Introduction
Trump’s victory in the November elections triggered a sharp rise in Tesla’s market valuation, with a 70% surge (Álvarez Barba, 2025). This growth reflects expectations of continued trade war policies vis-a-vis China under Trump’s administration, including tariffs and protectionist measures targeting Chinese-made vehicles which could bolster Tesla’s dominance in the U.S. market by limiting competition. Moreover, Trump and Elon Musk have hinted at strategic geopolitical interests in regions like Greenland, with its rich deposits of minerals essential for electric vehicle (EV) battery production, and the Panama Canal, a vital route for Chinese exports (Ott, Picchi, and Aksoy, 2025). These dynamics highlight Tesla’s role in the broader global competition shaping the EV industry and its supply chain.
Meanwhile, the European Union (EU) faces a complex challenge in navigating the U.S.-China rivalry. As a regulatory superpower and advocate for green innovation, the EU must balance cooperation with China on climate action with economic security through strategic diversification and adherence to World Trade Organization (WTO) norms. The global EV market, central to the energy transition, reflects technological and economic competition and broader geopolitical and normative struggles. This article aims to provide insights into how the EU, by reconciling its identity, values, and strategic objectives, can strengthen its position in the EV market and contribute to reshaping the rules of global trade for a more sustainable future.
The Chinese EV Market: A Global Powerhouse
China’s rapid ascent as the world’s largest producer and exporter of battery electric vehicles (BEVs) underscores its strategic approach to industrial policy and market development. By 2023, China’s BEV exports exceeded 1.5 million units, reflecting a sixfold increase from 2019 (Bencivelli, Jorra Andrés, Baron, Suárez-Varela, and Vuletic, 2024). This dominance stems from a vertically integrated supply chain and robust government intervention, positioning Chinese manufacturers as global leaders in cost efficiency and production capacity. Central to this growth has been a comprehensive suite of government subsidies and industrial policies, including financial incentives for EV purchases, tax exemptions, and substantial investment in research and development (Bickenbach, Dohse, Langhammer, and Liu, 2025).
More precisely, companies like CATL and BYD have played a crucial role in battery production, securing raw materials, refining processes, and scaling up manufacturing to reduce costs and strengthen supply chain control (Hamlin, 2024). Meanwhile, firms such as NIO and Xpeng have driven R&D in EV technologies (Cheng, 2024), focusing on battery efficiency and autonomous driving capabilities. Additionally, the expansion of charging infrastructure, led by State Grid Corporation of China, has facilitated widespread EV adoption and reinforced market growth (China Daily, 2024). These efforts, combined with government-led incentives—including subsidies, tax exemptions, and grants for EV manufacturers and consumers—have not only driven domestic demand but also supported global market expansion (Bickenbach, Dohse, Langhammer, and Liu, 2025).
These coordinated efforts have enabled China to capitalize on economies of scale, improve production efficiency, and solidify its dominance in the global EV market while shaping the trajectory of the energy transition (Bickenbach, Dohse, Langhammer, and Liu, 2025).
China’s global expansion in the EV market is increasingly evident through its growing footprint in Europe. According to a Banco de España report (2024), the share of Chinese EV exports to Europe has risen significantly in recent years—from 0.4% in 2019 to 20% in 2023—driven by strong demand for affordable and efficient electric models that meet European emissions regulations. The expansion has been further enabled by a robust supply chain and Chinese manufacturers' ability to comply with EU standards, positioning them as direct competitors to established European automakers. This entry not only challenges Europe’s domestic EV industry but also underscores the global shift in market dynamics as Chinese firms consolidate their position as key players in the EU's energy transition.
EU Trade Strategy: Balancing Economic Security and Cooperation
The EU has prioritized reducing its dependency on Chinese EV imports as part of a broader strategy to enhance economic security. Key initiatives supporting this objective include the Critical Raw Materials Act (CRMA), which seeks to secure access to essential minerals for battery production; the Net-Zero Industry Act, designed to boost domestic clean-tech manufacturing; and the Foreign Direct Investment (FDI) screening regulation, which strengthens oversight of strategic investments to safeguard Europe’s industrial base.
However, while these long-term initiatives seek to strengthen European competitiveness, the EU has also implemented more immediate measures to counter market imbalances caused by state-backed competition. A central measure in this approach has been the imposition of provisional tariffs of up to 38% on Chinese EVs, announced in late 2024, intended to protect domestic industries from market distortions caused by state-subsidized imports (Reinsch and Whitney, 2025). Chinese automakers, facing reduced subsidies and softening domestic demand, have increasingly offloaded surplus inventory to foreign markets like the European one. Additionally, benefiting from lower production costs and sustained government support, Chinese EVs can undercut European models by at least 20%, creating a competitive price advantage (Reinsch and Whitney, 2025). This advantage has raised concerns about unfair competition and the potential erosion of Europe’s industrial base. The tariff increase underscores the EU’s commitment to safeguarding its domestic EV producers while fostering fairer market conditions.
However, Chinese EV manufacturers are adapting to these challenges by establishing production facilities within Europe. By producing vehicles locally, these companies can bypass import tariffs, effectively maintaining their cost advantage in the European market. This development, as highlighted by Reuters (2024), allows Chinese automakers to compete directly with European manufacturers while aligning with EU trade regulations. At the same time, this trend has intensified scrutiny under the EU’s FDI screening regulation, which aims to assess and mitigate potential risks associated with foreign acquisitions and investments in strategic sectors. This shift presents a paradox for EU policymakers: while encouraging foreign investment can bolster industrial capacity, it also raises concerns about control over critical supply chains. Consequently, the move complicates the EU's efforts to bolster its domestic EV industry and underscores the need for a nuanced trade strategy that balances economic security with fostering innovation and competition.
