The European Union is facing a potential crisis as its reliance on Chinese imports grows, threatening to disrupt local industries and displace jobs. This phenomenon, dubbed the 'China shock', is eerily reminiscent of a similar crisis in the US 25 years ago. Back then, China's entry into the global trade stage, following its WTO membership, led to a surge in imports that displaced local industries and resulted in the loss of up to 2.5 million jobs. Now, the EU finds itself in a similar predicament, with a plunging exchange rate and state subsidies for Chinese 'zombie firms' further exacerbating the issue. As China's imports of components and finished goods increase, the EU's industries are under significant pressure, with job losses and market share erosion becoming a real concern. The situation is particularly alarming in sectors like machinery and automotive manufacturing, where German companies have already lost 22,000 jobs in the last year. The data on amino acids and polyhydric alcohols is particularly worrying, with China accounting for a staggering 88% and 96% of EU imports by volume, respectively. This high level of dependency on Chinese imports raises the risk of 'cannibalisation' of EU industries, where low-priced Chinese supplies make EU production uneconomic, leading to further dependency on China. The EU's legislative proposals to safeguard industry, such as the Industrial Accelerator Act and the updated Cyber Security Act, are not expected to take effect until 2027, leaving Brussels with the challenging task of finding immediate solutions to mitigate the impact of the China shock. The situation is further complicated by the fact that China is now Germany's top trading partner, with a significant trade surplus, and any EU countermeasures could be met with a hostile reaction from Beijing. As the EU grapples with this complex issue, it must carefully consider its options, balancing the need to protect its industries with the potential for a retaliatory response from China.
