It’s been a busy few weeks for Chinese diplomacy, with Xi Jinping making a rare trip to North Korea while tensions between Beijing and Brussels continue to climb over trade, industrial policy, and the future of Europe’s manufacturing base.
On this week’s Trivium China Podcast, host Andrew Polk is joined by Trivium’s Head of Geopolitical Research Joe Mazur and Head of Clean Energy and EV Research Cosimo Ries to unpack these two critically important developments in China’s external relations.
First, Andrew and Joe break down Xi’s first trip to North Korea in nearly seven years and what it reveals about Beijing’s priorities amid shifting regional dynamics.
The two discuss:
Why Xi chose North Korea for his first foreign trip of 2026
China’s complicated relationship with its only formal treaty ally
How North Korea’s growing ties with Russia are reshaping Beijing’s calculations
What practical outcomes may emerge from the visit
Then, in the second half of the pod, Andrew, Joe, and Cosimo turn to Europe, where concerns about Chinese industrial competition are fueling calls for tougher trade and investment measures.
The conversation covers:
Whether “China Shock 2.0” is the right way to think about Europe’s challenges
Growing tensions between the EU and China over trade imbalances and industrial policy
Why clean energy, EVs, and advanced manufacturing sit at the center of the dispute
How Chinese companies are responding through localization and investment in Europe
Whether Europe and China are headed toward a full-blown trade war – or a prolonged period of managed friction
As always, the guys cover a lot of ground, so sit back and enjoy!
Transcript
Andrew Polk: Hi, everybody, and welcome to the latest Trivium China podcast, a proud member of the Sinica Podcast Network. I’m your host, Andrew Polk, and today I’m joined by two of my colleagues, a semi-regular on the podcast — First off, Joe Mazur, our Head of Geopolitical Research. Joe, how are you doing, man?
Joe Mazur: I’m doing great.
Andrew: Good to have you here. And then we have a new Trivium guest on the podcast, and that is our Head of Clean Energy and Renewable Energy Research, as well as our Head of EV Research, and that is Cosimo Ries. Cosimo, great to have you on, man. How are you doing?
Cosimo Ries: Yeah, doing great. Glad to be on the podcast.
Andrew: Yeah. So, with Cosimo and Joe today, we’re going to get into a little bit of geopolitics. So, we’re going to talk about the sort of big geopolitical news when it comes to China with Xi Jinping’s trip to North Korea over the past few days. So, we’ll talk about sort of what happened there and what the implications are, how to read it. And then we will also talk about sort of the budding, heightening tensions between the EU and China.
Tensions have been rising for a while, but over the past few weeks, they really seem to have taken another leg up. And the EU and China seem basically like they’re on the precipice of potentially yet another trade war or another front in the trade war for both economies. So, we’ll talk through that. Joe, of course, is our head of geopolitical research, so he’ll bring that aspect.
And then Cosimo not only is our head of renewable energy, clean energy research, and EVs, but also is our resident Italian citizen. So, we’ll bring a perspective, a European perspective, but also a lot of this clean energy stuff is key to sort of that whole trade dynamic and diplomacy dynamic. So, we’ll also bring his expertise there as well. Excited to get into it. But before we do, we’ve got to start with the customary vibe check. Joe Mazur, how’s your vibe today?
Joe: My vibe is good. Cosimo and I are usually based in Beijing, but we are in Shanghai this week. It’s kind of a sort of a company get-together/retreat, get to see some colleagues that we haven’t seen in a while. And so, I’m going to say my vibe is grateful for a change of scenery, not only in geographical terms, but also the fact that it’s been quiet on the U.S.-China front, which means I get to take a kind of a break from Trump watch.
And so, it’s quite invigorating to not just be going through the same routines, whether that’s your same old commute or the same old, you know, issues you’re looking for in U.S.-China relations.
Andrew: Yeah, waking up to see what bleats came out overnight or what Truth Social posts came out overnight. Yeah, everybody needs a break from Trump Watch, I think. You most, more than most.
Joe: Yeah, I’ll enjoy it while I’m laughing.
Andrew: Cosimo, how’s your vibe?
Cosimo: Yeah, I second what Joe said. And it’s great to be down here hanging out with colleagues, getting some good food in. Yeah, and the space I’m watching, it’s been very interesting and eventful, I think, especially in terms of Chinese auto-EM’s overseas expansion efforts. It’s really picking up, really blistering pace. So yeah, always interesting that things are happening.
Andrew: Yeah. Well, you definitely are in a pretty sexy space when it comes to your research agenda, your research portfolio. We’ll definitely get into that. I’m excited to have you on for the first time to talk about some of that stuff. I, similar to you guys, am also in Shanghai. I hesitate to say because I was not very good on this trip about letting folks outside of the company know that I was coming. So, I set up very few external meetings. So, I’ll probably have some listeners yell at me after hearing that I’ve been in town for the week and I didn’t reach out to many folks outside of Trivium.
But the whole point of the trip was to hang out with you guys, the Trivium folks on the ground. And it’s been fantastic as always. Always love getting here and seeing the team and catching up with everybody and hearing what’s going on and getting a little FaceTime and getting some excellent Chinese food, of course. So yeah, my vibe is thrilled to be here, which is just a pretty steady vibe for me. Always thrilled to be wherever I am, thrilled to be on the podcast.
But we, of course, will get into all the meat of this stuff, but we also have to do some quick housekeeping. Just a quick reminder to everybody, we’re not just a podcast here. Trivium China is also a strategic advisory program that helps businesses and investors navigate the China policy landscape. And that, of course, includes domestic policy in China and a range of issues, as well as policy towards China out of Western capitals like D.C., London, Brussels, and others, much of which we’re going to get into today.
