It’s groundhog day in Europe.
An evergreen story from late May: the European Union “bets Germany will back trade clampdown as ‘[Red] Chinese steamroller’ squeezes industry.” The EU Commission “has drawn up plans for a ‘more assertive and effective trade defense policy’ towards [communist] China.”
Do you believe in an EU trade clampdown? Have we not seen this movie before?
Then and now
Remember the great hue and cry in Brussels about unfair trade at the start of the 2020s? It may have begun with cheap electric cars. The headlines have never stopped.
2021: EU parliament ‘freezes’ China trade deal over sanctions
2022: Brussels weighs costs of angering China over new trade measures
2023: An EU-China trade war is brewing
2024: The EU has a playbook to de-risk from China. Is it working?
2025: EU to toughen trade stance on China as Germany pivots
Now, in 2026, “The European Commission wants to capitalize on the crisis facing German industry to try to convince Berlin to give Brussels tougher powers to protect the economy from cheap Chinese imports. Germany has for a long time been reluctant to jeopardize its trade ties with Beijing, fearing retaliation if it imposes restrictions.”
So this German reluctance is very much a breaking story with no resolution. It’s one flavor of the EU-gets-tough soap opera.
What are the Germans afraid of? German products are manufactured by German companies in Red China and then “exported” to Germany and the EU. They are viewed as “Chinese.” They could earn EU tariffs and at the same time suffer Beijing’s retaliation for EU trade restrictions.
Brussels will have to be very convincing to get Germany on side.
Meanwhile, although the European Union “welcomes efforts by the Chinese authorities to attract foreign direct investment, EU companies continue to face discrimination in the Chinese market, and it remains difficult for European businesses in China to compete due to the lack of a level playing field.”
Bedside reading
In 2023, the EU’s Foreign Subsidies Regulation (FSR) went into effect. This regulation gives the European Commission “the power to investigate financial contributions granted by non-EU governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their distortive effects.”
This would apply to firms, German or otherwise, fattened with alien state capital, that are competing in Europe.
Enforcement depends on “a notification-based procedure.” A notification is a form telling Brussels that your firm is in violation of the FSR. It’s a self-reporting system.
This thing is a lawyer’s paradise. Have a look at this Q&A.
As with much in the EU, there’s a comedic element. In May, 2025, the law firm of Arnold & Porter asked, with respect to the FSR, “Where Do We Stand 18 Months into Implementation of the Notification Obligations?”
Looking at the self-reporting pertaining to mergers and acquisitions that had been submitted until early April 2025, the firm noticed that “in terms of the geographic origin of the acquirer, 39 notified deals (across all types of acquirers) involved U.S.-based acquirers, 23 acquirers from France, and 16 from the UK. Among transactions involving acquirers from other jurisdictions, four originated from Japan, three from the United Arab Emirates, two from Singapore, and one from each of Australia, Canada, China, South Korea, and Taiwan.”
So, 18 months later, one subsidized communist Chinese merger self-reported. Image: Beijing snapping up local companies left and right. Reality: an EU mountain laboring to bring forth a communist mouse.
Arnold & Porter conclude: “Despite the high number of notifications, only a handful have triggered in-depth (Phase 2) investigations. To date [May 2025], the [EU] Commission has launched three in-depth probes into public procurement bids and one in-depth probe into an M&A transaction. Of these, only the M&A-related investigation has resulted in a formal decision, which therefore is the first and, so far, only published Commission decision under the FSR.”
Parts and parcels
That’s how the EU rolls, my friends. “Clampdown?” “Assertive and effective?” The bureaucrats hand out their candy and the press gobbles it up.
In 2024, Brookings reported that the Commission “has used the EU’s new Foreign Subsidies Regulation to investigate several Chinese companies.”
Not so fast there. We think not. Check with Arnold & Porter.
Before we leave the topic of FSR, let’s not forget to ask “Which part(s) of a loan (principal or interests) does a notifying party need to report where such a loan is provided by a third country (scenario 1) or to a third country (scenario 2) or where both the lender and the borrower are attributable to a third country (scenario 3)?”
Our lawyers will want to know. □
James Roth works for a major defense contractor in Virginia.
