The EU investigation into Chinese subsidies: How the EU is defending itself against China's wave of cheap products

Hidden subsidies uncovered

A trade conflict that extends far beyond the automotive industry is shaping relations between the European Union and China. At its core is the accusation that China supports its companies with massive state subsidies, thereby massively distorting competition in Europe. This was particularly evident in electric vehicles: Chinese models could be offered at up to 20 percent lower prices than European competitors, leading to a rapid increase in imports.

Following a comprehensive investigation, the EU Commission has now responded with tough measures. It imposed high countervailing tariffs not only on electric cars, but also on solar modules, wind turbines, and medical devices. The reaction from Beijing was not long in coming: China launched its own investigations against European goods such as brandy and pork and threatened further retaliatory measures. This has sparked a tariff dispute with far-reaching consequences for both consumers and the European economy. While domestic companies hope for fairer market conditions, concerns are growing about rising prices and an escalation that could endanger global supply chains. The dispute marks a turning point in trade policy and sets the course for the future economic order between the two economic giants.

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Why did the EU launch an investigation into Chinese subsidies?

The European Commission has observed that numerous Chinese companies benefit from significant state subsidies when importing products into the EU. Significant distortions of competition have been identified, particularly in the electric vehicle sector. These subsidies allow Chinese manufacturers to offer their vehicles at prices up to 20 percent lower than their EU competitors. This has led to a massive increase in Chinese imports and severe pressure on European manufacturers.

How did the investigation proceed in detail?

The Commission initiated a formal anti-subsidy investigation in 2024, examining pricing, support structures, and public procurement practices. Numerous companies and industry associations were consulted to determine the impact on the EU market. At the same time, China also conducted retaliatory measures and its own anti-dumping proceedings against European products such as brandy, pork, and dairy products.

The Commission collected evidence of the existence and amount of the subsidies, conducted specific information events, and presented findings to small and medium-sized enterprises. As part of the investigation, companies and associations were required to disclose numerous documents and price lists to demonstrate market distortions.

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What were the main results and findings of the study?

The investigation confirmed that Chinese electric vehicles, solar modules, wind turbines, medical devices, and other high-tech goods are offered at significantly lower prices in Europe due to direct and indirect subsidies. The fact that China largely closes its procurement market to foreign companies also contributes to massive distortions of competition. The EU found that "highly unbalanced" trade relations exist, which is also reflected in a trade deficit of more than €300 billion.

The full EU Commission report of July 28, 2025, "COM(2025) 428 final," is available as an official PDF and excerpts have been made available. It is the 43rd annual report on the EU's anti-dumping, anti-subsidy, and safeguard measures, focusing on developments and measures in 2024. The report provides a detailed overview of the strategy and activities in the area of ​​trade defence instruments, particularly with regard to China and other third countries.

The main focuses are:

• Record number of new anti-dumping and anti-subsidy investigations, particularly against goods from China, including electric vehicles, chemical products and industrial metals.
• The Commission's actions led to 199 active safeguard measures by the end of 2024 and protected over 625,000 jobs in the EU, according to the report.
• Particular emphasis is placed on the anti-subsidy investigations into battery-powered electric vehicles from China and strict scrutiny of steel products.
• The Commission reports that China has responded on several occasions with its own investigations and trade measures, e.g. against EU brandy, pork and dairy products, and that the EU views these cases as political retaliation.
• The technical part comprehensively explains all measures, control mechanisms and the legal basis (basic regulations, WTO compliance, cooperation with OLAF and other European authorities).
• The social and environmental context explains that social and environmental standards are increasingly being taken into account in determining prices and measures.
• The report lists further figures and statistics, such as the number of measures by country and product group, as well as ongoing procedures, reviews and circumventions.

Purpose and function of the EU Commission report

The EU Commission report of July 28, 2025, numbered COM(2025) 428 final, is the official annual report on the European Union's trade defence instruments, in particular anti-dumping, anti-subsidy, and safeguard measures against imports from third countries such as China. It serves as a detailed documentation, evaluation, and justification of all procedures, measures, and policy activities in the area of ​​trade defence conducted and ongoing in 2024.