So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a conversation about how we can support your business or your fund. That’s hq@triviumchina.com. Otherwise, if you’re interested in receiving more Trivium content in general, check out our website. Again, triviumchina.com, where we have a bunch of different subscription options, both free and paid. We’ve got policy intel updates around the markets for investors, policy intel updates on tech policy, on general business developments for business executives. So, you’ll definitely find the China policy intel option that you need on our website. So, check that out.
And finally, as always, please do tell your friends and colleagues about Trivium. It helps us to grow the listenership and to grow the business. And we really appreciate those word-of-mouth recommendations. So, with that, let’s get into it, fellas.
We’re going to start with North Korea. Joe, I’ll go straight to you as the expert. Just maybe fill us in, kind of, on the details for listeners who don’t know. When did Xi Jinping go to North Korea? How long was he there? What were the key outcomes? And then we’ll get into sort of what the impacts were and how to read it.
Joe: Yeah. So he was in North Korea from June 8th to June 9th. This is going to be his first visit in very nearly seven years. I think it’s almost exactly seven years since he was in the country last. And what’s also interesting is that this is Xi Jinping’s first foreign visit of 2026, believe it or not. We’re almost halfway through the year, and this is the first time that he’s left China. And this is usually kind of an indication from a protocol perspective that whatever country he goes to first in the new year, or really any time, Xi Jinping can be sort of roused to leave Beijing, that’s a pretty good indication that the country he’s going to is going to be a major priority for Chinese diplomacy in the coming year.
So yeah, I mean, I think probably before we talk about the specifics, it’s worth getting into a little bit of context about China-North Korea relations. And I think, you know, if I can use one word to sum up the relationship, it’s weird. You know, North Korea is China’s only treaty ally, right? So, I think that in the media, we hear a lot of stuff about, you know, oh, Russia is China’s ally, and Iran as China’s ally. That’s not technically true. I mean, sort of a metaphorical sense, they’re maybe aligned on things, but China only has one treaty ally, and that’s North Korea.
And in fact, that was kind of the anniversary that Xi’s trip was centered around. It was the alliance treaty that the two sides signed in 1961. So, commemorating the 65th anniversary of that. But it’s a weird relationship because on the one hand, they’re ideologically aligned in the sense They’re both communist powers, albeit they look kind of very different in practice in terms of how their economy and political system is structured. But there is sort of a historical pedigree there, and that was one of Xi Jinping’s kind of major talking points, and we’ll get into that a bit later.
And of course, China is by far North Korea’s biggest trade partner, provider of foreign aid, etc. It’s not even close. But equally, I think that China has oftentimes kind of looked askance at North Korea, given what a geopolitical wildcard it tends to be, right? I think sort of even dating back to the time of the Korean War, the concern was about instability, right? At that time, there was concern that sort of the Americans and the UN forces would push up right to China’s border.
And sort of, subsequently, the fear of North Korean collapse has been one concern. Something that might send millions of refugees potentially across China’s border. But also the fact that it has sort of been daring the U.S. and other countries to do something about its nuclear program. And sort of that instability on China’s border makes Beijing obviously very nervous. So, it’s kind of this weird relationship where on the one hand they’re technically very close and obliged to support one another. But in practice, I think that oftentimes North Korea is more of a liability than an asset in China.
Andrew: Yeah, well put. I think with the liability piece and also just the moniker of weird, I totally agree. I’m actually reminded, I forget exactly what the anniversary was, but there was some anniversary in China, some big political anniversary. I want to say it was 2017, 2018. And my friend and former colleague, Jude Blanchett, who we were working together at The Conference Board, I believe at the time, or maybe I just left. He’s currently at RAND. I’m sure listeners will be very familiar with Jude, who’s a political analyst on China.
He was on Bloomberg TV, and the host asked him, “What do you think about the fact that Kim Jong-un has sent this congratulatory letter to Xi Jinping on this political anniversary?” And Jude’s response just off the cuff was, well, it’s a little bit like getting a birthday card from your ex-wife. And I thought that kind of summed up pretty well kind of what this relationship is like. With the ex-wife, you’ve still got shared interests in some ways. You’ve got to have a-
Joe: Shared history. Yeah.
Andrew: Exactly. If you’ve got kids together, you have some shared responsibilities. You have obligations to each other. And sort of you have to make it work. So, I thought that was just another way to say weird, I think, is right. So anyway, go ahead.
Joe: And not to mention the phrase that China, I think North Korea also used to describe the relationship as being as close as lips and teeth, which is a very kind of evocative, if slightly weird way of putting it. Anyway, so while we’re in the territory of weird but apt metaphors, there’s another one for us.
Andrew: Yeah, Joe, you and I are as close as lips and teeth, right?
Joe: I will report this conversation to HR immediately.
Andrew: All right. Maybe it’s time to move on. So I do want to press on one point, which is, you said this is Xi Jinping’s first trip abroad in 2026, which is pretty striking. I mean, it’s early June. It’s pretty wild that he hasn’t left the country all year. Part of that’s because this year has really been marked by a steady stream of foreign leaders coming to Beijing. And that’s been characterized in various ways. You know, some people saying, well, with the U.S. being somewhat more erratic or less of a reliable ally, the Europeans are coming over.
