LONDON — Germany wants the U.K. to raise tariffs on Chinese electric vehicles in exchange for protection from Made in Europe rules, according to a person familiar with Berlin’s position.

Friedrich Merz’s government believes the move would show reciprocity on trade and counter accusations from other EU member states that Britain is trying to “cherry pick” the benefits of EU membership, said the person, who was granted anonymity to discuss closed-door talks.

It comes as Prime Minister Andy Burnham met with the German chancellor on his first official visit to the country this week.

Burnham and Merz were due to talk about possibilities for Britain’s future relationship with the EU — after the British prime minister put rejoining the bloc back on the table of U.K. politics for the first time in a decade.

Berlin’s position on EV tariffs is significant as Germany has broadly backed a tolerant policy towards the U.K. on trade matters since Brexit — in contrast to more hard-line positions taken by countries like France.

The EU is in the process of drawing up new Made in Europe rules that would favor European producers over those outside the bloc — in response to trade practices by competitors like China and the United States.

The U.K. is worried that the measures will hit British business — especially automakers — and wants assurances from Brussels that it will get an opt out. If Berlin gets its way, those assurances could be dependent on emulating EU trade policy with regard to Chinese EVs.

Predatory strategy

Germany’s vaunted car industry, arguably the jewel in the country’s economic crown, has faced stiff competition from Chinese imports in recent years.

EU countries have accused China of dumping low-cost, state-subsidized electric vehicles into the European market and in December 2024 imposed countervailing duties as high as 35.3. percent on some manufacturers.

Industry Commissioner Stephane Séjourné accused China of pursuing a deliberate “predatory strategy” with state subsidies to the tune of €10,000 per vehicle.

The U.K.’s Trade Secretary Jonathan Reynolds told POLITICO last month that the government was keeping tariffs “under review, to be frank, more closely than lots of other issues” and that “different parts of our own sector want different things from” the government’s policy.

Hamish Falconer, the U.K.’s minister for European relations, told POLITICO’s Brussels Playbook Podcast this week that he was “surprised” at reports tariffs might be a condition of Made in Europe opt-outs, adding: “That’s not the kind of conversation that I’m having with my European counterparts.”

Going ahead with higher tariffs risks alienating Beijing, which has expressed serious concerns about the policy. It would also raise the price of electric vehicles on the market, potentially making it harder for the government to meet its decarbonization targets.

BRUSSELS — European Trade Commissioner Maroš Šefčovič opened two days of talks in Beijing on Thursday aimed at rebalancing a gaping trade deficit, with failure to reach a deal likely to test Brussels’ resolve to impose tougher trade restrictions.

The meeting marks the final round of an effort launched in June to reset the lopsided trading relationship, and will hinge on whether China’s Commerce Minister Wang Wentao is prepared to make substantial concessions.

If no agreement can be reached to narrow the EU’s €1 billion-a-day goods trade deficit, Brussels and Beijing could find themselves on a collision course. EU leaders will review the outcome of the talks at a summit in Brussels next Thursday, where they will consider next steps.

Arriving in China, Šefčovič said his goal was to balance what he called an unsustainable trade deficit. Heading into a meeting with Wang, he said it was crucial that the talks deliver “tangible outcomes.”

The discussions have zeroed in on cars, with Chinese exports increasingly eating into the market share of European automakers. In August, one in eight cars bought in the bloc was Chinese, thanks largely to a boom in sales of plug-in hybrid electric vehicles.

European negotiators have been pushing China to commit to some form of export restraint — in particular for hybrids. Unlike Chinese-made battery-electric vehicles, which were hit with extra countervailing duties in 2024, plug-in hybrids are not subject to such measures.

Without meaningful commitments from Beijing, the Commission has warned it will resort to unilateral trade restrictions. For cars, it is considering safeguard measures that would mix import quotas and tariffs to protect European automakers.

Chemicals are next. Industry Commissioner Stéphane Séjourné said Thursday that the Commission plans to introduce targeted safeguards on plastics and composite materials, subject to a request from EU governments that Brussels do so.

Wind in his sails 

Šefčovič flew to Beijing with the backing of the leaders of Europe’s two biggest economies — France and Germany — to take a tougher approach to trade.

In a joint appeal on Monday, President Emmanuel Macron and Chancellor Friedrich Merz said the Commission should be given a freer hand to shut off access to the EU for goods from countries that distort the bloc’s single market.

While the two leaders did not mention China in their letter to Commission President Ursula von der Leyen, there was no mistaking the target of their proposed trade “kill switch,” which could be blocked only by a qualified majority of EU countries.

The EU already has a powerful trade weapon in its Anti-Coercion Instrument, designed to counter economic bullying by foreign powers. 

But Brussels has yet to muster broad support from member countries to deploy it, most recently in January when U.S. President Donald Trump threatened to seize Greenland, a Danish territory.

The EU’s difficulty in responding swiftly to trade threats has heightened concerns about a surge in Chinese exports that European officials say benefit from unfair government subsidies. With Trump hiking U.S. tariffs, ever more Chinese exports are heading to Europe — increasing pressure on industries that are already being forced to retrench.

Europe’s heavy dependence on China for processed rare earths and other critical raw materials also leaves it vulnerable to retaliation should relations deteriorate.

“If we aren’t willing to fix the way our model works, then we’ll be destroyed,” said one EU diplomat, summing up the concerns flooding Brussels.

