China and EU Discuss New Trade Consultation Mechanism
China’s Ministry of Commerce (MOFCOM) announced on May 30 that Beijing and Brussels are exploring the establishment of a trade and investment consultation mechanism, offering dialogue as a pathway to ease escalating trade tensions while warning of firm retaliation if the EU imposes new restrictions. The announcement came in direct response to the European Commission’s “orientation debate” on EU-China relations held the previous day in Brussels.
Background: A Relationship Under Strain
The EU-China trade relationship, valued at €732 billion in bilateral goods trade in 2024, has grown increasingly fraught. The EU’s goods trade deficit with China reached approximately €360 billion in 2025, up from €312 billion the year prior—a gap the European Commission has described as “critically unbalanced” and “not sustainable.”
According to Xinhua News Agency, a MOFCOM spokesperson stated that “communication channels between China and the EU remain smooth” and that “both sides are discussing the establishment of a trade and investment consultation mechanism and will hold related dialogue.”
EU’s Orientation Debate
On May 29, all 27 European Commissioners convened for an orientation debate on EU-China trade relations, focusing on how to respond to Chinese industrial overcapacity and what Brussels views as unfair trade practices. As Euronews reported, European Commission Chief Spokesperson Paula Pinho reiterated the bloc’s established approach: “We diversify our relationship. We de-risk. We do not decouple.”
Executive Vice-President for Prosperity and Industrial Strategy Stéphane Séjourné struck a more pointed tone, telling a Competition Council in Brussels that China’s “industrial domination is no accident. It is the outcome of decades of state subsidies and non-reciprocal market access.” He noted that China now produces more than 50% of the world’s steel, 50% of batteries, and over 90% of photovoltaic solar energy used in the EU.
Internal EU Divisions
The debate exposed significant fractures among EU member states. France, Spain, Italy, the Netherlands, and Lithuania circulated a joint policy paper urging tougher trade measures, including higher tariffs and a new “resilience tool” to address concentrated supply sources. Germany, the EU’s largest economy and China’s top European trading partner, notably did not sign the paper, reflecting its deeper economic integration with Beijing.
As reported by Global Times, China’s MOFCOM spokesperson expressed hope that the EU would “abide by WTO rules, uphold free trade and fair competition, and firmly oppose protectionism and unilateralism.”
China’s Dual Strategy: Engagement and Deterrence
Beijing’s response reflects a calibrated dual-track approach. On one hand, the proposed consultation mechanism offers a diplomatic off-ramp, institutionalizing dialogue to resolve disputes before they escalate. On the other, the warning was unambiguous: “If the European side insists on unilaterally rolling out new trade instruments and imposing discriminatory restrictions, China will respond firmly and take effective measures to safeguard its own interests,” the MOFCOM spokesperson stated.
This mirrors China’s approach in other trade disputes, combining negotiation offers with clear retaliatory threats. The proposed mechanism could build on existing frameworks such as the EU-China High Level Economic and Trade Dialogue (HLED), though its precise form remains unclear.
Broader Context: Energy Crisis and Industrial Competition
The trade tensions unfold against a backdrop of broader economic pressures. The War in Iran has driven energy costs across Europe to 2-3 times higher than in the United States, undermining European industrial competitiveness. EU cohesion funds are being considered for deployment to mitigate soaring energy prices, as European Cohesion Commissioner Raffaele Fitto indicated in a letter to ministers.
Meanwhile, China’s state-subsidized industrial policy continues to generate concern in European capitals, particularly regarding overcapacity in steel, batteries, solar panels, and electric vehicles.
What to Watch
The orientation debate may continue at the June European Council meeting, where EU leaders could begin translating discussions into concrete measures. Key questions remain: Will Germany’s position shift under pressure from fellow member states? What specific new trade instruments might the EU deploy? And can the proposed consultation mechanism meaningfully address the structural imbalances that define the EU-China economic relationship?
For now, both sides have signaled a willingness to talk—but each has also made clear they are prepared to act unilaterally if dialogue fails to deliver.