Of course, some people characterize it as kowtowing. I think either way, whatever you want to characterize it, the optics are pretty good for Xi Jinping, right? That the steady stream of leaders, including Donald Trump, have been coming here. So, maybe just talk to us about, I don’t know, that aspect of how you put this North Korea trip in that context, even though that’s a wider context. Talk to us a little bit about that. And then also, you know, what does that say about how important this trip was for Xi Jinping?
Joe: Yeah. So, I mean, in this case, it’s kind of funny because the shoe’s a little bit on the other foot. And I think you’re right, kowtowing, whether you’re talking about foreign leaders going to Beijing to meet with Xi Jinping is probably too strong a characterization. But equally, though, I mean, Xi Jinping is, yeah, I’m not going to say like a supplicant because that’s certainly not true given the massive power imbalance. But there is sort of a dimension of Xi Jinping trying to sell a lie with his trip to North Korea.
And the context here is that, to go back a little bit further, following the collapse of the Soviet Union, and maybe even before, I’d have to look at the trade data there, but China’s been sort of, like I said a minute ago, far and away North Korea’s most important economic lifeline. During COVID, the border closed, and that did a lot of damage to the North Korean economy because it was sort of cut off from this important economic lifeline in China. But then with the outbreak of the war in Ukraine, that kind of presented an opportunity for Kim Jong-un.
And since then, he’s obviously dispatched something like 16,000 North Korean soldiers who have fought in Ukraine on behalf of Russia. In return, Russia has bought North Korean munitions, which has provided a boost to the economy. In addition to soldiers, North Korean laborers have been sent to Russia to earn money for the regime. Russia’s been offering oil in return, technology, weapons. And, obviously, for those North Korean soldiers fighting in Ukraine, that’s real combat experience that for as much as the Kim regime depends on the military, it’s a basically untested military.
So, some real-world combat experience. So, in this context, you sort of have Pyongyang tilting more towards Moscow in a way that it hasn’t before. And I think this is something that makes China uneasy, even despite the fact that China is also a close partner of Russia, because it does kind of, to a certain extent, put Kim Jong-un in the position where he can pick and choose a little bit and kind of erode somewhat Chinese influence in North Korea.
I think China’s really eager to maintain or reassert that influence because it’s important for all the reasons I just mentioned earlier, right? You know, best scenario, having leverage over North Korea is, in effect, leverage over the U.S. and South Korea, both of whom want to see the country denuclearized. But equally, it’s an important form of being able to conduct damage control, right? If Beijing gets concerned about how aggressive or how kind of unpredictable or erratic North Korea is getting, it wants to be able to have enough and pull the step in and say, “Hey, chill out.”
So, for both those reasons, it makes sense for China to sort of really jealously guard that influence. And I think that’s kind of been the theme of Xi Jinping’s message was he put a lot of emphasis on historical ties, but also on the future, on continued trade cooperation, governance, experience sharing, and the like. So yeah, really, I think, by Xi Jinping, to remind the North Koreans about the benefits of partnership with China.
Andrew: Great points. And I would say it strikes me also as a pretty sort of easy give for Xi Jinping. It’s not a very long trip. He has the stature of everyone coming to China this year and can kind of say, “Listen, I’m going to come to you as a,” I don’t know, an olive branch or whatever, you know, whatever you want to call it to the Kim regime and say, “We’re going to show you that respect and remind you, like, we’re willing to do that. We want to work with you.” It’s a pretty, I don’t know… It just strikes me as a bit of a savvy move because it’s really pretty low-hanging fruit or very little downside to doing that. Do you agree?
Joe: Yeah.
Andrew: One last piece on this, and then I think we’ll move on to the Europe stuff, which is just, how did potential denuclearization of North Korea feature in the discussion at all? Because that was a part of the conversation between Donald Trump and Xi Jinping. When Trump was in Beijing just a few weeks ago, like three and a half weeks ago, and it’s an issue the U.S. administration really wants to push with China. And my understanding is didn’t really feature it at all. And I think there’s differing accounts between the U.S. and China on this, or at least Trump has said, like, “Oh, yeah, Xi Jinping’s on board and doesn’t want a nuclear in North Korea. Wants North Korea to denuclearized.”
But the Chinese just haven’t said anything about it, I believe. Is that right? Am I getting that right?
Joe: Yeah, that’s correct. So, I mean, as far as I could tell from the readouts I saw from the meetings between Kim and Xi, there was no discussion of denuclearization, or at least there wasn’t one that was mentioned. And you’re right. I mean, there were sort of differing accounts from the Trump visit about how much that was discussed, or if it was discussed at all, right? The U.S. side said they had discussed it. The Chinese side didn’t say if they had one way or another. And I think that that’s sort of in recognition of the fact that there’s absolutely no incentive for the North Koreans to give up their nuclear weapons. Like, absolutely none.
I mean, you could point to a number of examples, the most immediate one being sort of Iran, how sort of the denuclearization process did not help, did not save Iran from U.S. intervention and war with the U.S. You could even point to Ukraine, which gave up its nuclear weapons sort post-fall of the USSR in exchange for security guarantees, which, guess what, were not honored.
So I mean, China’s position has historically been that it wants to see the denuclearization of the Korean Peninsula, which is kind of an interesting way of phrasing it because there’s only one nuclear power on the Korean Peninsula, that’s North Korea. But I think it also kind of implies that obviously China would not want to see South Korea get its own nuclear weapon. It wouldn’t want to see the US stationing nuclear weapons in South Korea. So. it’s a slightly more broad thing. And in the past, China’s been sort of an active participant in trying to get North Korea to denuclearize.
