Europe is increasingly determined to reduce its economic dependence on China. From critical minerals and electric vehicles to industrial machinery and advanced technologies, the European Union is searching for greater strategic autonomy. Yet there is a fundamental question that receives surprisingly little attention: does Europe fully understand what it would take to become less dependent on the world’s second-largest economy?
For decades, European prosperity benefited from a global economic arrangement that appeared remarkably efficient. China manufactured at scale, European companies supplied technology and premium industrial products, and consumers enjoyed access to increasingly affordable goods. German carmakers expanded across Chinese cities, European machinery manufacturers supplied industrial equipment, and Chinese factories became indispensable to international supply chains. The relationship was never entirely balanced, but it was commercially productive. Today, that arrangement is being reconsidered in Brussels, Berlin, Paris and other European capitals. Economic security has become a political priority, while supply chains are increasingly viewed through the lens of national interests and geopolitical vulnerability.
The difficulty is that economic dependence cannot simply be reversed through political declarations. China’s position in global manufacturing is the result of decades of investment in infrastructure, industrial ecosystems, engineering capabilities, logistics, research and technological development. Reducing exposure to that system requires more than identifying alternative suppliers. It means reconsidering how Europe produces, invests, innovates and competes.
Europe’s challenge is not simply to buy less from China. It is to rebuild the industrial capabilities that make genuine economic choice possible.
De-Risking Sounds Simple. The Economic Reality Is Not.
European Commission President Ursula von der Leyen introduced a useful distinction into the international debate: Europe should reduce its exposure to strategic risks without attempting to sever its economic relationship with China. The approach became widely known as de-risking rather than decoupling. It acknowledges that economic interdependence is not inherently undesirable, but excessive concentration in strategically important sectors can create vulnerabilities that governments and companies can no longer ignore.
Speaking at the World Economic Forum in Davos in 2023, von der Leyen made the position explicit:
“We need to focus on de-risking rather than decoupling.”
Ursula von der Leyen, European Commission President, World Economic Forum, January 2023, reported by Reuters.
Politically, the distinction is sensible. Economically, however, it leaves considerable room for interpretation. What exactly constitutes an unacceptable dependency? Is importing inexpensive solar panels from China a strategic weakness or an advantage for Europe’s energy transition? Should European manufacturers replace efficient Chinese suppliers with more expensive domestic alternatives, even if doing so reduces their competitiveness? And how much additional cost are European consumers prepared to accept in exchange for greater economic security?
These are not abstract questions. They determine investment decisions, industrial locations, product prices and ultimately the future of European employment. De-risking is therefore not merely a trade policy. It is a decision about how Europe’s economy should function over the coming decades.
The Trade Figures Reveal the Scale of the Challenge
The latest available figures demonstrate how deeply the two economies remain connected. According to Eurostat’s April 2026 publication on EU-China trade, the European Union imported approximately €559.4 billion worth of goods from China in 2025, while exporting €199.6 billion. The resulting trade deficit reached almost €360 billion. Compared with 2015, European imports from China had increased by 89%, while exports had grown by approximately 37%.
These figures illustrate a structural imbalance, but they should not be interpreted too simplistically. A bilateral trade deficit is not automatically evidence of economic failure. Imported components, machinery and consumer products support European companies, retailers and households. Some Chinese-made goods contain intellectual property, technology or components originating elsewhere. Nevertheless, the growing asymmetry raises important questions about Europe’s industrial position and its ability to maintain technological leadership.
China is no longer primarily the low-cost manufacturing location that European executives encountered two decades ago. It has developed advanced capabilities in electric mobility, batteries, renewable energy technologies, industrial automation, telecommunications and digital platforms. European companies are increasingly competing against Chinese manufacturers that possess not only cost advantages but also considerable technological expertise.
This changes the nature of the relationship. The old assumption that Europe would provide innovation while China supplied manufacturing capacity has become increasingly outdated. China now competes across much of the industrial value chain, including areas historically associated with European engineering excellence.
China’s Real Advantage Is the Industrial Ecosystem
One of the most persistent misunderstandings in European discussions about China is the belief that its manufacturing strength is mainly the result of inexpensive labour. Labour costs were certainly important during the earlier stages of China’s industrial expansion, but they no longer adequately explain the country’s competitive position. Today, the more decisive advantages often lie in production scale, supplier concentration, infrastructure, manufacturing experience and the speed at which industrial innovations can be commercialised.
