Strengthening the EU's Defence Against Chinese Economic Coercion

Introduction

Over the past decade, trade and economic interdependence have become increasingly important tools in geopolitical competition. China has emerged as a factor in this trend. Beijing has developed its own economic statecraft characterised by ambiguity, diplomatic deniability, and the strategic use of its market power (Papageorgiou, 2025). For the EU, the Chinese approach represents a growing challenge. Beijing’s confrontational stance and market interventionism test the EU’s economic resilience and the principles of the rules-based international order. Episodes such as the Sino-Lithuanian dispute and China’s restrictions on rare-earth exports highlight Brussels’ need to strengthen its capacity to respond to economic pressure.

The report focuses specifically on the EU Anti-Coercion Instrument (ACI), where I consider its current limitations and propose institutional reforms. The Commission, in particular the Directorate-General of Trade (DG TRADE), is the target of the report. Firstly, I assess in detail the two episodes to understand how China exercise coercion and how the EU has intervened. Secondly, I define three scenarios – most likely, worst and best case. Thirdly, I introduce three policy proposals to improve the EU response: upgrading the ACI’s decision-making mechanism, creating an EU Resilience Office and establishing an EU Resilience Fund. Finally, the report concludes by assessing the policy priorities to improve economic resilience in the EU.

Framing the threat

In recent years, EU-China relations have grown increasingly strained. Brussels has framed China’s assertive trade policies as part of a broader systemic rivalry (European Commission, 2019). Yet, the economic interests of member states drive the EU’s approach to China. Except for the 2019 EU-China Strategic Outlook, there is no shared stance, as trade imbalances and the current geopolitical environment make engagement with China difficult. Beijing leverages fragmentation to challenge cohesion on the international stage and impose its revisionist agenda (Bergsen, 2021).

Two episodes confirm this trend: the 2021 Sino-Lithuanian affair and the 2025 rare earths restrictions. The former refers to Chinese retaliation against Lithuania after the Baltic state opened a Taiwanese diplomatic office. Lithuanian exports to China dropped by nearly 90%, and some European firms experienced secondary sanctions from Beijing because of their links with Vilnius (Szczepański, 2022). Brussels acted quickly and framed the issue as a matter of EU-China relations. The EU initiated a WTO dispute, guaranteed economic restorations for Lithuanian firms and accelerated the creation of the Anti-Coercion Instrument, adopted in 2023 (Karčiauskas, 2023).

However, slowness in launching the legal action — later suspended twice in 2024 and 2025 — and weak political consensus affected Brussels’ response to Chinese coercion (Stankevičius, 2025).

The latter refers to the two waves of rare earth restrictions as one of the responses to the US President Donald Trump’s administration’s “Liberation Day” tariffs. Despite being currently suspended, the exposure and integration into complex global value chains make the EU vulnerable to any restrictions on rare earths (Szczepański, 2025). Institutional reactions have been mostly reactive and focused on international coordination and diversification, and using ACI has been only advocated (Gehrke & Oertel, 2025). Nevertheless, the lesson should be different, namely the need to build a coherent economic security doctrine which ensures a coordinated response (Gehrke & Schmelzer, 2026).

Possible scenarios

Based on the current situation, three scenarios can be outlined. The most likely scenario is EU continues to shape a pragmatic and realist China policy. As the EU is not a unitary actor, individual trade preferences, relationships and vulnerabilities will shape the process (Zeneli, 2025). Southern European countries tend to avoid confronting China in order to protect their economic interests, while Baltic and Nordic states favour a tougher stance. France and Germany occupy a middle position and act as mediators.

The worst case scenario sees China exploiting bilateral relations to elude a united EU response. Indeed, the current fragmentation is a severe challenge and allows Beijing to exploit its market power effectively as a weaponised competitive advantage (Maţoi & Caba-Maria, 2024). Then, the US confrontational stance in international trade worsens the picture by transforming the EU into a battleground where member states are encouraged to free ride if the Commission cannot coordinate effectively.