But I think now at this point, there’s a recognition that like, no, it’s never going to happen. I mean, the North Korea’s nuclear status is sort of its ultimate hedge or trump card against sort of US or Western aggression as they would see it. And so, I think probably officially denuclearization is still China’s preference and policy. But if it was discussed, and it may have been, it certainly, I think, Xi Jinping and his team went in understanding that there’s no way they’re going to get Pyongyang to denuclearize.
Andrew: Yeah, so why even push on that issue? I think that totally makes sense. But I think, yeah, it’s pretty well understood and mostly agreed at this point that, yeah, it probably is in North Korea’s interest staying onto those nukes because it just gives it a level of security and outsized importance, frankly, that it wouldn’t have otherwise. We should pivot to the Europe piece of this, but anything else from this trip or just broader China and North Korea that we should be thinking about that you want to highlight before we move on?
Joe: No, not really. I mean, I think what I’ll be watching is if we get a sense of what kind of material support, if any, China has offered to North Korea, right? I got to imagine that in addition to all the rhetoric and just kind of the pageantry of Xi Jinping having gone there, there are probably also some meaty deals that were done, but we’re probably not going to get a clear sense of that until we, for example, look at trade data or get some kind of update on that. So yeah, just seeing what this visit changes in practical terms, if anything.
Andrew: Yeah. Yeah. Okay. Great. Well, thanks for that rundown, Joe. Super helpful. Let’s now turn to Europe. As I mentioned at the top, there’s sort of a brewing Europe-China trade war seemingly on the horizon. Quite a bit has happened in the past couple of weeks with some key European meetings, specifically about China, and then the EU trade commissioner speaking with the Chinese side and also trying to sort of ramp up negotiations, it sounds like. Can you start to give us the lay of and then we’ll bring in Cosimo as well to tell us, you know, things we should be on the lookout for?
Joe: Yeah, I’ll just give some kind of initial context, and I’ll let Cosimo get into the nitty-gritty of it. But basically, this has been kind of something that’s been in train for a while. Europe has been increasingly concerned about its trade imbalance with China and the hollowing out of key industries that support many, many jobs within the EU.
And so, I mean, there’s a number of factors that are converging here. So, one is that Chinese products have increasingly moved up the value chain and compete directly with European companies in a way that they did not before. So, you know, the example par excellence, which I’ll leave it to Cosimo to kind of talk more in depth about, is cars and EVs, right? It’s no longer a case of Chinese cars being kind of an inferior knockoff and a novelty. In a lot of cases, they’re as good or better than their European counterparts at a more affordable price.
So, that’s one. And you see that also in the cleantech industry. But the other is the fact that as energy prices have risen in Europe as a result of the war in Ukraine, and more recently kind of accelerating with the disruptions in the Strait of Hormuz, that’s really crushed the margins of a lot of key European industries. And I think chemicals is a good example here, where this is a very energy-intensive industry, which is very sensitive to the price of energy.
And so what’s interesting about that is while Europe does not import a lot of chemicals in their initial state from China, they do import a lot of the midstream and downstream products, which effectively takes market away from these key European players. So, all of this has kind of, I think, in the first half of this year, led to panic. And I think we’re seeing an inflection point in Europe trying to put together a pretty robust series of measures to counter that on a timeline that’ll be fast enough to save these industries.
Because, I mean, the European Union does tend to be somewhat hamstrung in the sense that it’s process bound and requires a lot of consensus from constituent states, which have their own kind of interests that either overlap or compete or both. And so, for that reason, it is very hard to kind of get an agreement on things in sort of a timely manner. So, some of these measures are aimed at allowing the EU to react more quickly and more decisively than in the past.
Andrew: Thanks for laying out that kind of context there, Joe. And we’ll get Cosimo in here in just a second. But can you also just give us some detail, I mean, there were some recent meetings by the European Commission specifically on this issue, can you just walk us through that process in terms of how the specific meetings that European leaders are having in order to move this issue forward from their side?
Joe: Yeah, so there was a debate at the European Commission on May 29 about China. And the readout that came out from that was we didn’t really get much meat from that, but said the current state of trade investment relationship is not sustainable. And sort of the very next day, China’s Ministry of Commerce fired back and said it would resolutely take countermeasures to safeguard its own interests.
And then on the same day, Yuyuantantian, which is sort of, for folks who don’t know, which is sort of a state-affiliated blog, which kind of is in this position where it can elaborate on the official line in a way that sort of presents itself as journalistic, but is a little bit like kind of an unofficial mouthpiece, which can warn certain countries or regions about what they can expect.
Insider Sources is saying that China may initiate anti-discrimination investigations and supply chain security reviews if Brussels doesn’t change course. So, I mean, that all sounds pretty bad. There’s going to be an EU leaders meeting on, I believe, June 18th and 19th, where I think we may get some more color on what’s kind of coming down the pike. To be clear, there’s been reports that one of the major pieces of legislation that the European Union is looking at would be effectively requiring companies to diversify sources of critical inputs and relying on something like no more than 30% or 40% from any one country, if I’m remembering that correctly.
But basically, that’s the kind of thing that’s under discussion. So yeah, I mean, I think, again, we’re still at the very beginning of this process. And even this thing, which is meant to be moving quickly to address a crisis in the European context, still moves pretty slowly. So, you know, I think it’s going to be a while before we see this even fully agreed upon, let alone fully implemented.
Andrew: Yeah, no, that whole diversification thing of critical inputs is one of those things that I’m watching because it sort of like makes sense on its face. Like you can see how somebody came up with that as a policy issue. But from a company’s perspective, it is like something that no company is going to want to do. One. And secondly, it may be impossible for a lot of these companies to do. And even if they can do it, it’s going to cost them a ton of money. So, I wonder if policymakers are thinking that through fully. But we’ll see.
