EBM NEWSDESK ANALYSIS
BRUSSELS, May 5 — Brussels’ flagship industrial policy is being attacked simultaneously by the world’s two largest economies, just nine weeks after launch — and the trilogue negotiations meant to finalise it by year-end now carry geopolitical risk neither the Parliament nor the Council had priced.
What ‘Made in Europe’ Actually Means
The Industrial Accelerator Act does four things, and three of them are aimed at China without saying so.
First, government purchasing rules. When EU governments buy electric vehicles for public fleets, 70 per cent of the value has to be made in Europe. The threshold is 25 per cent for aluminium and cement bought through public procurement. Chinese-made products are still allowed in private markets — they just lose access to government contracts.
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SubscribeSecond, an investment veto. Any foreign company wanting to spend more than €100 million buying or building a European factory in batteries, EVs, solar panels or critical minerals now needs Brussels’ permission first. The rule technically applies to any country that controls more than 40 per cent of global manufacturing in those sectors. In practice, only China meets that bar.
Third, a 49 per cent ownership ceiling. Chinese firms wanting to build in Europe can no longer own their factories outright. They have to take a European partner who controls at least 51 per cent. Beijing reads this as forced technology transfer dressed up as a partnership requirement.
Fourth, faster permits. Industrial projects that meet the new rules get fast-tracked through planning. Projects that don’t get the slow lane.
The architecture is straightforward: open the door to European firms, narrow it for Chinese ones, and use government spending power to create demand for products made on the continent. The Act is framed as climate and competitiveness policy. The Skadden legal analysis published in April makes clear it is also industrial defence policy — and Beijing read it that way immediately.
The Act is framed as climate and competitiveness policy. The Skadden legal analysis published in April makes clear it is also industrial defence policy — and Beijing read it that way immediately.
Why China Has Threatened Retaliation
China’s Ministry of Commerce filed its formal complaint to Brussels on April 24, then went public with a threat to retaliate three days later. Beijing’s objection comes in three parts.
The legal complaint. The “Made in Europe” purchasing rules may breach the World Trade Organization’s basic principle that countries can’t favour one trading partner over another. China is preparing to file a formal challenge.
The strategic complaint. The 49 per cent ownership ceiling forces Chinese firms into European joint ventures where they hold no control. Beijing reads this as a forced technology handover dressed up as partnership rules.
The economic complaint — and the awkward one for Brussels. Chinese EVs already sell in Europe at prices roughly 30 per cent below European-made equivalents. The Act includes an escape hatch — if European products would cost more than 25 to 30 per cent more than Chinese alternatives, the EU-origin requirement can be waived. The clause was meant to give Brussels flexibility. What it actually does is admit, in writing, that European industry cannot compete on price with China in the very sectors the Act is meant to protect.
The third objection is the dangerous one. The first two are arguments China can win at the WTO or lose with grace. The third is a structural problem the legislation itself acknowledges.
For the European businesses already invested in Chinese partnerships — CATL’s German plant, BYD’s Hungarian factory, Chery’s Spanish facility, the Stellantis-Leapmotor production line — escalation between Brussels and Beijing puts billions of euros of committed investment at risk simultaneously. None of those projects survives a full EU-China trade war intact.
Why Trump’s Tariff Hike Compounds It
Trump announced his 25 per cent tariff on European cars and trucks last Friday, claiming the EU had broken the trade deal he signed with Ursula von der Leyen at Turnberry in July 2025. He didn’t say which part of the deal had been broken. The timing told a different story. Six days earlier, German Chancellor Friedrich Merz had publicly criticised the US war in Iran. The tariff was the answer.
There’s a deeper problem the headline misses. By passing a “Made in Europe” law, Brussels has handed Washington a permanent excuse to hit European exports with tariffs whenever the political mood in DC sours. The Act’s whole logic — favour European products, exclude foreign ones — gives any future US administration a ready-made grievance. Trump has just shown how it works.
Brussels designed the Act on the assumption that the US-EU relationship would stay broadly cooperative, or at worst businesslike. That assumption died on Friday. The Kiel Institute estimates the 25 per cent tariff alone could cost Germany €30 billion over time. That number is no longer just the price of a Trump tantrum. It is part of the real cost of passing the “Made in Europe” law in the first place.
What This Means for European Business
The trilogue negotiations between Parliament, Council and Commission are scheduled to conclude by end-2026. Three signals will determine whether the Act survives intact. First, whether Germany, Hungary and France — the member states with the most significant Chinese trade exposure — push to soften the most aggressive provisions. Second, whether the equity caps and technology transfer requirements survive in their current form, or get watered down. Third, whether the Commission’s anti-coercion instrument is deployed against either Washington or Beijing during the negotiation window.
For corporate planners, the operating assumption should now be that European industrial policy has moved from being a domestic affair into a three-way geopolitical contest. The €30 billion European bank net interest income rebound forecast through 2027 depended on a recovery the IAA was supposed to enable. If the Act now triggers German recession through US tariffs and Chinese countermeasures, the projection erodes from both ends. The Act may yet succeed in its industrial objective — but the cost of getting there has just doubled.
The next test arrives this week, when Trump’s tariff is scheduled to take effect and Beijing’s first concrete countermeasure announcements are expected. The IAA was meant to be Brussels’ instrument. It has become its battlefield.
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