• The report serves as the European Commission’s annual accountability to the European Parliament, the Member States and the public.
• This is not an interim report with preliminary results, but the official final report for the completed year 2024, in which all relevant measures are explained and evaluated in detail.
• The report summarizes in particular the results of the investigations, the decisions taken, the impact on the economy and society, and the interaction with third countries (such as China).
• It includes statistics, figures, case studies, legal assessments, and a presentation of political and economic consequences.

Typical content of such a report

• Overview of all new, ongoing and completed proceedings in the reporting year.
• Detailed explanation of the procedure for anti-dumping and anti-subsidy measures.
• Description of the reaction of third countries, especially China, including bilateral disputes or WTO lawsuits.
• Assessment of the impact of the measures on the EU and its industry, including jobs, competitiveness and price developments.
• Outlook on future strategy and possible new regulations.

Classification in context

The report is therefore a detailed annual report for the past year, 2024, and serves as a review and public communication tool, not as an interim result of a specific investigation. It is particularly relevant with regard to unfair subsidies to Chinese companies because it documents the complete chronology, results, and consequences of all relevant EU initiatives.

The Commission publishes separate documents and press releases for specific individual reports or interim status reports on individual investigations. However, this annual report is the authoritative, comprehensive, and official presentation of the overall EU trade defense strategy with regard to China and other third countries.

The official original PDF is available at any time at this official link: https://eur-lex.europa.eu/legal-content/DE/TXT/PDF/?uri=CELEX%3A52025DC0428

In the meantime, the EU and China have begun negotiations to find a mutually acceptable solution and explore the possibility of price commitments. Despite the political commitment to find a solution, no agreement was reached before the statutory deadline for completing the investigation expired.

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What concrete measures and consequences have been taken by the EU?

The Commission decided to impose countervailing duties (so-called anti-subsidy duties) on a wide range of Chinese goods. Particularly prominent are the punitive tariffs on electric cars, which can amount to up to 35 percent depending on the manufacturer. Medical devices and components from China were also subject to safeguard measures. The International Procurement Instrument now allows the EU, for the first time, to exclude Chinese suppliers from public tenders if they benefit from unfair subsidies.

The level of tariffs depends on the level of subsidies identified and can be adjusted if further evidence is presented. The EU has also introduced stricter rules for the admission of Chinese products to European markets to eliminate distortions of competition.

What impact will the new tariffs have on the economy?

The new countervailing duties will make Chinese products noticeably more expensive on the European market, making competition fairer for European companies. According to industry associations, particularly from the automotive sector, European manufacturers can now compete more effectively. However, there are also concerns that the tariffs could lead to higher consumer prices and supply bottlenecks in the medium to long term.

How is China reacting to the EU’s measures?

China views the EU's decisions as unfair and an attempt to block market access for Chinese companies. In response, China has also introduced investigations and trade restrictions on European products—including brandy, pork, dairy products, and even manufactured goods. China also filed a WTO complaint against the EU's tariffs on electric cars and threatened further countermeasures, for example, in the area of ​​rare earths and other strategic raw materials.

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Were there attempts at a political or diplomatic settlement?

Following the tariffs' entry into force in autumn 2024 and the escalation of mutual trade restrictions, several rounds of dialogue took place between the EU and China. The aim was to reach a mutually agreed solution and mitigate the measures. However, these negotiations have so far remained fruitless. The EU maintains its position that concrete concessions and openness from China are necessary to consider a withdrawal of the tariffs, while China continues to denounce the measures as discriminatory.

What impact does the process have on other sectors beyond the automotive industry?

Other sectors are also increasingly affected by the investigations and follow-up measures. The EU examined subsidies in wind power, solar energy, medical devices, and even rail technology. In all these areas, a similarly distorted picture of competition was revealed, triggered by Chinese state-owned enterprises and support mechanisms. The EU has responded by expanding protective measures and restricting access to public tenders for certain Chinese companies.