I mean, that hasn’t become policy. It’s just something that’s been floated. But anyway, let’s bring in Cosimo. Cosimo, I’ve been speaking with a ton of European diplomats and companies over the past few months throughout 2026. And I mean, there is legitimate angst around China Shock 2.0 that is hitting Europe in a way that I hadn’t seen in previous years. Real concern about the industrial juggernaut. A lot of that is around renewable energy and EVs. But how do you see the debate playing out among sort of the countries in Europe that really matter in terms of shaping the policy response?
Cosimo: Yeah, thank you for the question, Andrew. So, yeah, I guess I do have a bit of an issue of the characterization of China shock 2.0. Because I think it’s an oversimplification of a lot of issues that are happening. For example, when China shock 1.0 happened, it was effectively a more cheaper, more competitive Chinese exports that crushed a series of legacy industries. And I think a lot of European industries certainly find themselves in that position, right? from mechanical steel or even autos and so on.
But I think that’s definitely not entirely the case, right? If you look at, for example, batteries, energy storage, and EV batteries, a huge export industry. Europe effectively does not have any local alternatives that it can even protect to begin with. I think you can say, for example, in the solar space, China shock 2.0 has already ended. I think it ended in the early 2020s when Chinese, yeah, were driven by the Ukraine energy crisis, started importing solar panels in huge quantities, and that basically Chinese exports, completely demolished Europe’s manufacturing base.
So I think that’s in many ways already over in their areas. Like, say, you know, electrical transformers and a host of grid equipment’s and all kinds of equipment that are crucial to Europe’s wind energy supply chains. And these are areas where Europe has, you know, a lot of domestic supply shortages, right? It’s now more and more tapping Chinese suppliers to try and meet, right? So I think calling this China shock is yet not entirely fair, right?
When it’s often cases that it’s European companies that are tapping Chinese suppliers to meet real needs and urgent needs that they’re trying to address. So I think that’s kind of how I view it to begin with. And yeah, in terms of, I think, the internal debates, I think, as with a lot of European policymaking, there is tons of internal disagreement. I think you have the France-led camp that’s more pro-industrial policy, more pro-European strategic autonomy, and so on.
And then you have obviously the northern, more kind of free trade liberal economies like Germany, the Netherlands, Nordics, and so on, who I think until quite recently viewed industrial policy as a dirty word. I think they’re not quite in favor of this type of extremely aggressive Europe-wide investor policy that rocks the boat and also the fundamental economic interests of these countries, also drive this diverging approach. Obviously, the German industry is far more exposed to the China market than almost any other country.
So, they’re also beyond the receiving end of a lot of retaliation. And obviously, in many of the Southern European countries that advocate for more EU-wide industrial policy, they’re in a lot of debt. France, Italy, they all have debt-to-GDP ratios of more than 100%. So, if the EU takes common debt to fund industrial policy, in the end it would be the more frugal Northerners who have low debt who have to pay for it. And also, it’s obviously very convenient getting the economic benefits and not paying for it yourself.
And also, I think it was important to mention that there were also a lot of disagreements between industries. The EU recently proposed this new steel industry safeguard measures, which proposes basically cutting down the quota of import-free steel imports. And so, obviously, this is protecting your steel by giving them more protection against more competitive inputs.
But obviously, this also then raises costs for a host of downstream industries that have to pay for more expensive European steel. Yeah, it’s important to see these internal differences about policies like the government plays. They inevitably hurt some and benefit others.
Andrew: That’s a great point. And I actually want to sort of pause on that, the point you made about saying that China’s shock 2.0 is not the right characterization. I mean, that’s a pretty hot take. I like it. The reason I say it’s a hot take is I feel like every European company or policymaker I talk to is talking about China’s shock 2.0. So, I guess two questions. Do you think they have the analysis wrong on saying China’s shock 2.0, or do you think they’re using that term for political reasons? Because they truly are worried about the de-industrialization of the European industrial base.
So, generally speaking, if you can generalize, would you say they’re getting it wrong analytically or that it’s maybe more a political argument? And then secondly, how would you characterize the competition? If it’s not China Shock 2.0, what’s a better sort of general framework to think about it in your mind?
Cosimo: Yeah. So, I mean, it’s definitely, I’m not saying it’s fully wrong. I tried to get at that at the beginning, right? I think there are definitely a host of industries that are very much exposed to the China shock 2.0 characterization. I think it’s entirely fair, but I’m saying it’s not entirely fair to characterize everything across the board as falling under this. And in many ways, I think it’s somewhat self-serving because when Europe had its Ukraine-Russia energy shock at the beginning, what did they do? They turned to Chinese solar manufacturers. They imported record quantities now year after year.
And that’s been absolutely crucial in helping Europe navigate a lot of the energy crisis that has come from the Russian gas being cut off and everything. So, when it was time to import, that was all well and good.
But now suddenly, when they face a huge record trade surplus, then it’s no longer good. We don’t like this. And you’re seeing the episode dynamic take place. It’s needing Chinese industrial equipment to tackle really urgent needs, often, especially in the energy space. And then, yeah, complaining about the trade circles, I think it’s, yeah, that’s how I see it, or at least for some cases. And I think that’s definitely politically convenient, in my opinion.
Andrew: Do you have thoughts on how they should be thinking about it? Like, what a better framework is? If you don’t, that’s fine. I’m just curious.