Consider the electric vehicle industry. A manufacturer does not merely require a factory capable of assembling vehicles. It needs battery producers, electronic component suppliers, software developers, specialised machinery, materials processing, testing facilities, logistics providers and an experienced workforce. In parts of China, these capabilities have developed into dense industrial networks where suppliers, customers and research institutions operate in close proximity.
Recreating such an ecosystem in Europe requires coordinated investment over many years. Subsidising a battery factory may be politically attractive, but the factory will remain dependent on external suppliers if the surrounding materials, processing and component industries are missing. Industrial independence is not achieved by constructing isolated production facilities. It emerges when the entire value chain becomes sufficiently competitive and resilient.
A factory can be built in a few years. An industrial ecosystem takes decades to develop.
This is where the European debate should become more ambitious. Rather than measuring success solely by the number of factories relocated or the value of imports reduced, policymakers should examine whether European industry is developing the technological, organisational and commercial capabilities necessary to compete internationally.
Critical Minerals Expose Europe’s Strategic Vulnerability
Few sectors demonstrate the complexity of economic dependence more clearly than critical raw materials. Rare earth elements, graphite, lithium, cobalt and other strategically important minerals are essential for electric vehicles, wind turbines, electronics, industrial equipment and defence technologies. Yet the crucial issue is not always where these resources are extracted. It is frequently where they are refined, processed and transformed into industrially usable materials.
The International Energy Agency’s Global Critical Minerals Outlook 2025 provides a striking illustration. China was the dominant refining country for 19 of the 20 energy-related strategic minerals examined, with an average market share of around 70%. The IEA also reported that the concentration of refining activities had increased rather than decreased in recent years, despite growing international interest in supply-chain diversification.
European statistics reinforce this picture. According to Eurostat data published in June 2026, China accounted for 46.8% of EU rare earth imports by weight in 2025. Russia and Malaysia were also significant suppliers. Import statistics, however, do not necessarily reveal the complete origin and processing history of materials. A shipment arriving from a European or third-country supplier may still depend on earlier stages of production elsewhere.
Europe’s Critical Raw Materials Act is an important response, establishing a framework for more diversified supply chains and stronger domestic capabilities. But legislation alone cannot create processing plants, skilled workers, commercially viable mining operations or sufficient industrial demand. These require investment, infrastructure, permitting, technological expertise and public acceptance.
There is also an uncomfortable contradiction. European societies increasingly demand cleaner technologies while often resisting the mining, refining and industrial activities needed to manufacture them. Strategic autonomy has environmental and social costs that must be addressed transparently rather than ignored.
Europe Cannot Protect Every Industry and Remain Competitive
The rise of Chinese electric vehicle manufacturers has intensified the debate over industrial protection. European policymakers face a difficult balance between defending domestic manufacturers against unfair competition and ensuring that consumers have access to affordable technologies. The European Commission’s decision in 2024 to impose additional countervailing duties on battery electric vehicles imported from China reflected concerns about subsidies and competitive distortions.
Von der Leyen had already framed the underlying principle in her 2023 State of the Union address:
“Europe is open for competition. Not for a race to the bottom.”
Ursula von der Leyen, State of the Union Address, September 2023.
There is a legitimate argument for protecting European industries against market-distorting subsidies and coercive trade practices. But protection cannot become a substitute for competitiveness. If tariffs shelter manufacturers without encouraging innovation, productivity and technological progress, Europe risks preserving existing industrial structures rather than preparing them for the future.
Chinese competition should also be understood as a source of pressure that can accelerate European innovation. Affordable electric vehicles, advanced battery technologies and efficient manufacturing systems challenge established business models. The appropriate response is not necessarily to exclude competitors, but to develop the capabilities that allow European companies to compete on technology, quality, productivity and differentiated value.
The strategic question is therefore not whether Europe should defend its industrial interests. It is how to do so without weakening the competitive forces that have historically supported economic progress.
Nearshoring Offers Opportunities, but Not a Complete Alternative
As European companies reconsider global production networks, Central and Eastern Europe have gained renewed strategic importance. Countries such as the Czech Republic, Poland, Slovakia, Hungary and Romania offer established manufacturing capabilities, engineering expertise and proximity to major European markets. Their industrial ecosystems can support efforts to diversify selected production activities, shorten supply chains and improve operational flexibility.
