EU united against cheap Chinese imports but split in courting Chinese factories

The nature of Europe’s economic challenge from China is rapidly changing. China shock 1.0 followed Beijing’s entry into the World Trade Organization in 2001. China’s export boom was then concentrated largely in labour-intensive manufacturing, such as textiles, clothing, footwear, furniture and toys. The adjustment was painful but uneven. In the United States, estimates attribute around two million job losses between 1999 and 2011 to Chinese import competition and its knock-on effects. The EU was less severely affected overall: Germany’s export gains to China and eastern Europe more than offset employment losses in import-competing regions, although areas specialised in textiles, footwear and toys suffered significantly. China shock 2.0 is different because it reaches much closer to the core of Europe’s industrial specialisation. Over the past decade, supported by an industrial strategy running from Made in China 2025 through successive five-year plans China has moved rapidly up the value chain. Textiles and clothing fell from 18.7 percent of Chinese goods exports in 2001 to 8.3 percent in 2024, while machinery and electronics rose from 31.9 percent to 41.8 percent. Chemicals and pharmaceuticals, machinery and electronics, and transport equipment now make up 55 percent of China’s export basket, against 61 percent of Germany’s. This does not mean the two countries export identical products. But their sectoral specialisation is clearly converging. Seismic shock Crucially, China shock 2.0 has not replaced China shock 1.0. It has been added to it. China remains highly competitive in textiles, clothing, furniture, toys and other labour-intensive manufactures, while expanding into machinery, electronics, chemicals, metals, batteries and vehicles. The EU is therefore not exchanging one competitive challenge for another, but facing both simultaneously. The EU has not been passive in response.