China, Europe Look to Forge New Economic Links Amid Trump’s Tariff War

In addition to being a security guarantor for Europe, the United States has long been a promoter of an open and rule-based system that European countries could rely on. The second administration of U.S. President Donald Trump changed that. Trump has railed against the burden of providing for Europe’s security, and his sweeping tariffs made it clear that U.S. support for free trade is over.

For European leaders, China is seen as a good partner to mitigate the economic impact of the U.S. tariffs – even though it is widely recognized that China will not be in the same camp as Europe on numerous security matters. In the few months since Trump was inaugurated, European leaders have made numerous efforts to probe wider engagement with China through high-level diplomatic visits, renewed trade negotiations, and strategic investments to diversify economic ties beyond the United States.

In March 2025, the European Union’s Trade Commissioner Maros Sefcovic visited Beijing to discuss enhancing trade and investment relations. The meetings addressed perennial EU complaints such as overcapacity, subsidies, and market access barriers, aiming to level the playing field for EU companies in China. Spanish Prime Minister Pedro Sanchez met with Chinese President Xi Jinping in April 2025, emphasizing the importance of China as an “essential partner” and advocating for balanced EU-China relations.

Outreach is also occurring on the company level. Some European firms are localizing production and diversifying suppliers, while others see the U.S. retreat from China’s market as an opportunity to seize. Take China’s legal service industry as an example. Prominent U.S. firms, such as Milbank and Paul Weiss, have closed offices in Beijing and Shanghai in the past two years. In contrast, British law firms have shown a measured approach to expanding their presence in China. Since 2023, firms like Holman Fenwick Willan (HFW) and Pinsent Masons have established representative offices in China. These expansions are targeted toward regions like the Greater Bay Area, encompassing cities such as Shenzhen and Hainan, which are seen as hubs for maritime, trade, and technology sectors.

European investors, particularly from France, are also increasingly investing in the Chinese renewable energy sector, recognizing China’s advancements and price advantage in this field. Collaborations are focusing on technology transfer, research and development, and local sourcing of components to boost competitiveness and job creation in the EU. TotalEnergies, a leading French energy company, has been a case in point. In March 2024, TotalEnergies and China’s Sinopec signed a strategic cooperation agreement focusing on low-carbon energy initiatives, including the development of a sustainable aviation fuel production unit in China.

European private equity firms are targeting China’s healthcare sector, including pharmaceuticals, life sciences, and biotechnology, recognizing the country’s aging population and growing demand for medical services. In March 2025, AstraZeneca announced a $2.5 billion investment to enhance its research and manufacturing capabilities in Beijing. HSBC, Schroders, and Aspect Capital received licenses and quota allocations to broaden their business activities within China.

Chinese companies also see an opportunity in Europe. A joint report released on May 21 by U.S.-based Rhodium Group and German think tank MERICS revealed that, despite ongoing tensions between China and the EU, Chinese foreign direct investment (FDI) in the EU and the U.K. saw a significant rebound in 2024. Investment rose by 47 percent compared to the previous year, reaching 10 billion euros, marking the first major increase in several years.

At the same time, China and the EU are exploring potential solutions to one of the most contentious issues in their trade relationship: EU tariffs on China’s electric vehicles (EVs) due to European allegations of market-distorting subsidies. Discussions have emerged around setting a floor price for Chinese EV exports to the EU in exchange for Brussels softening its anti-subsidy duties. This proposal aims to both address industrial overcapacity and promote investment in the European EV supply chain.

European countries also sought to capitalize on China-U.S. trade tensions during Trump’s first term, from 2017 to 2021. Last time, while Trump Implemented tariffs on China and pursued a confrontational stance, the EU and the United Kingdom sought to position themselves as stable and pragmatic partners.

China surpassed the United States as the EU’s largest trading partner in goods by 2020, largely due to robust Chinese demand for European automobiles, machinery, and pharmaceuticals. German firms like Volkswagen and BMW expanded joint ventures and invested heavily in R&D centers in China.

One key development during this period was the EU-China Comprehensive Agreement on Investment (CAI), which was concluded in principle in late 2020. Yet the breakthrough hit another wall almost immediately. In early 2021, China imposed sanctions on five members of the European Parliament (MEPs) in response to EU criticism of China’s human rights record in Xinjiang. That led the European Parliament to freeze ratification of the CAI, and it has been stuck in limbo ever since.

With Trump back in office, however, the tide has turned yet again. China’s recent decision to lift sanctions on the five MEPs marks a significant step toward mending strained China-EU relations and potentially reviving the stalled Comprehensive Agreement on Investment.

The development comes ahead of a planned China-EU summit in July 2025, where trade and investment are to be key topics. With growing economic ties to China and increasing uncertainty in the United States, European countries are likely to approach this round of negotiations with greater determination to secure new deals.

Previously, the EU has expressed concerns over China’s trade surplus and subsidies that may distort competition. In response, China has indicated a commitment to improving market access and strengthening intellectual property protections.  While underlying tensions remain, the upcoming summit will offer a platform for both sides to reassess their roles for mutual benefits.