The Czech Republic is a particularly relevant example. Its automotive industry, machinery sector, electronics manufacturers and engineering networks provide a strong foundation for industrial cooperation. As explored in our analysis, Nearshoring to the Czech Republic: Why Czechia Is Becoming a Strategic Base for European Supply Chains, the country’s competitive position rests not simply on labour costs but on industrial experience, supplier density and integration into European manufacturing networks.
Nevertheless, nearshoring should not be confused with complete independence. A European assembly plant may still require Chinese electronic components, processed minerals, batteries or specialised machinery. Moving the final stage of production closer to customers does not automatically eliminate upstream dependencies.
Nor can European manufacturing locations reproduce every advantage of China’s industrial scale. Higher energy costs, labour shortages, regulatory complexity and limited production volumes can make certain activities commercially difficult. Diversification therefore requires careful decisions about which capabilities are strategically essential and which international supply relationships remain economically rational.
The most promising model may be a combination of European production, trusted international partnerships and continued commercial engagement with China. Companies need alternatives that can operate in practice, not simply geographical diversification on paper.
Asia Is Not Simply an Alternative to China
European businesses increasingly examine Vietnam, India, Indonesia, Thailand, Malaysia and other Asian economies as potential manufacturing and sourcing locations. These markets offer substantial opportunities, supported by growing domestic demand, industrial investment and expanding international business networks. Yet describing them collectively as alternatives to China overlooks their considerable differences.
Vietnam has developed important manufacturing capabilities in electronics, textiles and export-oriented industries, but many producers continue to rely on imported components and materials. India offers a large domestic market, engineering talent and growing industrial ambitions, while facing its own infrastructure and administrative challenges. Malaysia has established capabilities in semiconductor-related manufacturing, and Thailand remains an important automotive and industrial production centre. Each country presents a distinct combination of opportunities, limitations and strategic considerations.
More importantly, relocating production from China to another Asian country does not necessarily remove Chinese involvement from the supply chain. Chinese manufacturers, investors and suppliers are themselves expanding internationally. A product assembled in Southeast Asia may incorporate Chinese components, machinery or industrial inputs.
This makes local market intelligence essential. Companies need to understand supplier ownership, production capabilities, logistics infrastructure, regulatory conditions and the broader industrial relationships behind potential partnerships. The challenge is not merely to find another country in which to manufacture. It is to develop a genuinely diversified network of capabilities and commercial relationships.
Taiwan deserves particular attention because of its advanced technology ecosystem and international significance in semiconductor manufacturing. Yet its strategic importance also illustrates the geopolitical risks surrounding the region. Diversification cannot be assessed independently of security considerations, especially when technological capabilities are concentrated in politically sensitive locations.
Europe’s Greatest Weakness May Be Its Investment Gap
Reducing dependence on China ultimately requires Europe to strengthen its own productive capabilities. This means investing in research, industrial infrastructure, advanced manufacturing, digital technologies, energy systems and workforce development. It also means creating conditions in which companies can scale innovative products into globally competitive businesses.
Europe possesses considerable strengths. Its universities, research institutions, engineering companies and industrial clusters remain internationally respected. It has sophisticated consumers, established legal institutions and one of the world’s largest integrated markets. Yet translating these advantages into industrial scale has often proved difficult.
Fragmented capital markets, regulatory complexity, high energy costs and uneven investment conditions can limit the ability of European businesses to expand. The result is a recurring problem: Europe generates valuable research and promising technologies, but commercial production and rapid scaling sometimes take place elsewhere.
This is why the debate about China cannot be separated from Europe’s internal economic reforms. Strategic autonomy will remain an aspiration unless the continent becomes a more attractive location for industrial investment and technological entrepreneurship.
There is little value in reducing dependence on foreign technology if domestic companies lack the conditions to develop competitive alternatives. Economic security and productivity must reinforce each other.
Interdependence Is Not the Same as Vulnerability
One of the most important distinctions in the debate concerns the difference between economic interdependence and strategic vulnerability. International trade inevitably creates relationships of mutual reliance. This is not a defect of globalisation; it is one of the reasons countries trade in the first place. Specialisation allows companies and economies to develop capabilities that would be difficult or expensive to reproduce everywhere.
