Germany and France agree on a new trade instrument to confront China

France and Germany have proposed new powers for the European Commission to fight market distortions, as the EU faces growing trade pressure from China.

In a letter addressed to the President of the Commission, Ursula von der Leyen, on Monday, accompanied by a policy document on global economic imbalances, Paris and Berlin sought tools to restrict access to the EU market, to diversify supplies and to prepare for possible retaliation.

Brussels describes its economic relationship with Beijing as unsustainable, with the EU’s trade deficit reaching about 1 billion euros a day in 2025. It has given China until this month to offer concessions.

The issue will be discussed before EU leaders at next week’s European Council summit, where France and Germany will seek urgent action.

“We need a comprehensive framework to complement our toolbox with new legal instruments, in a simple and non-bureaucratic way,” says the letter signed by President Emmanuel Macron and Chancellor Friedrich Merz.

The accompanying document warns that “a massive industrial shock” is hitting the central sectors of Europe’s economic model, including the pharmaceutical, aerospace, automotive, industrial machinery and chemicals industries.

The letter asks for a new instrument to be activated “when third countries seek to undermine the restoration of a level playing field and fair market conditions by political or economic means, leading to serious and systematic distortions.”

This tool would restrict access to the European single market, which Paris and Berlin see as the EU’s main leverage in the negotiations with China.

They want the decisions to be taken quickly through a procedure known as comitology, in which the representatives of the member states scrutinise the Commission’s measures.

The key point is that the instrument would be activated “unless a qualified majority is against it”, making it easier for the Commission to act.

The tool should also be “country-agnostic, capture all market distortions, from a single production to a whole sector, from subsidies to currency manipulation,” the policy document says.

The aim is for the Commission to be able to draw up tailored solutions that reflect the EU’s interests and do not impose obligations only on European companies.

The letter also calls for a diversification instrument, which von der Leyen already announced at the last European Council in June.

According to the document, it should “reduce European dependencies, resolve the existing concentration of the supply chain and prevent new concentration risks, taking into account import concentrations from a given country, company or stakeholder nationality, and the market share at global level.”

In other words, Berlin and Paris want a comprehensive framework that serves the diversification goals in line with the economic security agenda and covers distortions beyond trade.

The document acknowledges that retaliatory measures are likely to test the EU’s political unity and that a united front will be essential in any trade war with China.

“The EU must be prepared and take into account international reactions and possible retaliation against its policies, instruments and measures. Understanding the scale and diversity of coercion is essential,” it continues.

The proposal calls for an inventory of possible retaliatory measures and an assessment of their impact in each member state, together with coordination between EU leaders.

The document also calls for measures to reduce risks and cut dependencies, asking the Commission to make more use of the trade defence instruments by launching more investigations on its own initiative and reallocating staff and resources to support them.

It also supports a broader approach to trade disputes across the whole sector, when “protection for narrow categories of goods is now insufficient in the face of more systemic distortions and the global dominance of third countries across the value chain of specific sectors.”

Paris and Berlin also propose targeted changes to the anti-dumping, anti-subsidy and safeguard rules to make it harder to circumvent the EU’s trade measures.