Germany and France urge new EU trade tool to counter market distortions from China
France and Germany have jointly proposed a new legal instrument that would give the European Commission expanded powers to restrict access to the EU single market in response to severe market distortions caused by third countries. In a letter sent to Commission President Ursula von der Leyen on Monday, President Emmanuel Macron and Chancellor Friedrich Merz called for urgent action ahead of next week’s European Council summit. The two leaders warned that the EU’s economic relationship with Beijing is unsustainable, with the bloc’s trade deficit with China estimated at €1 billion a day in 2025. They said a comprehensive framework is needed to complement the existing toolbox “in a lean and non-bureaucratic way,” according to the letter.
New instrument to address systemic distortions
The proposed tool would be activated “where third countries seek to undermine the restoration of a level playing field and fair market conditions by political or economic means, leading to severe and systematic distortions.” It would be country agnostic and capture all market distortions, from subsidies to currency manipulation, across single products or entire sectors. Decisions would be taken swiftly through the comitology procedure, with the instrument activated unless a qualified majority of member states is opposed. The policy paper accompanying the letter says the Commission should devise tailor-made solutions reflecting EU interests, without imposing obligations solely on European companies. An Élysée source said the goal is to impose tariffs and adopt “any measures that demonstrate the [EU’s] credibility and, above all, its determination to restore a level playing field.” The response could draw on measures similar to the EU’s existing Anti-Coercion Instrument, which allows the bloc to restrict access to licences and intellectual property rights.
Preparing for retaliation and reducing dependencies
The paper warns of “a massive industrial shock” hitting sectors central to Europe’s economic model, including pharmaceuticals, aerospace, automotive, industrial machinery, and chemicals. It acknowledges that retaliatory measures are likely to test EU political unity, stating: “The EU must be prepared and factor in international reactions and potential retaliations to its policies, instruments and measures.” To this end, the proposal calls for an inventory of possible retaliatory measures and an assessment of their impact on each member state, with coordination among EU leaders. It also urges the Commission to make greater use of trade defence instruments, including more investigations on its own initiative and reallocating staff and resources to support them.
Paris and Berlin advocate a broader approach to sector-wide trade disputes, arguing that “protection for narrow categories of goods is now insufficient in the face of more systemic distortions and the global dominance of third countries on the whole value chain of specific sectors.” They propose targeted changes to anti-dumping, anti-subsidy, and safeguard rules to make it harder to circumvent EU trade measures. The letter also calls for a diversification instrument to reduce European dependencies and resolve supply chain concentrations, in line with the economic security agenda. The Commission had already announced such an instrument at the last European Council in June.