Dependence becomes problematic when alternatives are unavailable, switching costs are exceptionally high or a supplier can use its position to exert political or commercial pressure. A company importing standard consumer products from China faces a different risk profile from a manufacturer relying on a single source for specialised components essential to its operations.
Europe therefore needs a more precise understanding of where its vulnerabilities actually lie. Import volumes alone are insufficient. Policymakers and executives should examine the availability of alternative suppliers, the time required to replace critical inputs, technological barriers, inventory resilience and the potential consequences of disruption.
This approach would allow Europe to concentrate resources where they are most valuable rather than pursuing broad and potentially expensive attempts to replace international trade with domestic production.
Strategic autonomy does not mean producing everything at home. It means retaining the freedom to make economic decisions when circumstances change.
China Must Also Adapt to a Changing Global Economy
Europe is not the only participant facing difficult choices. China’s economic model is also evolving. Its manufacturers are expanding into higher-value industries, domestic competition is intensifying in several sectors, and international market access is becoming more politically sensitive. Chinese companies increasingly need to establish overseas operations, adapt products to local requirements and build stronger relationships with foreign customers and regulators.
For European businesses, this creates a more complex commercial environment. China remains an important market, manufacturing location and technology partner, but successful engagement requires a more sophisticated understanding of local competition, industrial policy and regulatory developments. European companies can no longer assume that their historical technological advantages will guarantee commercial success.
At the same time, treating China exclusively as a geopolitical threat would overlook opportunities for cooperation in areas such as climate technologies, industrial efficiency, healthcare and international research. The challenge is to maintain productive economic relationships while recognising legitimate differences in political systems, strategic interests and commercial practices.
Neither unconditional engagement nor indiscriminate disengagement offers a convincing long-term strategy. Europe needs the confidence to cooperate where interests align, compete where necessary and protect critical capabilities where risks are unacceptable.
What European Companies Should Do Differently
For business leaders, the most useful response to geopolitical uncertainty is not to wait for a definitive political settlement. It is to develop a clearer understanding of their own international exposure. Companies should look beyond immediate suppliers and examine the underlying production networks, materials, technologies and logistics systems on which their operations depend.
A practical diversification strategy begins with identifying critical dependencies and evaluating alternative sourcing or production arrangements. It then requires assessing whether those alternatives are commercially viable, technically capable and sufficiently scalable. In some cases, establishing additional European suppliers will be appropriate. In others, partnerships in Southeast Asia, India or other international markets may provide a better balance between resilience and competitiveness.
Reliable local relationships are central to this process. Finding the right manufacturing partner, distributor or technology collaborator requires more than comparing costs. Market knowledge, regulatory understanding, management capabilities and long-term commercial alignment are equally important. Our guide to finding distributors and building market access in Europe explores why effective international expansion depends on understanding local business ecosystems rather than treating entire regions as homogeneous markets.
Ultimately, resilience should be measured by a company’s ability to continue operating, adapting and competing under changing circumstances. A more expensive supply chain is not automatically a safer one, just as a geographically diversified network is not necessarily less exposed to disruption. Strategic decisions must be grounded in operational realities.
Europe Needs a Strategy for Strength, Not a Strategy Against China
The most consequential question facing Europe is not how quickly it can reduce imports from China. It is whether the continent can develop the industrial strength, technological capabilities and international partnerships necessary to remain economically influential in a changing world.
China’s rise has exposed weaknesses in Europe’s economic model, but it has also demonstrated what sustained investment, industrial coordination and manufacturing scale can achieve. Europe does not need to reproduce China’s political or economic system to learn from its industrial development. It does, however, need to recognise that competitiveness cannot be legislated into existence.
Successful de-risking will require difficult choices. Governments must balance industrial security with economic efficiency, environmental ambitions with material requirements, and strategic independence with international cooperation. Companies must invest in alternative capabilities without abandoning commercially valuable relationships. Consumers may also need to accept that greater resilience sometimes comes at a higher price.
Europe’s greatest opportunity lies in approaching this transition as a programme of economic renewal rather than a defensive retreat from globalisation. A more competitive European economy, supported by diversified international partnerships and stronger industrial capabilities, would be better equipped to engage with China from a position of confidence.
The real objective should not be a Europe that needs China less at any cost. It should be a Europe that has more choices, stronger capabilities and greater influence over its own economic future.
That is a considerably more demanding ambition than reducing a trade deficit. But it is also a far more meaningful definition of strategic autonomy.