The best-case scenario assumes the EU achieves coherent economic statecraft. Since 2023, there has been substantial progress in economic security policy, including the ACI. Despite this, the core approach is still based on risk assessment rather than risk management. However, doing this transformative process requires deeper EU trade integration to develop common tools that can collectively strengthen European economic resilience against external pressures (García Bercero & Poitiers, 2025).

Recommendations

This section outlines three possible policy options to strengthen EU tools against China’s economic and political pressures. The DG TRADE can lead the initiative in coordination with the EU Commission and the Member States. The following policies show both short and long-term responses. 

4.1. Upgrade the ACI’s decision-making mechanism.

The Anti-Coercion Instrument (ACI) is the EU’s core response to the weaponisation of trade. Thirteen countermeasures shape the instrument, and the Commission propose them with approval by member states via qualified majority voting. Currently, it works as a “red light procedure”, where member states act only at the final stage (Hackenbroich & Zerka, 2022). So, the first proposal is to define a “green light procedure”. Under this mechanism, a qualified majority of member states in the Council could request the activation of the ACI investigation phase. The Commission retains its role in assessing and proposing the countermeasure.

On the one hand, this approach preserves institutional balance without changing voting rules. Indeed, this proposal is grounded on the positions of the Czech Republic and Sweden during their EU Council Presidencies (July 2022–July 2023). They stressed that member states should have great involvement, as the ACI decision affects national economies (Szép, 2024). The reform would therefore complement the current Commission-led procedure.

On the other hand, moral hazard is a risk as states can exploit EU solidarity for narrow national interests (Hackenbroich & Zerka, ibidem). The selective use of the tool undermines trust in the instrument and the Commission’s role as a guardian of the collective interest. To mitigate this risk, the Commission should maintain an initial screening mechanism that assesses the claim.

4.2. EU Resilience Office

While the ACI provides a mechanism to respond to economic coercion, it lacks a permanent structure for coordinating preparedness. The second proposal suggests founding an EU Resilience Office that combines experts from various fields to shape policies and run economic wargames (Hackenbroich, 2022).

On the one hand, this option serves as an emergency room that coordinates different institutional stakeholders. Such a tool would synergise with others, such as the EU Hybrid Toolbox, which works with multi-domain threats without proactive planning (Lasoen, 2022). The Resilience Office can fill the gap by observing the trends and preparing policies to tackle threats in advance.

On the other hand, institutional overlapping would represent a risk since multiple agencies and tasks could escape scrutiny, complicating administration and reducing legitimacy. Its establishment requires complex negotiations within the European Council, particularly with member states that prefer intergovernmental approaches. Careful design and clear mandates are essential to maintain trust and efficiency.

4.3. EU Resilience Fund

After 2021, proposals emerged to counter economic pressures with an “economic Article 5” inspired by NATO’s mutual defence principle (de Pulford, 2022). However, the current ACI architecture offers limited support to European firms affected by economic pressure. The third proposal is the creation of an EU Resilience Fund that provides critical economic support to affected firms.

On the one hand, the Fund shapes a structural economic security toolbox and boosts internal partnerships. Indeed, promoting economic activity within the EU and international partners is a key pillar of the European Economic Security Strategy (Rühlig & Teer, 2025). Article 175 of the Treaty of Functioning of the European Union provides the legal basis to promote positive intervention, as seen in the establishment of the Recovery Fund.

On the other hand, major challenges stem from the compensation mechanism. Unless the EU deepen its economic integration with tools such as Eurobonds, the Fund will not be self-sufficient (Hackenbroich, 2020). Moreover, designing insurance mechanisms is complex due to the different nature of coercion, which requires multiple tailored schemes.

Conclusion

The report has examined the challenge of countering Chinese economic coercion by framing the threat in two episodes and the EU’s current responses. In particular, the assertive attitude of the US in international trade as well as China’s staunch response, consolidate the salience of the issue and the risks of being an object of the dispute rather than an actor. The report has proposed three policies to strengthen the ACI.

Policymakers should prioritise the first and second recommendations because they are grounded in existing mechanisms that need improvement. The third policy is also necessary, but it requires a long-term effort to implement. Consolidating the ACI through procedural reform, institutional coordination and financial support allows the EU to shape a flexible and credible economic deterrence.

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