Cosimo: Yeah, I think it’s just, you know, there are also so many areas on the clean energy supply chain where everyone knows that Europe desperately needs to ramp up its domestic capacity and its [[inaudible 00:31:52] firms that could do it, but they’re just not doing it. They’re forcing firms that are further downstream to turn more and more to Chinese alternatives. I think that’s, yeah, it’s a bit of a patchwork issue. It’s like industrial policy doing something, but not others.
Andrew: Yeah. Well, we need to work on this. We should come up with a that says it’s not China Shock 2.0 and kind of proffer an alternative framework. I’ll pick that up with you because I feel like that would be added to the discussion. I really like that perspective that you have and we should continue to pursue that in this pod and in our writing. I want to bring Joe back in quickly. You touched on some of the things, Joe, that you think. So, whether or not China Shock 2.0 is the right framework, it’s definitely the ones that many in Brussels are using.
And you touched a little bit on kind of the increasingly aggressive tools that the Europeans are looking at using to fight back. But can you touch on some others? What else are you hearing? What’s kind of the mood that you’re seeing? I mean, in my mind, this is ramping up. Do I have that right? And if I’m right, like what should we be on the lookout for in terms of concrete actions from the EU side?
Joe: Yeah, I mean, maybe I’ll slightly reframe the question to talk about the EU-China dynamic more broadly. As I said at kind of the beginning, and as Cosimo alluded to, this is not really a new phenomenon. It’s maybe gotten more acute in the past several months. But I mean, what’s been really interesting is that as the EU has been trying to, I guess, from their perspective, save their industry from what they view oftentimes as unfair Chinese competition, China has been exercised, I guess, what I would call a significant amount of strategic patience.
So, when you look back to the tariffs that the European Commission imposed on EVs, electric vehicles, back in, I think it was October or November 2024, the Chinese response was pretty muted. They did launch a number of anti-dumping and anti-subsidy probes into things like European dairy, pork, brandy. But all of these were sort of pulled punches in the end. I think they were sort of there as leverage. And so, in the end, none of them really came down with the full force they could have done. And the damage to EU industries and farmers in particular was pretty toned down, pretty mild.
So I think the question now is, at what point is enough going to be too much? And I think that China’s been pursuing that strategy with hopes of kind of being able to dialogue it out with the EU and just trying to be able to get to a mutually acceptable agreement. The problem is the two sides are kind of poles apart. The trade deficit that the EU runs with China keeps growing. Chinese industries are incentivized to continue exporting for reasons related to the domestic market, right? That the consumption is not there to the extent that these companies need.
So it’s kind of doubtful how much room there is for the two sides getting to yes. So, you know, I think that ultimately China doesn’t want to fight a trade war with the EU. But at some point, I think it is going to adopt this sort of tit-for-tat approach, whereas anything that the EU does, which is viewed as harming Chinese interests, will be met with comparable response from the Chinese side that attacks EU interests. And equally, I think there’s going to be a tit-for-tat approach to de-escalation. So there are going to be off-ramps. And so one thing I’m looking for here is Šefčovič, the EU trade chief, he met with Li Chenggang, who is China’s top trade negotiator.
Coming out of that meeting, there seemed to be a renewed push for dialogue. And I think that that’s probably an avenue that the EU should be exploring because I’m not particularly optimistic about the EU’s ability to successfully wage a trade war with China. I don’t think it’s really got the leverage or the chops to do that and certainly can’t mobilize political will as quickly as China can. Maybe Cosimo can chime in with his perspective if that’s a fair characterization or not.
But, you know, I guess what I’m going to be looking for is, first of all, what does the EU do on what timeline and how hard does China hit back? Because I think that will give us a better sense of when we’ve left the era of strategic patience and entered the era of honest-to-goodness trade war.
Andrew: I’ll just posit something before I bring Cosimo back in, but I do kind of wonder if both sides are sort of like, well, we’ve had trade tensions, well, in particularly the European side, but we haven’t wanted to fight a trade war on two fronts. We’ve been fighting with the U.S. since, you know, Liberation Day, you know, April 2025. But those tensions seem to have dialed down as, you know, the U.S. the IEEPA tariffs got shot down by the Supreme Court. And the U.S. generally has been focused elsewhere geopolitically with Iran and Venezuela and things like that.
And just generally like a little bit less focused on tariffs. You know, China has obviously struck some sort of deal with the U.S. Or at least they’ve struck a deal. We don’t know how long it’s going to last. But my point being, both of them seem to have gotten some sort of stability on trade with the U.S. And so maybe now they’re ready to take the gloves off with each other. What do you think about that idea, Joe? Am I wrong there?
Joe: Šefčovič said basically as much in his comments after he met with Li Chenggang and said basically, oh, well, we realized that for the U.S. and China to hash out their differences, it took six or seven meetings. And so I think that, yeah, the EU is in a very, very tough position where, you know, whether or not you want to call it China Shock 2.0 or whatever it is, it is facing, I think, in a lot of ways, kind of an existential crisis for its industry. There’s no question that they are being hollowed out.
And now, yeah, I think the EU would be in a significantly stronger position if it wasn’t having to also face down tariffs and trade war threats from a country that until recently it thought it could rely on. So, it’s a very tough position for the EU to be in. And I do sort of feel that exhausting all options for dialogue is probably the better option for the EU at this stage.
Andrew: Cosimo, what do you think about all this? We all hazard to make predictions, but do you think that EU is going to lean into dialogue, or is your read that they are going to try to use some of the actual legal and regulatory tools at their disposal? And sort of what do you think of the timing of all of it? Do you think sort of officials think, all right, we’re stable with the U.S., we can be a little bit more aggressive towards China? Just kind of walk us through your thinking.