What legal guidelines and instruments support the EU’s approach?

The EU relies on several legal bases: The Anti-Subsidy Regulation (EU) 2016/1037 regulates the conditions and procedure for countervailing duties. Furthermore, the International Procurement Instrument (IPI) was introduced to specifically prevent discriminatory practices in public procurement. Comprehensive evidence of the subsidies and their impact on the EU market is essential for the legality of the measures. The burden of proof lies entirely with the Commission, as the General Court of the European Union has confirmed in several recent rulings.

What criticism is there of the EU strategy?

There are mixed views. Some member states – including Germany – view the tariffs critically and fear negative effects on trade and industry. Proponents argue that protecting the internal market and ensuring fair competition must take priority. Economists warn that trade wars could damage the global trading order and slow innovation and investment. Industry representatives, especially SMEs, welcome the measures because they can finally compete again against cheap Chinese imports.

To what extent have small and medium-sized enterprises benefited from the measures?

Small and medium-sized enterprises, which were particularly hard hit by cheap Chinese imports until 2024, are now better able to compete in the European market. They benefit from higher prices for certain products and greater planning security, as aggressive Chinese competition practices have been significantly curbed. The EU Commission regularly holds information events to offer affected companies practical assistance and legal advice.

What challenges remain?

Despite all the measures, the situation remains complex: Supply chains between the EU and China remain closely intertwined, especially for strategic raw materials such as rare earths. As long as China continues to use market access restrictions and export controls, security of supply remains fragile, especially for high-tech industries in the EU. The question of innovation and investment in the EU is also a concern – the loss of the Chinese market could have serious consequences for some manufacturers.

Were there further proceedings and new investigations?

Over the course of 2025, the Commission launched further investigations, for example into aluminum wheels from Morocco and dairy products from China. The investigation into rail procurement is another example of the extension of the measures to new sectors. Each case will be evaluated, examined, and made public individually, ensuring that companies from all sectors enjoy similarly strict protection.

What are the medium- and long-term consequences for EU-China relations?

Relations between the EU and China have been severely strained since the measures were introduced. Further escalation is conceivable if no agreement is reached. The EU reserves the right to introduce further protective measures if distortions of competition continue. Meanwhile, China is testing alternative export markets and could diversify its overall export structure. The EU's priority is to create a "level playing field" to ensure a lasting balance between market access and protection against unfair practices.

What significance does the procedure have for global trade policy and the global economy?

The EU's approach serves as a global example for dealing with state subsidies and unfair trade practices. Other economic areas are closely monitoring the measures and considering similar steps. The WTO plays a central role as a dispute settlement mechanism, but its influence is limited given global power shifts. The sustainability and effectiveness of the EU strategy will influence not only global trade flows but also innovation and willingness to invest in the industrial sector.

What are the most important lessons from the process so far?

The Commission has demonstrated that precise analysis and legal evidence are crucial for the effective and legally secure implementation of WTO-compliant trade instruments. Unilateral safeguard measures without sufficient evidence are legally challengeable and can be counterproductive in practice. The affected companies must be closely involved and receive transparent support to ensure the measures have a lasting impact.

How could the measures develop further?

The Commission has announced that it will closely monitor additional sectors – such as chemicals, steel, rail, and aviation – and take action as needed. The future focus will be on strategic autonomy, resilient supply chains, and fair trade practices. Should China make constructive offers, the chances of a de-escalation of the trade conflict and a gradual withdrawal of individual protective measures are not bad. Until then, the situation remains "highly dynamic."

With its anti-subsidy investigation into Chinese companies, the EU has sent a clear signal for the protection of the internal market and the maintenance of fair competition. The consequences extend to many economic sectors, from the automotive industry to wind and solar power, medical devices, and rail technology. The situation remains tense, the Commission is responding consistently to new challenges, and the coming months will show whether a diplomatic solution is conceivable or whether further escalation is inevitable.

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