In today’s interconnected global economy, trade tensions between major economic powers like the United States and China are having far-reaching consequences. The evolving landscape of tariffs, sanctions, and export controls not only affects businesses in the U.S. and China but also creates ripple effects across Europe and beyond. For European Union (EU) businesses, particularly those in high-tech industries, manufacturing, and heavy sectors like steel and aluminum, the shifting trade policies present both challenges and opportunities. 

As the U.S.-China trade war intensifies and new regulatory frameworks emerge, understanding the complex dynamics at play is crucial for EU companies seeking to navigate these turbulent waters. This article explores how the ongoing trade tensions and the associated regulatory changes are reshaping global markets, with a particular focus on the impact for EU businesses in key sectors.

This article is written by Sefa Geçikli ([email protected]) and Lorena Velo ([email protected]). Sefa and Lorena are part of RSM Netherlands Business Consulting Services, specifically focusing on International Trade and Strategy. 

The Complex and Evolving Landscape of U.S.-China Trade War

The People's Republic of China (PRC) stands as the second-largest economy globally and has been a key trading partner for the United States since China’s accession to the World Trade Organization (WTO) in 2001. With its significant role in global trade, China’s influence over U.S. exports is substantial, especially in sectors such as aerospace, semiconductors, medical equipment, agriculture, and energy. However, as the U.S. and China continue to engage in a complex economic relationship, the evolving regulatory environment introduces both risks and opportunities for firms engaged in cross-border trade.

While U.S. companies have historically benefited from access to the Chinese market, China’s strategic plans seek to reduce reliance on foreign firms in key industries. As China strengthens its domestic capabilities, foreign firms that initially filled gaps in the market may face increased pressure. For example, in the aerospace sector, some U.S. firms have partnered with state-owned Chinese entities to develop the C-919 aircraft, transferring advanced U.S. technology in the process. Similarly, the PRC government has invested in semiconductor manufacturing, with the U.S. supplying critical equipment to support the development of China’s semiconductor industry. 

In electric vehicles (EVs), China’s localization policies push firms to establish supply chains for EV batteries within the country. Additionally, in sectors such as medical devices and biotechnology, China’s procurement rules and its role in acquiring foreign firms make it increasingly competitive on the global stage. Furthermore, China’s dominant position in extracting and processing critical minerals and its involvement in energy production further solidify its global economic power.

The trade relationship between the U.S. and China has grown more complicated since 2017, when U.S. national security policy labelled China as a strategic competitor. In response to this, President Trump’s administration issued the America First Trade Policy in January 2025, which triggered a comprehensive review of issues ranging from the trade deficit to U.S. tariffs and export controls. Specific areas under review include the PRC’s adherence to the Phase One trade deal, Section 301 actions, and the Biden Administration’s rulemaking on connected vehicle technologies and outbound investment to China.

Tariffs imposed by the U.S. have been a central aspect of the trade conflict. Since 2018, the U.S. has levied tariffs ranging from 7.5% to 25% on approximately $370 billion worth of imports from China, which were countered by China with tariffs on $110 billion worth of U.S. goods. In 2020, the Phase One trade deal between the two countries addressed certain issues, but many concerns remain unresolved, leading the U.S. to maintain most tariffs and propose new ones on products such as semiconductors, electric vehicles, medical products, and solar cells. The investigation into China’s semiconductor practices and shipping practices under Section 301 further illustrates the growing tensions.

National security concerns also play a pivotal role in shaping U.S. policy. In 2018, tariffs were placed on Chinese steel and aluminium, citing national security risks. In February 2025, the U.S. increased tariffs on aluminium and steel and extended the tariffs to countries that had previously been exempted, which could make Chinese exports more competitive compared to other countries. A 10% tariff on all U.S. imports from China was also introduced in February 2025, along with the withdrawal of de minimis treatment for Chinese imports, following concerns over China’s role in the fentanyl trade.

Another significant trade barrier has emerged with concerns over forced labor. The U.S. has prohibited imports from Xinjiang, China, under a rebuttable presumption that they are produced using forced labor, following legislative actions like P.L. 117-78. This prohibition targets products mined, manufactured, or produced with forced labor, adding another layer of complexity to trade between the two nations.

From an export control perspective, the Biden Administration has ramped up efforts to regulate sensitive technologies. This includes imposing controls on advanced semiconductor exports to China, restricting bulk data transfers, and regulating U.S. investment in certain Chinese technologies. Notably, there has been a rise in foreign direct product (FDP) rules, particularly affecting the export of technology, AI, quantum computing, and semiconductors to China and Chinese entities. These restrictions are critical as the U.S. aims to protect its technological edge in areas that are central to national security.

Recent moves in early 2025 have escalated tensions further. In response to U.S. tariffs, China imposed retaliatory tariffs on U.S. agricultural products, including chicken, corn, and soybeans. Additionally, China placed 15 U.S. companies onto its Export Control List, barring them from receiving dual-use technologies, while simultaneously adding 10 American companies to its Unreliable Entity List. One major casualty of this action was U.S. medical equipment maker Illumina, which saw a ban on its genetic sequencers.