Cosimo: Yeah, to me, I think like in the past couple of years, I think it’s going to continue to be a combination of both. Unfortunately, yeah, some of it will, you know, just simply the time it takes to put policy frameworks in place is the issue. I think with the solar industry, you know, the EU’s been talking about protecting its domestic manufacturing sector, you know, for many years now. But in the meantime, you know, in the time that it took them to come up with concrete policy mechanism like they’re proposing now with the Industrial Accelerator Act, Europe’s solar manufacturing industry had all been wiped out by Chinese competitors.
In the meantime, the timing is a big issue. And I think the EU, for a lot of things, it moves very slowly, right? So, a lot of the, yeah, industrial policy measures talked about in the Industrial Accelerator Act, we’re waiting until 2029 before they’re being put in place, right? So, a lot can happen in that time. So, I think, yeah, what Joe said, the timing is very, very important, right? And yeah, then again, I think in terms of how aggressive they’re going to try to be, I think that’s a big consideration as well. Europe’s economy has been quite stagnant now for some years.
So, to try and fund the big, expensive industrial policy program when your economy is not really doing well, when you have a lot of debt, and you also have a big trade partner that’s going to try and hurt you back, I think, yeah, we’ll see how much appetite there is for all this.
Andrew: Yeah, when push comes to shove, yeah, the tune might change. That’s a good point. Joe touched a little bit on kind of how China’s approached all this. What do you think China’s reaction will be if Europe starts turning up the heat? Will they go tit for tat or will they kind of pull a rare earth’s trump card and kind of not go nuclear, but like really up the ante and say, “Do not mess with us on this. We have leverage, We have choke points”? How do you think the Chinese are thinking of this from your perspective?
Cosimo: Yeah, I mean, I feel like that’s certainly always an option, right? But then, yeah, I think in some ways, like the EV example is a good one, right? EVs and autos more broadly, where, you know, there was a lot of anger about the tariffs and so on. But then in the meantime, yeah, nothing happened, right? Like Chinese auto exports to Europe have grown exponentially, right? in April, they took a 15% market share on the continent. And that was like 2% in 2024. And, you know, all the mid-big players are seeing exports to Europe growing at triple digits.
And so that’s, I think, the reality, right? Yeah, we’ll see how effective a lot of these policies are, right? Because if they’re nominally very, very tough, but then doesn’t actually do enough to change the reality, I think maybe Beijing would be okay with it. Or yeah, same with other measures like sea ban or the steel measures. Yeah, I think we just have to see.
Andrew: Yeah, that’s a great point. Yeah. It’s one thing if the Europeans kind of up the rhetoric and then take some policy actions that actually don’t have really all that strong of an impact. I do think that the Chinese have shown, at least with the U.S., and I think with other countries, in times of tension like this around trade, they’re willing to sort of sit back and assess kind of the practical impacts to shape a response.
So, a lot of times, yes, they do have to react sort of for tat on a not rhetorical basis, but sort of a symbolic basis. But really, at the end of the day, if the other side’s taking action that they don’t deem to be actually that inimical to Chinese interests, then why fight back that hard, right? If the actual regulations aren’t going to reduce the ability of Chinese companies to sell into Europe, as with the EVs, which is a really, really good example. One last one for you or getting towards the last kind of set of questions here is, I mean, you follow Chinese companies closely on all of this, again, primarily renewable energy, cleaning energy and EB space.
I mean, how are Chinese companies reacting? I mean, the obvious one answer is they’re investing a lot more in Europe. Is that a solution to this problem from their standpoint and from the European standpoint, and what other kind of general trends are you seeing in terms of Chinese EV investment, what are these companies kind of trying to accomplish? Those are two kind of big questions, but what are the companies involved, the Chinese companies doing, and how do you think that will impact the back and forth?
Cosimo: Yeah, I think absolutely in terms of the auto industry, I think that’s just an established global norm. If you want to be a truly well-established player in the market, you have to localize in the long term. And I think that’s exactly what we’ve seen where the Chinese OEMs, they’re relying a lot on exports in the short term. But the amount of projects that have been announced and are underway now in Europe has been pretty mind-boggling. Just in the past two, three weeks, we’ve seen, I think, maybe five or six new projects.
So, yeah, I think they’re very well aware of that fact that they want to be in Europe long term. They’ve got a manufacturer there. You’ve seen something like BYD that’s announced that it’s going to be manufacturing all the cars it sells in Europe. And, yeah, so I think, broadly speaking, they also understand the political implications of flooding a market with exports, destroying its industry is not creating any local jobs. I think they’re obviously looking to accommodate but then the reality then is how does that take place?
And I think if you look at the latest price undertaking a framework that the EU proposed some months back, and yeah, it’s a pretty onerous list of requirements in terms of the EU domestic content requirements, the investments. So, they obviously want most of the economic benefits coming from Europe to be generated in Europe. And I think the Chinese OEMs will need to make their calculations and see how much it makes sense, if it makes sense.
I think that’s something we’ve got to see how it’s going to shape out. But unfortunately, I think Europe’s also making it relatively difficult now for a lot of projects. We see that in the wind industry or countries like the UK, so not in the EU anymore, and Germany, and so on, are taking pretty strong steps on security reasons to try and shut out a lot of Chinese turbine manufacturers from even entering the market. So, that’s a situation where the Chinese industries are trying to come in and invest and create jobs and are not allowed to. Yeah, I’m not entirely sure how that could play out. Yeah, the industrial policy requirements are just too onerous for it to make sense anymore. And yeah, I think we’ve not seen that answer yet.
