France and Germany have jointly proposed granting the European Commission new powers to respond to market distortions, as the European Union faces mounting trade pressure from China. In a letter to Commission President Ursula von der Leyen, accompanied by a policy paper on global economic imbalances, Paris and Berlin called for tools to restrict access to the EU's single market, diversify supply chains, and prepare for potential retaliation.
The move comes as Brussels describes its economic relationship with Beijing as unsustainable, with the EU's trade deficit estimated at €1 billion a day in 2025. The Commission has given China until this month to offer concessions, and the issue is expected to be a key topic at next week's European Council summit.
A new instrument for systemic challenges
The letter, signed by President Emmanuel Macron and Chancellor Friedrich Merz, urges the creation of a new legal instrument to be activated "where third countries seek to undermine the restoration of a level playing field and fair market conditions by political or economic means, leading to severe and systematic distortions." The tool would allow the Commission to restrict access to the European single market, which Paris and Berlin view as the EU's main leverage in negotiations with Beijing.
Decisions would be taken swiftly through a procedure known as comitology, where member state representatives scrutinise Commission measures. Crucially, the instrument would be activated "unless a qualified majority is opposed," making it easier for the Commission to act. The policy paper stresses that the tool should be "country agnostic, capture all market distortions, from a single production to a whole sector, from subsidies to currency manipulation."
The aim is to enable the Commission to devise tailor-made solutions that reflect the EU's interests and do not place obligations solely on European companies.
Diversifying supply chains
The letter also calls for a diversification instrument, which von der Leyen had already announced at the last European Council in June. According to the paper, it should "reduce European dependencies, resolve existing supply chain concentration and prevent emerging concentration risks – taking into account import concentrations from a given country, company or stakeholder nationality, market share at the global level."
In other words, Berlin and Paris want a comprehensive framework that serves diversification goals in line with the economic security agenda and covers distortions beyond trade.
Preparing for retaliation
The paper acknowledges that retaliatory measures are likely to test the EU's political unity, and that a united front will be crucial in any trade war with China. "The EU must be prepared and factor in international reactions and potential retaliations to its policies, instruments and measures. Understanding the extent and variety of coercion is essential," it states.
The proposal calls for an inventory of possible retaliatory measures and an assessment of their impact on each member state, alongside coordination among EU leaders.
Strengthening trade defences
The paper also urges the Commission to make greater use of trade defence instruments by launching more investigations on its own initiative and reallocating staff and resources to support them. It advocates a broader approach to sector-wide trade disputes, arguing that "protection for narrow categories of goods is now insufficient in the face of more systemic distortions and the global dominance of third countries on the whole value chain of specific sectors."
The proposals come as the EU faces a "massive industrial shock" hitting sectors central to its economic model, including pharmaceuticals, aerospace, automotive, industrial machinery and chemicals. The issue is set to dominate discussions at the European Council, where leaders will consider how to respond to China's trade practices while maintaining unity among the 27 member states.
