Existential Threats or Economic Realities?

The Fatal Flaw in Europe’s China Strategy

The global economy in 2026 is increasingly defined by divergence. Developing Asia is driving global growth while the major Western economies struggle to generate momentum.

The Asian Development Bank forecasts developing Asia and the Pacific to grow by 5.0% in real terms in 2026. That is more than three times the growth rate of the G7. It is also evidence that the centre of economic expansion is continuing to move toward Asia.

Asia’s growth leaders illustrate the breadth of the shift. Taiwan is the regional outlier, with growth forecast at 11.0%, driven by the global AI investment cycle, semiconductor demand and technology exports, particularly to the United States. Kyrgyzstan follows at 8.9%, while Vietnam is expected to grow 7.8%, supported by manufacturing, exports and rising domestic demand. India, Uzbekistan and Tajikistan are each around 7.0%.

The drivers differ, but the pattern is consistent. Central Asia is benefiting from fixed investment and industrial activity. India is being supported by investment and services exports. Vietnam is deepening its role as a manufacturing and export hub. Indonesia, at 5.2%, demonstrates the continuing strength of domestic consumption in Southeast Asia.

China is forecast to grow by 4.6%. That is slower than several of its neighbours, but looking only at the percentage misses the larger point. China remains the manufacturing and intermediate-goods hub at the centre of what can be described as Factory Asia.

The contrast with the G7 is stark. The bloc is growing at roughly 1.3%–1.5%. The United States is the strongest performer among the major advanced economies at around 2.2%–2.3%, helped by AI-related capital expenditure and resilient services. Germany is around 1.0%–1.4%, Britain 1.0%–1.1%, Canada 1.2%–1.4%, France 0.9%–1.1%, Italy 0.8%–1.0% and Japan only 0.6%.

The G20, at roughly 2.9%–3.0%, looks considerably stronger because it combines the slow-growing advanced economies with the much faster-growing emerging economies. Remove the Asian members and the underlying growth rate falls toward 1.6%–1.9%.

Asia is not simply participating in global growth. It is driving it.

China’s importance to this process cannot be measured by its domestic GDP growth rate alone. Its machinery, electronic components, industrial inputs, raw materials and technology feed production networks across Vietnam, Southeast Asia and Central Asia, where they are incorporated into higher-value goods exported to the United States, Europe and other markets.

Vietnam is perhaps the clearest example. Chinese components and machinery enter Vietnam, are incorporated into finished products and then shipped to Western markets. The final product may carry a Vietnamese, Thai or Malaysian label as companies play musical tariff chairs, but the underlying production ecosystem remains deeply connected to China.

China’s industrial scale and trade network are sufficiently large that moderate domestic growth can continue generating substantial demand for regional suppliers while supporting the expansion of Asian manufacturing. Resources and intermediate goods flow into China while manufactured and higher-value products flow outward, creating the trade networks that underpin much of Asia’s economic integration, including the broader Belt and Road framework.

The important correlation, therefore, is not simply between Chinese GDP growth and Asian GDP growth. It is between China’s industrial capacity and the expansion of regional production networks. China is increasingly less a standalone growth story than the industrial core of a wider Asian economic system.

That is the structural shift Western policy increasingly fails to recognize. Asia’s rise is not occurring independently of China, nor is China’s manufacturing position dependent on the growth rate of any single neighbouring economy. The two have become increasingly interconnected. Tariffs may change where final assembly takes place, but they do not easily relocate the machinery, suppliers, logistics, skills and industrial ecosystems that make the region competitive.

This represents a massive shift in the global economy. Growth is becoming less dependent on a single Western economic engine and more dependent on interconnected Asian production systems. The United States and Europe remain major markets, sources of capital and centres of technology. But increasingly, Asia is where production, investment and incremental global growth are concentrated.

The implication is straightforward. The geography of global growth is changing faster than the institutions and Western-driven political narratives built around the old economic order.

The upcoming EU trade delegation to China illustrates the disconnect. Rather than approaching China from the economic realities, Brussels is reaching for the old colonial playbook of pressure, threats and demands for unilateral concessions. The problem is this will not restore Europe’s competitiveness.

The EU-China trade relationship provides a clear case study of the growing gap between political narrative and economic reality.

European policymakers increasingly frame China’s industrial success through a security lens, describing the growth of Chinese manufacturing, electric vehicles, green technology and other exports as an existential threat. Yet the underlying reality is that Europe is deeply integrated into Chinese supply chains, while European consumers and companies continue to buy Chinese products because they are competitive in terms of price, scale and increasingly on technology.

The scale of the imbalance is real. The EU’s goods trade deficit with China reached approximately €359.8 billion in 2025, with EU imports of €559.4 billion against exports of €199.6 billion. The deficit reportedly reached €103 billion in the second quarter of 2026 alone.

That imbalance needs to be addressed, but treating it as proof that China is responsible for Europe’s broader industrial weakness misses the structural issue. Europe cannot reduce its dependence on Chinese manufacturing simply by declaring it a security problem. If European companies and consumers continue to buy Chinese machinery, electrical equipment, vehicles, components and green technology because they are competitive, political restrictions will raise costs rather than eliminate the underlying demand. Like the US the EU is not positioned to compete in the underlying inputs, screws, bolts, plastics, glass, steel, chemicals etc…

The timing of the European Parliament’s hardline resolution ahead of Trade Commissioner Maroš Šefčovič’s visit to Beijing is transparently counterproductive. Demands for immediate reciprocity, stronger anti-dumping measures and an end to what European lawmakers characterize as industrial distortion may play to the domestic political constituencies, but they will do nothing for productive negotiations.

The question is not whether Europe should be legitimately concerned about its economy, it should. But threats and protectionism won’t address them.

Politicizing trade imbalances as national security issues creates a dangerous feedback loop. Trade restrictions disrupt supply chains, increase costs for European businesses, raise prices for consumers and result in another cycle of tit-for-tat retaliation.

Using national security as a justification for restricting commercial activity, crosses the boundary between legitimate security policy and industrial protectionism.

Given China has the economic tools to respond, including targeted anti-dumping investigations, tighter controls on selected critical raw materials and dual-use components, and/or greater scrutiny of European business in China. None of these outcomes would benefit either side. They would simply deepen the fragmentation of global trade.

Tariffs, quotas, export controls and investment restrictions do not make supply chains disappear. They redirect them, increasing costs on end-users and consumers while encouraging companies to build redundant systems at considerable expense.

That is particularly damaging at a time when the global economy needs greater cooperation on energy, climate change, digital technology, critical minerals and industrial development. Fragmentation makes all of these problems more expensive to solve.

Europe does have alternatives. It can expand its exports to China, improve market access for competitive European industries, negotiate specific areas of concern through established institutional mechanisms and pursue cooperation in green technology and digital industries where interests overlap. Structural trade imbalances are better addressed by increasing competitive European exports than by artificially suppressing competitive Chinese imports.

China in turn must recognize that stable commercial relations are more valuable than escalating cycles of retaliation.

Šefčovič’s visit is therefore a test of whether Europe can adjust its economic policy to the reality of a world in which Asia is increasingly the centre of production and growth.