As the global economy becomes increasingly interconnected, the PRC’s strategic control over critical minerals—such as tungsten—poses a significant challenge for industries reliant on these materials. China dominates the global extraction and processing of such metals, which are key components in aerospace and military applications. The restricted list of these rare metals continues to evolve, with China’s control over refined output posing both opportunities and risks for global supply chains.

Impact on EU Businesses

The ongoing U.S.-China trade conflict and the shifting regulatory environment present both challenges and opportunities for European Union (EU) businesses, particularly those involved in technology manufacturing, as well as iron and steel production. As the U.S. and China intensify their economic rivalry, European firms operating in or dependent on global supply chains are navigating a rapidly evolving landscape of tariffs, export controls, and strategic shifts. These dynamics are particularly relevant for industries like technology manufacturing, which relies heavily on sensitive materials and intellectual property, and the iron and steel sector, which is intricately tied to global trade policies.

  • Technology Manufacturers: Navigating Export Controls and Trade Barriers

The EU's technology sector, which includes critical industries like semiconductors, AI, and quantum computing, faces increased risks due to the evolving export controls and foreign direct product (FDP) rules. The U.S. has placed substantial restrictions on the export of advanced semiconductor technology to China, alongside measures regulating bulk data transfers and U.S. investments in certain Chinese technologies. These moves have significant implications for European tech manufacturers who, while not directly targeted by these controls, operate in an interconnected global market. As the U.S. seeks to protect its technological leadership, European companies may face challenges in accessing vital components or facing increased competition from Chinese firms benefiting from a more supportive domestic regulatory environment.

Moreover, the EU's reliance on global supply chains for critical raw materials, such as rare earth metals and tungsten, is compounded by China’s dominance in these sectors. As China controls most of the global refined output of these metals, EU manufacturers in high-tech industries may experience disruptions, increased costs, and potential supply shortages. In response to the U.S.'s growing restrictions on China, EU firms may find themselves caught in a geopolitical tug-of-war, forced to balance compliance with U.S. export controls while maintaining access to the Chinese market.

  • Iron and Steel Sectors: Tariffs and Competitive Pressures

One of the most significant developments for EU businesses has been the imposition of a 25% tariff on aluminium and steel imports from the EU by the United States in February 2025. This represents a major shift in trade policy, as the EU has long been one of America's largest trade partners. In response, the European Commission introduced countermeasures, although they postponed retaliatory tariffs until March 31, 2025, to maintain tariff exemptions for EU steel and aluminium exports under the Tariff-Rate Quota (TRQ) system. This system has been vital in saving EU exporters an estimated €1.5 billion annually. However, if the suspension is lifted, EU businesses in the steel and aluminium industries will face significant competitive disadvantages, particularly as Chinese producers might increase exports to the EU in the wake of U.S. restrictions, potentially driving down prices and squeezing profit margins for European manufacturers.

  • Automotive and Manufacturing Sectors: Navigating Tariffs and Rising Costs

The EU’s automotive and manufacturing industries are also grappling with the U.S.'s evolving trade policies. The announcement by former U.S. President Donald Trump of a new 25% tariff on automobiles and auto parts from the EU, effective in March 2025, directly impacts European automakers. Between 50% and 60% of European vehicles produced are exported to the U.S. market, making this tariff a significant blow to their competitiveness. Higher costs could lead to production cuts, layoffs, or the relocation of production facilities to avoid the tariffs, putting further strain on Europe’s automotive sector.

Rising material costs, particularly in steel and aluminium, exacerbate the challenges for EU manufacturers. These materials are essential in automobile production, and the tariff hikes on U.S. steel and aluminium may increase prices for European automakers, reducing their profit margins. Moreover, there is the potential for China to redirect its excess production of certain materials to Europe due to the U.S.'s tariffs, which could result in oversupply and price instability, especially in the metal and chemical markets.

Looking forward

As these trade tensions intensify, EU businesses must recalibrate their strategies to mitigate the risks associated with shifting tariffs, sanctions, and regulatory changes. For technology and electronics companies, this may involve diversifying supply chains and securing alternative sources of key materials. EU automakers might look to shift production to other regions or explore new markets to counteract the impact of U.S. tariffs. For industries like steel and aluminium, the EU may need to seek new trade alliances or push for tariff exemptions to protect their competitive edge.

Furthermore, the EU must consider its own role in the broader geopolitical landscape, particularly as other global players like Japan, South Korea, and China begin to forge new trade agreements that may exclude the U.S. As China strengthens its economic ties with these countries, European firms may need to adapt to these new trade dynamics to avoid being sidelined in a world where the U.S.-China rivalry is reshaping global supply chains.

In conclusion, the trade war between the U.S. and China, coupled with the evolving regulatory environment, has profound implications for EU businesses. While challenges abound, there are also opportunities for those agile enough to adapt to the changing trade landscape. By staying informed on the latest developments and adjusting strategies accordingly, EU companies can better position themselves to navigate these turbulent waters.

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