“What’s the point of having [more tools] if the Chinese can shut down our strategic production in a matter of days?”

Low expectations

Although Šefčovič entered the talks strengthened by the Franco-German letter, a second diplomat said they didn’t foresee a deal with Beijing this week.

“He knows that a lot of member states are behind the Franco-German push,” the diplomat said, adding that this “has been seen in China.” 

But Beijing has little room to compromise, given its reliance on exports to sustain growth amid weak domestic demand and a prolonged property slump.

“The Chinese side is starting to recognize that there is a problem. But I don’t think they are ready to enter into a substantial deal,” said Gunnar Wiegand, a former head of the EU diplomatic service’s Asia-Pacific department.

Wiegand, now a visiting fellow at the German Marshall Fund, said Šefčovič had earned a reputation as a dealmaker in talks on Britain’s exit from the EU and in last year’s trade deal with Trump. This time, however, “both sides are bound by their own circumstances,” he said.

Europe is desperate to halt the erosion of its industrial base, while China remains heavily dependent on exports to sustain economic growth. 

“The Chinese are going to object to being singled out. Even if a deal with the EU would be the most rational solution, other important markets for Chinese exports, such as ASEAN countries, will start asking the same. It will undercut their global market,” he said. 

BRUSSELS — Germany’s push to exempt a national champion from future EU oversight could imperil a ministerial deal to integrate the bloc’s financial markets and compete with Wall Street.

Over the coming days, finance ministers will discuss the most contentious parts of their countries’ positions on Brussels’ “market integration and supervision package” of bills, or MISP. They’ll begin with a dinner on Thursday in Luxembourg, as the Council moves toward its official negotiating position.

The hope is that ministers will then sign off on the compromise deal, brokered by Ireland in its role as leader of the EU’s rotating presidency, at the ministerial Ecofin gathering on Friday. This would be a major step forward for the EU’s 10-year bid to create a U.S.-style capital market.

But a push by Germany to exclude one of Europe’s biggest stock exchanges from central EU oversight could turn dinner into a food fight.

This exemption remains in the current compromise position among EU capitals after Berlin refused to give up local supervision of its stock exchange behemoth Deutsche Börse over fears of job losses and ceding power to a bloc-wide entity, despite central supervision being one of the key tenets of the MISP package.

It’s sparked protests from smaller countries, which feel the compromise would disproportionately benefit their larger neighbors — and could scupper the entire deal.

The carveout is “polluting the whole debate” by giving a “huge gift to Germany” while other countries receive nothing in return for their support, one diplomat said.

Another went further. “No deal is better than a bad deal,” a senior EU official said ahead of Friday’s meeting.

One market

Securing a deal on MISP this year is central to the “One Europe, One Market” plan that the EU’s three political leaders in Brussels agreed to in April. EU governments have invested significant political capital into MISP in a bid to turn the bloc into an investment hub where innovative companies can find investors without having to leave for deeper pockets on Wall Street.

Getting sign-off from the EU’s 27 governments would be a major coup for Dublin, which is chairing legislative negotiations in Brussels until the end of the year.

However, six diplomats close to the negotiations gave contrasting views on whether a deal would be possible this week. According to one, anywhere from eight to 17 countries could band together to block an agreement.

The diplomats did concede that the countries opposing the carveout are not unified in their position, however, as they all want different things from a potential deal. But the Deutsche Börse issue remains the most contentious.

After the German government made it clear it would not support a deal on the package unless Deutsche Boerse was carved out, the EU’s six biggest economies came up with a plan over the summer to exempt the exchange from EU-wide supervision by the new “supercop” European Securities and Markets Authority.

The German state of Hesse, Deutsche Boerse’s current supervisor, has consistently opposed giving up the role, fearing job losses and waning influence if the exchange giant is instead overseen by ESMA. The carveout, based on trading thresholds and geographical footprint, would also benefit Spain’s main stock exchange and another German trading platform, Tradegate.

In practice, scoping out the German giant would hollow out the ambition of the MISP plan. Moving to a central supervision model for the EU’s biggest exchanges and other financial plumbing firms like clearinghouses and central securities-depositories has been the thorniest political issue throughout negotiations.

Although ESMA would still oversee large firms such as the stock exchange group Euronext and Nasdaq’s European arm, the watchdog would have fewer staff and less funding, and ultimately be less powerful if it were not responsible for supervising Deutsche BBörse 

The Belgian government in particular isn’t taking the plan lying down. According to two diplomats close to the talks, Belgium’s prime minister, Bart De Wever, could raise the subject at the European Council later this month if a majority of ministers push the carveout through.

Central to the Belgians’ frustration is the fact that their finance giant, the securities-depository group Euroclear, will move to ESMA supervision, while Belgium was shut out of talks among the “E6” supergroup of the bloc’s largest economies, according to multiple diplomats involved in the group’s formation.

If big countries won’t give up the Deutsche Börse carve-out, small countries could win changes to ESMA’s governance structure in exchange for supporting a deal, according to three of the diplomats. They want national finance watchdogs to have more influence in ESMA’s decision-making, while some also want changes to the authority’s funding structure. Large countries want ESMA to be overseen by an independent, powerful executive board akin to the European Central Bank’s. 

“It’s MESS, not MISP,” one diplomat quipped to POLITICO. 

Giovanna Faggionato contributed reporting.