Europe’s economic cards against Chinese coercion

Europe’s exposure to China is no longer limited to supply chain dependencies, but has become structural.

The policy (in) brief. China’s control over critical minerals, combined with industrial overcapacity and the ability to weaponise trade and investment, is reshaping the global competitive landscape. The influx of low-cost goods into Europe is not just a market distortion, but part of a broader geoeconomic strategy.

• The policy brief Beijing hold’em: European cards against Chinese coercion, authored by ECFR geoeconomics expert Tobias Gehrke and research assistant Nina Schmelzer, highlights how unprepared Europe remains for this phase.

Dependency is vulnerability. In 2025, European industry learned firsthand what it means to depend on a single actor. Beijing’s decision to weaponise its near-monopoly over rare earths had immediate and tangible consequences.

• Beginning in the spring and expanded in the autumn, Chinese authorities introduced export licensing requirements for key materials and magnets, affecting sectors such as automotive, wind energy, defence and advanced machinery.
  • To obtain licences, European firms were required to disclose sensitive commercial information. At the same time, inventories ran down, production lines slowed, and parts of Europe’s industrial base entered crisis.
• A temporary suspension of some of these measures, announced following a meeting between Donald Trump and Xi Jinping, provided only partial and fragile relief.
  • Rare-earth trade remains constrained and licensing continues to be difficult. Crucially, this truce was not the result of European initiative.
• The European Union, while indirectly benefiting from the easing of restrictions, neither negotiated nor shaped the outcome and remains exposed to future escalation.
  • Its defence and industrial bases continue to rely heavily on China for rare earths, related technologies and other critical inputs, from semiconductors to pharmaceuticals and energy equipment.
• This dependency is compounded by a second pressure: the surge of Chinese exports into the single market, which is putting European manufacturing under strain and fuelling deindustrialisation trends.

A structural risk. Japan’s experience in 2026, when Beijing imposed sweeping export restrictions on minerals and materials, shows how rapidly and selectively this leverage can be deployed—even against advanced partners. In this context, dependency is no longer just an economic issue, but a strategic vulnerability.

• “Europe – said Gehrke in a conversation with Decode39 – benefited from the Trump-Xi truce on rare earths, but it didn’t earn it. When the next standoff arrives, the EU needs to be in the room with leverage cards on the table and a game plan in hand. Knowing your cards is only half of the game. The other half is having a doctrine to help play the hand.”
• The message is clear: reducing risk is no longer sufficient. Europe needs a strategy that can shape outcomes.

From de-risking to deterrence. The report’s core contribution is a shift in paradigm: economic security must evolve from a defensive approach into an active tool of deterrence. This implies not only protecting oneself, but being able to impose costs.

• According to the authors, competitiveness and security are not separate agendas. China’s overcapacity and coercive practices are two sides of the same coin.
• “China’s overcapacity and China’s coercive toolkit are two sides of the same coin. You cannot defend your industries against one if you are too afraid to defend yourself against the other,” added Gehrke.
• In this framework, European industrial policy acquires a stronger geopolitical dimension. Defending strategic sectors also means managing power relations with Beijing.

Europe’s leverage: stronger than it seems. The report provides a structured mapping of Europe’s available leverage.

1. First, the EU remains one of China’s largest export markets, making Chinese producers increasingly dependent on European demand.
2. Second, Europe retains key positions in critical segments of global value chains, including semiconductor manufacturing equipment, aerospace, advanced machinery and specialised materials.
3. Third, Chinese firms are deeply embedded in European critical infrastructure, from ports to data centres and energy networks. While often seen as a vulnerability, this interdependence can also function as leverage.
4. Finally, the report highlights “wild cards”: access to European capital markets and research ecosystems.

Overall, the conclusion is that Europe is not lacking tools, but is underutilising them.

Building a European doctrine. The policy brief outlines several operational recommendations to build a doctrine of economic deterrence. Three elements stand out.

1. Institutional capacity. The creation of an EU Economic Statecraft Unit would allow for mapping leverage, coordinating responses and monitoring coercion incidents.
2. Operational readiness. Instruments such as the Anti-Coercion Instrument must be deployable quickly, including through provisional application.
3. Credibility. Pre-authorised response packages, calibrated to different levels of escalation, would strengthen deterrence.

A solidarity fund to support affected industries and regions would complement this framework.

The real risk: inaction. The report’s most important message concerns Europe itself.

• “Europeans worry more about the cost of confronting China than the cost of not doing so. Deindustrialisation and routine coercive extraction are the compounding costs of inaction,” explained Gehrke.
• In this context, the absence of a clear strategy becomes a vulnerability in itself. The choice facing Europe is no longer between risk and stability, but between managed risk and unmanaged decline.