Andrew: Good point on the investment side. I mean, that’s obviously happening again. Maybe not obviously. That is happening in the U.S., making it much more difficult for China, Chinese companies to invest in the U.S., a lot of pushback even against Chinese investment in a range of industries, definitely in the vehicle industry, which is unfortunate because most U.S. auto companies know that they need certain types of Chinese technology if they want to compete in the market going forward.
And so, I personally don’t love that trend, that policy. I think we should do the exact opposite and encourage more Chinese companies to create value, invest, and make things in the United States. And so it’s interesting that that’s happening across Europe as well. Interesting and unsurprising, right? Especially if what you’re worried about is deindustrialization. And you’ve got companies who are saying, “Hey, we’ll come manufacture there. We’ll create jobs. We’ll create tax revenues, all that stuff to push them out on security grounds.” I mean, obviously, legitimate security grounds are important. But I think oftentimes the national security argument is made a little bit too widely. Just last one for both of you guys.
Cosimo, I’ll start with you and then we’ll wrap up with Joe. It’s just, I mean, where do you see things going trade-wise, tension-wise between Europe and China? Can we dial things back at some point or just in the near term, or are we in for kind of more of a rocky, higher tensions, more of a rocky relationship? What do you think?
Cosimo: Yeah, I see it going on for longer, especially because there just seems to be more and more new kinds of exports that Chinese companies find a way to ship out and that there actually is a genuine need in Europe as well. So, if that’s the situation, then I think the localization piece is something I’m watching because if there is a more systematic effort where Chinese companies to localize and then China and Europe are industrially tied together in that way through supply chains, I think that could be, in the longer term, a way to de-escalate when your economic interests are shared that way. But yeah, I think until that happens, I don’t think it’s going to get better anytime soon.
Andrew: Yeah. Well, a good analysis, unfortunately somewhat pessimistic, although I’m glad you brought up that point again, sort of just the absolute flood of Chinese exports into Europe, which is going to be a challenge, is a challenge. I mean, maybe that also, not maybe, almost certainly that also informs the timing here, which both sides have sort of gotten some sort of trade stability with the U.S., but part of that trade stability has been much fewer Chinese exports into the U.S., and a lot of those are being rerouted to Europe.
So that’s only further made the flood even more aggressive of Chinese goods into Europe because they’re not going into the U.S. That just kind speaks to the whole idea of really, if this is an issue countries want to address, this being the onslaught of Chinese exports is going, countries are going to have to do it basically in global concert, not just allied countries, not just a few countries. Everybody’s going to have to work together. Otherwise, those exports are just going to keep coming. Joe, I’ll throw to you for the last word here. Where do you see things going in the next few months? Are you with Cosimo, kind of pessimistic when things are going to get worse before they get better?
Joe: Yeah, I mean, certainly I don’t see an easy resolution to this issue, kind of as you just alluded to, right? China doesn’t really have the incentive to do much about it. And I don’t think the EU has the means to make them do something about it. Kind of what I expect to see is maybe something a little bit less dramatic than we saw with the U.S.-China trade war. Maybe something kind of like a two-track approach where, on the one hand, you have the EU introducing new measures that China views as unfriendly. China will respond with a probe or countermeasures of its own. Meanwhile, you’ve got dialogue happening in the background.
And I think also it’s worth remembering this is kind of a very multifaceted issue in the context of Europe, both sectorally, because there are so many different sectors kind of at play, which are subject to this challenge from China, but also because you’ve got not just the EU at a block level that you’re dealing with, but individual EU countries. So I expect we’ll see a lot of back and forth and sort of, okay, there’s been an escalation and that was a de-escalation and this sector is heating up and this sector is cooling down. So, it’s not going to be quite the same as last year with the US and China where you just had this giant blanket series of tariffs. And that was kind of just the one discrete issue, more or less, that was being discussed.
I mean, it’s a bit of a oversimplification, but I think you know what I mean. So I think it’s going to be an uneven process. I think maybe there is some scope for Europe to kind of implement some measures that gradually diversify away from China and gradually kind of reduce dependence on China. And yeah, maybe that’s the sort of thing, if it happens on a gradual enough timeline and China doesn’t feel that its companies are being singled out, then maybe there’s scope for China being able to accept that, given, especially as we’ve mentioned a number of times now, the long timelines that these sort of things happen on. So, I don’t think it’s going to be sort of a dramatic escalation and de-escalation. I think it’ll be a little more piecemeal than that.
Andrew: Yeah. Well, I like that slightly more optimistic take. It’s still not usually optimistic, but slightly more optimistic. So, we’ll take it. I mean, as I always say, we’re not really here to predict far into the future because there are so many unknown variables. But we are here to help companies kind of think through the scenarios and how to react to whatever does play out. And this is definitely one where we will be monitoring closely and helping our clients sort of think through the right way to play this, whether they’re American, European, or otherwise, companies doing business in China or with China. So, guys, I really appreciate the time today. This was an excellent discussion. Cosimo, thanks so much for coming on the pod for your first time and sharing your expertise with us, man. I appreciate it.
Cosimo: Yeah, happy to be here. Thanks for the invite.
Andrew: Of course, we’ll get you back on soon. And Joe, thank you as well, man, as always. Appreciate it.
Joe: Yeah, my pleasure.
Andrew: And thanks, everybody, for listening. We’ll see you next time. Bye, everybody.
