Europe braces for China shock 2.0

Chatter in Brussels about an ominous “China shock 2.0” is increasing. In late May, five EU member states circulated a joint “non-paper” calling for stricter protection against “unfair trade practices”, and now all 27 members are debating their China posture at the highest level. A string of reports published in the first half of 2026 adds to the anxiety. The hard numbers are a warning that European industry risks being, in the words of a recent report by France’s strategy commission, flattened by a “steamroller” of cheap Chinese exports targeting the highly advanced manufacturing sectors that fuel the European economy.

When Beijing joined the WTO in the early 2000s, Europe survived the first “China shock“, a wave of cheap toys, textiles, and basic electronics that hollowed out low-end manufacturing across the developed world by moving up the value chain. This time there is no higher ground to retreat to: Chinese manufacturing has followed European industry up that chain and now competes with what is left of it. 

The root of the problem lies within China’s own political economy. A party-state determined to keep capital at home produces an enormous savings glut, while industrial planners pour investment into favored sectors regardless of whether anyone will buy the output. A currency kept deliberately weak compounds the effect, making Chinese goods cheaper abroad and foreign goods more expensive at home. Electric vehicles are the textbook case. According to a Council on Foreign Relations report, China has built capacity for roughly 25 million cars a year against a home market barely half that size. Weak household demand cannot absorb the surplus, so the only outlet is export. Since the pandemic, Chinese export volumes have surged while imports have stayed flat.

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