave them alone with higher costs. It must combine risk mapping, public financing, long-term offtake agreements, recycling, stockpiles, permitting reform, industrial electricity strategy, and coordination with Japan, the United States, Canada, Australia, South Korea, and trusted emerging-market partners.
Otherwise, diversification becomes an unfunded mandate. Firms will comply on paper, lobby for exemptions, or pass costs down the chain.
The member-state problem is real
Europe also has an internal political problem. The EU does not experience China dependence as one unified actor.
Germany has deep corporate exposure to China. France is more comfortable with industrial policy and trade defense. Spain and other member states may weigh consumer prices, export access, investment flows, and retaliation risk differently. Eastern and northern European governments may focus more on security, while southern economies may worry about growth and costs. Industrial producers fear Chinese overcapacity. Consumers like low prices. Climate policymakers want cheap clean-technology deployment. Defense planners want secure magnets and electronics.
All of these interests are legitimate. That is precisely why EU policy moves slowly.
China does not need to control Europe’s choices directly. It only needs enough asymmetry among member states to slow common action. This is the structural vulnerability of a union that has a single market but incomplete fiscal, industrial, and security integration.
The answer is not to pretend these divisions do not exist. The answer is to price them honestly. If the EU asks some sectors, countries, or consumers to bear the cost of resilience, it must distribute the burden politically. Strategic autonomy cannot be built on speeches alone. It needs compensation, investment, and credible industrial opportunities.
The counterargument is serious
There is a real danger of overcorrection.
De-risking can become protectionism with better branding. Industrial policy can become corporate welfare. Security language can be abused by incumbents that want shelter from competition. Higher tariffs and forced diversification can raise prices for households, slow clean-energy deployment, and weaken European competitiveness if they protect inefficient firms rather than build productive capacity.
China will also argue that Europe is politicizing trade and violating the spirit of open markets. That argument cannot be dismissed automatically. Europe should not answer every deficit with restriction or every Chinese advantage with accusation. Some Chinese firms are genuinely efficient. Some European firms are genuinely complacent. Some of Europe’s industrial weakness was made in Europe: slow permitting, expensive energy, fragmented capital markets, and underinvestment in scale.
But this counterargument does not eliminate the need for action. It defines the standard action must meet.
A credible European policy must be narrow enough to avoid blanket protectionism, but strong enough to address strategic bottlenecks. It must distinguish cheap consumer imports from coercion-sensitive inputs. It must protect competition while correcting concentration risk. It must build capacity rather than preserve nostalgia.
The real test
The OECD’s June 2026 outlook warns that the global economy is under pressure from energy shocks, inflation risks, and weaker growth. That makes Europe’s task harder. Resilience is easiest to advocate in theory and hardest to pay for when growth slows.
Yet delay has a cost too. A supply chain that cannot survive political pressure is not merely efficient. It is fragile. A market that depends on a rival power for critical inputs is not fully open. It is exposed. A union that can regulate but cannot produce will eventually find that rules alone do not command respect.
Europe’s planned diversification law is therefore not just another Brussels file. It is a test of whether the EU can move from vocabulary to capability.
De-risking was a diplomatic phrase. Now it has to become an industrial system. If Europe cannot build that system, it will keep discovering that dependence is cheap only until the day it becomes leverage.
Sources and further reading
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Reuters — “EU to propose diversification law to drive de-risking from China”
https://www.reuters.com/world/china/eu-propose-diversification-law-drive-de-risking-china-2026-06-19/ -
Reuters — “EU leaders weigh tougher measures to combat China trade imbalance”
https://www.reuters.com/world/china/eu-leaders-strive-unity-china-trade-imbalance-2026-06-18/ -
Reuters — “EU prepares tariffs on Chinese plug-in hybrids, Handelsblatt reports”
https://www.reuters.com/world/china/eu-prepares-tariffs-chinese-plug-in-hybrids-handelsblatt-reports-2026-06-19/ -
Reuters — “China tightens indium export checks as AI demand increases”
https://www.reuters.com/world/china/china-tightens-indium-export-checks-ai-demand-increases-2026-06-19/ -
Eurostat — “Trade in goods with China in 2025”
https://ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20260410-2 -
Eurostat — “EU trade with China — latest developments”
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_trade_with_China_-_latest_developments -
Reuters — “G7 sets up critical minerals alliance, platform to cut reliance on China”
https://www.reuters.com/world/europe/g7-sets-up-critical-minerals-alliance-crisis-platform-2026-06-17/ -
G7 / Élysée — “G7 leaders’ declaration on securing supply chains for critical minerals”
https://www.elysee.fr/en/G7evian/2026/06/17/g7-leaders-declaration-on-securing-supply-chains-for-critical-minerals -
International Energy Agency — “Global Critical Minerals Outlook 2025 — Executive Summary”
https://www.iea.org/reports/global-critical-minerals-outlook-2025/executive-summary -
OECD — “OECD Economic Outlook, Volume 2026 Issue 1”
https://www.oecd.org/en/publications/2026/06/oecd-economic-outlook-volume-2026-issue-1_8be0dba6.html