China has turned from a cheap supplier into a direct competitor of European industry
Over the past decade, China has transformed from a supplier of cheap components and consumer goods into a direct competitor of Europe in sectors that Europe considered its strength: automotive, batteries, solar modules, chemicals, electronics, and green energy equipment.
According to Eurostat data, in the first quarter of 2026, the European Union’s (EU) trade deficit in goods with China reached 98 billion euros – the highest level since the third quarter of 2022. Imports from China increased to 145 billion euros per quarter, while exports to China decreased during the same period.
The first major political battle arose over electric vehicles. In 2024, the European Commission imposed final anti-dumping duties on battery electric vehicles manufactured in China – depending on the manufacturer, these range from 17 to 35.3 percent.
The conflict is expanding into other areas. From July 2026, the EU applies a new steel import protection mechanism – allowing 18.3 million tons of steel per year duty-free, while imports exceeding the quota are subject to a 50% duty. Small shipments valued up to 150 euros from platforms such as “Shein,” “Temu,” or “AliExpress” are also taxed, with a 3-euro duty per product category.
For a long time, Europeans enjoyed very cheap goods, but now we see the other side: pressure on local retailers, quality and safety risks, logistics burdens, and increasing dependence on a single country’s production base.
When does a low price become a danger?
If the price is determined by subsidies, cheap state-funded energy, lighter environmental regulations, cheaper capital, and a political decision to occupy foreign markets, then this is no longer normal competition. Such competition may please consumers in the short term but destroy local production capacities in the long term.
Europe has already made a similar mistake once with Russian energy. Now there is a risk of repeating the same mistake with Chinese batteries, solar modules, rare earth elements, magnets, or infrastructure.
The International Energy Agency estimates that China’s share in all major stages of solar module production exceeds 80%. Moreover, the cost of solar module production in China is about 35% lower than in Europe.
An even more sensitive topic is rare earth elements and magnets. According to the International Energy Agency, China currently holds about 91% of the global market for the separation and refining of rare earth elements needed for magnets, and its share in permanent magnet production reaches 94%.
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With such resources, China can pressure its trading partners politically and often does – this has already been experienced by the Lithuanian government and Lithuanian businesses, for whom the Chinese market suddenly became closed for a time. Those wanting cheap Chinese raw materials and products are forced to represent not only their own interests.
Can Europe win such a conflict?
Theoretically, Europe has strong cards: a huge domestic market, high purchasing power consumers, regulatory power, industrial knowledge, and allies. China also needs the European market, so Europe is not powerless.
However, winning by tariffs alone will not work. If Europe wants to preserve strategic industries, it needs not only tariffs but also cheaper energy, faster permits, targeted subsidies, capital market reform, and clear industrial policy.
Europe’s biggest problems are speed and fragmentation. China can concentrate capital, energy, research, subsidies, and exports in one direction, while Europe has 27 countries, different tax systems, industrial strategies, and political moods. When new EU legislation takes on average about 19 months to adopt, this becomes a serious disadvantage in industrial policy.
Risks and opportunities for the Baltic countries
We are small, have limited labor, higher energy costs, and a small domestic market. However, the opportunity is also real. If Europe seriously undertakes supply chain shortening, the Baltic countries can win in electronics, defense, logistics, wood industry, cybersecurity, IT, and advanced services.
Still, we must be realistic. A trade war with China would not be nice or cheap. China can respond by restricting exports of rare earth elements, battery components, or other critical raw materials. It can choose individual EU countries and try to divide the common position. Therefore, unity in this case is probably the main condition for economic survival.
EU and China trade will become increasingly fragmented by sectors. Some areas will remain open because complete separation would be too expensive for both Europe and China. However, sectors such as electric vehicles, batteries, solar energy, chips, defense-critical components, data, and critical raw materials will become increasingly politicized and regulated.
Europe can emerge stronger from this conflict, but only if it understands that the goal is to preserve open trade where it is fair and not allow cheap goods to become a strategic dependency. The lesson of Russian energy cost Europe very dearly. It would be unwise to forget it precisely at a time when it is extremely important.