While addressing these trade imbalances, the EU has remained committed to upholding WTO rules. The anti-subsidy investigation, launched in 2023, marked a critical step in assessing whether Chinese EV subsidies distorted global trade dynamics. Conducted under WTO guidelines, the inquiry found that substantial government subsidies enabled Chinese EV manufacturers to gain significant market share in Europe, leading to the introduction of temporary tariffs (European Commission, 2024). By framing its actions within WTO parameters, the EU seeks to maintain its credibility as a proponent of rules-based trade. However, these measures have drawn criticism from Beijing, which views them as protectionist and potentially harmful to bilateral trade relations (Dadush, 2025).
To complement its trade measures, the EU has intensified efforts to strengthen its domestic EV industry and reduce strategic dependencies on foreign suppliers. A key example is the Fit for 55 regulatory framework, which mandates stricter emissions standards and accelerates the transition to EVs (European Council, 2025). The framework includes a target of reducing CO₂ emissions from new passenger cars and vans by 100% by 2035, effectively phasing out internal combustion engine vehicles (European Council, 2025). Additionally, initiatives like the European Battery Alliance are driving investments into battery production, a critical component of the EV supply chain (European Commission, 2025). Through targeted subsidies and industrial policies, the EU aims to enhance the competitiveness of its EV ecosystem while reducing vulnerabilities from over-reliance on Chinese imports.
EU-China Relations: Challenges and Opportunities Amid Trump’s Return and the US-China Trade War
The return of Donald Trump to the U.S. presidency has introduced new complexities to the EU’s relationship with China. Trump’s protectionist trade policies, including the potential reimposition of tariffs on Chinese goods, have pressured the EU to reconsider its trade stance, especially as the U.S. continues to pursue aggressive economic policies against China. This has forced the EU into a delicate balancing act, as it seeks to maintain strong relations with both countries while managing its own economic and security interests (Bermingham, 2025). Aligning too closely with China could undermine transatlantic ties, particularly in areas like security and trade policy. Furthermore, the EU faces significant challenges in addressing China's trade practices, including intellectual property concerns and market access issues, which have strained relations between the two (Dadush, 2025).
Despite these challenges, there are significant opportunities for EU-China cooperation, particularly in the areas of climate change and green energy initiatives. Both the EU and China are key players in the global energy transition, with China leading in EV production and renewable energy deployment, while the EU pushes for stringent emissions reduction targets through its Fit for 55 framework (European Council, 2025). Collaborative efforts to advance green technologies, such as battery innovation and hydrogen infrastructure, could benefit both sides, especially as they seek to reduce their reliance on fossil fuels and mitigate climate change. The ongoing discussions between the EU and China to replace tariffs on Chinese-made EVs with alternative solutions highlight the potential for productive dialogue on these shared goals (Teng, 2024). Additionally, multilateral platforms like the WTO and the Paris Agreement provide opportunities for both parties to align their trade and climate policies, advancing global cooperation in the face of rising protectionism and geopolitical uncertainty (Brown and Clausing, 2024).
Conclusion
The European Union stands at a crossroads as it navigates the complexities of the global EV market amid shifting geopolitical and economic dynamics. The return of U.S. protectionist policies and the strategic expansion of Chinese EV manufacturers present both challenges and opportunities for the EU. While measures such as tariffs and investments in domestic production are vital for economic security, the EU must also engage constructively with key partners to ensure a balanced and sustainable energy transition.
China’s advancements in EV technology and renewable energy provide avenues for cooperation, particularly in areas such as battery innovation and green infrastructure. At the same time, the EU must remain focused on enhancing its strategic autonomy by reducing dependencies and strengthening its domestic EV supply chain. Striking this balance will allow the EU to uphold its commitment to multilateral trade rules while safeguarding its industrial competitiveness.
The EU can shape its role as a leader in the global energy transition by aligning its trade policies with broader sustainability goals and fostering collaboration on mutual interests. In doing so, it can contribute to a more resilient and equitable framework for international trade, ensuring long-term benefits for both its economy and the planet.
This article does not necessarily reflect the opinions of European Guanxi, its leadership, members, partners, or stakeholders, nor of those of its editors or staff. They have been formulated by the author in their full capacity, and shall not be used for any other purposes other than those they are intended for. European Guanxi assumes no liability or responsibility deriving from the improper use of the contents of this report. Any false facts, errors, and controversial opinions contained in the articles are proper and exclusive of the authors. European Guanxi or its staff and collaborators cannot be held responsible or legally liable for the use of any and all information contained in this document.
ABOUT THE AUTHOR
Berta Tarrats Castillo holds a Bachelor’s Degree in International Relations from Blanquerna-Ramon Llull University (Barcelona, Spain). Her past writing collaborations include El País, ISGlobal, PMFarma and RECERCAT. The main elements of her portfolio include Sustainable Development Goals, Digital & Technological policy, social movements theory and health policy. She is currently working as a business and strategy IT consultant in the public sector.
This article was edited by Luca Rastelli and Alice Colantoni.
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