EU Weighs New Trade Tools to Address China Overcapacity

The European Commission will hold a policy orientation debate on May 29, 2026, to discuss tools for addressing Chinese manufacturing overcapacity. The meeting follows a joint paper from Spain, Italy, France, the Netherlands, and Lithuania urging more aggressive measures. ” The EU’s goods trade deficit with China reached nearly €400 billion in 2022.

The Commission is considering tighter public procurement rules that would require companies to source from at least three suppliers, with no single supplier exceeding 30 to 40 percent of critical components. These rules would cover chemicals, industrial machinery, and green technologies.

The measures build on the Critical Raw Materials Act, which already caps sourcing from any single non-EU country at 65 percent for strategic materials. They would also complement the Industrial Accelerator Act adopted in March 2026.

The EU’s current trade defense instruments include the Foreign Subsidies Regulation, the Carbon Border Adjustment Mechanism, and the Anti-Coercion Instrument. Officials have noted these tools cannot directly address state subsidies or production conditions in China.

The October 2024 decision to impose countervailing duties on Chinese electric vehicles required months of analysis by trade and competition economists and produced minimum pricing commitments from China. Policymakers have stated that similar processes cannot be repeated across all affected sectors.