BEIJING — The Commerce Ministry issued a formal objection on Monday, labeling the EU’s Industrial Accelerator Act
(IAA) a form of systemic discrimination
that may compel China to take responsive actions. In a detailed submission to the European Commission, Chinese officials outlined potential countermeasures should the bloc classify China as a cybersecurity threat
or limit Chinese companies’ participation in public procurement processes.
The EU’s gamble: local content or lost ground
The IAA, introduced in March following extensive internal deliberations, represents Brussels’ effort to address what policymakers describe as a critical challenge: the decline of Europe’s manufacturing base. The proposal mandates that companies seeking public funding in sectors such as electric vehicles, batteries, steel, and renewable energy technologies meet minimum thresholds for EU-sourced components. These rules are widely seen as targeting foreign manufacturers, particularly in batteries and EVs, by requiring partnerships with European firms and the sharing of technological expertise.
For the EU, the policy reflects a broader concern about maintaining industrial capacity. Officials have indicated that without targeted measures, the bloc risks losing a meaningful share of jobs in key industries to competitors operating under different regulatory and subsidy frameworks. The IAA also aligns with broader efforts to strengthen domestic production capabilities in response to global shifts in industrial policy. According to reports, the EU’s approach aims to reduce its industrial decline
by ensuring that public investments support local producers rather than overseas suppliers.
The IAA’s provisions include specific conditions for foreign investment in four sectors: batteries, electric vehicles, photovoltaics, and critical raw materials. These requirements, which involve local content mandates and technology-sharing obligations, have drawn criticism from Beijing for potentially violating international trade principles, including most-favored-nation and national treatment standards.
China’s playbook: threats, leverage, and the art of reciprocity
The Commerce Ministry’s submission to the European Commission reflects a strategic approach to addressing perceived trade imbalances. While the document does not detail specific countermeasures, it signals Beijing’s readiness to respond if the EU adopts policies that restrict Chinese market access. The ministry explicitly stated that if the EU designates China as a country posing cybersecurity concerns
or phases out Chinese equipment from EU markets, China can launch relevant investigations into the EU or EU businesses, and take reciprocal measures
.
This rhetoric aligns with China’s past responses to trade disputes, where targeted investigations—often into agricultural products, luxury goods, or industrial inputs—have been used to apply pressure. In 2023, for instance, Beijing initiated an anti-dumping probe into European brandy and pork following the EU’s imposition of tariffs on Chinese electric vehicles. Such measures typically focus on sectors where trading partners have significant political or economic exposure.
Reports indicate that the EU’s proposed cybersecurity regulations could serve as an early trigger for retaliation. The legislation would establish a framework for member states to exclude firms identified as security risks from their 5G networks, transitioning from voluntary to mandatory restrictions within three years. While Chinese telecom companies Huawei and ZTE are the most likely targets, the scope of the act extends to other sectors, including connected vehicles, cloud computing, medical devices, and semiconductors.
The submission also underscores Beijing’s broader concerns about the EU’s de-risking
strategy. Introduced by European Commission President Ursula von der Leyen, the term describes efforts to reduce dependence on Chinese supply chains without complete decoupling. However, China’s response suggests it views the IAA as a step that could fundamentally alter trade dynamics, potentially setting a precedent for future restrictions.
Who stands to lose: European businesses caught in the crossfire
The IAA’s immediate effects will likely be felt by European companies reliant on Chinese supply chains. The Made in Europe
rules require firms to source a specified share of components locally, which could disrupt long-established procurement networks. For example, European automakers such as Volkswagen and BMW depend on Chinese battery suppliers for their electric vehicles. If the IAA forces a shift in sourcing, production costs could increase, potentially reducing the global competitiveness of European EVs.
The Chinese Chamber of Commerce to the EU has expressed concerns that the plan signals a move toward protectionism, which could undermine trade cooperation. While European businesses in steel, green technology, and automotive sectors have long criticized Chinese competitors for benefiting from state support and lower costs, the IAA’s local content requirements risk creating disparities between firms that can adapt and those that cannot.
Consumers may also experience higher prices for certain products. If Chinese goods are excluded from the EU market, costs for items like solar panels, batteries, and electric vehicles could rise. The European Commission has argued that the IAA will generate long-term benefits, including job creation and enhanced energy security, but skeptics warn that reduced competition could lead to higher prices and limited innovation.
The geopolitical stakes: decoupling by another name
The dispute extends beyond trade, touching on the future of global supply chains. The EU’s IAA and similar policies in other advanced economies reflect a growing willingness to subsidize domestic industries and limit foreign participation, even if such measures challenge traditional free-market principles. For China, this represents a direct challenge to its economic model, which relies on exports and technological leadership in strategic sectors.
Beijing’s response to the IAA is part of a broader effort to counter what it perceives as Western protectionism. In recent years, China has pursued industrial policies like the Made in China 2025 initiative, which aims to position the country as a leader in high-tech industries. The EU’s measures are viewed in Beijing as an attempt to curb China’s growth, particularly in green technology, where Chinese firms hold a dominant position in global supply chains for solar panels, batteries, and electric vehicles.
The standoff highlights tensions within the global trading system. The World Trade Organization (WTO) prohibits local content requirements, but the EU and U.S. have increasingly prioritized industrial policies that favor domestic production. China has used the WTO to challenge such measures, though its own trade practices—including state subsidies and technology transfer requirements—have faced criticism from Brussels and Washington.
What to watch: the clock is ticking
The coming months will be decisive. The European Commission is expected to finalize the IAA in the near term, with a vote by the European Parliament likely before the end of the year. If the act is adopted in its current form, China has signaled that countermeasures will follow.
- Tariffs on European exports: China may target sectors where European firms have significant market exposure, such as agriculture, luxury goods, or automotive parts.
- Investigations into European companies: Beijing has previously launched anti-dumping or anti-subsidy probes in response to trade restrictions, creating prolonged uncertainty for businesses.
- Restrictions on rare earth exports: China controls a substantial portion of the global supply of rare earth minerals, which are essential for green technology. Any reduction in exports could disrupt European industries dependent on these materials.
- Cybersecurity measures: If the EU designates China as a cybersecurity threat, Beijing could impose its own restrictions on European tech firms operating in China.
For businesses, the message is clear: prepare for potential disruptions. European firms with operations in China are already evaluating their supply chains and assessing vulnerabilities to possible countermeasures. Meanwhile, Chinese companies are exploring compliance strategies, including partnerships with European firms and investments in local production facilities.
The dispute also illustrates the challenges of de-risking. The EU’s strategy of reducing dependence on China without full decoupling is proving complex to execute. Each protective measure invites a response, and each response risks further escalation. While the IAA aims to strengthen Europe’s industrial base, it may also contribute to the fragmentation of global trade, with implications extending well beyond the immediate conflict.
