For years, China pushed Europe to the breaking point, flooding it with exports that were crushing profits and killing jobs, while issuing tough warnings to the bloc not to fight back.
Now, Beijing is backing down, at least temporarily, as it buys time for further talks.
China is going along with a European Union plan to cap hybrid-vehicle imports, which bloc officials said should cut their volume by more than half after talks last week in Beijing. The move will offer some protection to European carmakers, including Volkswagen and Fiat-maker Stellantis, easing frustration in Europe over the flood of Chinese auto imports. Beijing feared the mounting concerns were finally pushing European officials toward concerted action, particularly after France and Germany moved toward a common approach on the issue.
In a closed-door meeting Thursday in Brussels, European leaders expressed support for the hybrid vehicle plan while adding that further measures will be needed to protect European industries from an influx of Chinese goods, officials and diplomats said.
At first glance, China's export machine looks all but unstoppable, with its trade surplus last year hitting a record $1.2 trillion. But China's reliance on exports to support its otherwise struggling economy means Beijing can't afford to lose access to Europe's vast and lucrative market.
President Trump's protectionist tilt raises the stakes further.
"The closure of the U.S. market has only increased the value of the European market," said Elvire Fabry, director of the trade and economic security program at the Paris-based Jacques Delors Institute think tank. "It's a small window of opportunity that the Europeans need to use wisely."
Beijing has long had close friends in high places in Europe, including at big industrial companies that championed greater trade with China. Those relationships made it tough for the EU to take a harder line against Beijing. But in recent years, these firms not only struggled to make money inside China, but also saw their market shares at home eroded by what many European executives viewed as unfair Chinese competition.
European officials previously sought to rebalance the bloc's trade relationship with Beijing by expanding its market access to China, but that is no longer viewed as sufficient to offset the economic and political pain caused by an influx of Chinese imports.
"Rebalancing is less about selling more to China," Tomas Baert, a trade adviser to European Commission President Ursula von der Leyen, said this week in describing what he said was a shift in the EU's approach. "It's about having China sell less to us."
Under the latest plans, the EU will cap hybrid vehicle imports at 350,000 annually, which officials said could cut the current import volume by more than half. The quota is expected to take effect in coming months and would increase by 6% in each of the following three years, officials said.
For months, Beijing played down the growing signs of concern in Europe. Chinese officials were emboldened by their success in countering U.S. tariffs by threatening to limit American access to critical rare earths.
To be sure, China isn't the only source of Europe's economic problems. Stifling bureaucracy, high energy costs and a lack of innovation and investment in advanced technologies are also contributing to its lagging competitiveness. And while European consumers benefit from cheap cars and China-made machinery, the threat of even bigger job losses at factories and across supply chains carries potentially destabilizing political and social consequences.
Before the latest talks in Beijing, Europe's unhappiness with China culminated last week with a joint proposal from France and Germany -- long at odds over how to respond to Chinese competition -- that would lower the bar for blocking Chinese goods. According to senior German officials, the proposal aims to give the EU an instrument similar to the U.S.'s Section 301 tool -- which gives broad leeway to impose tariffs on trade partners -- that could be a powerful weapon to restore balance between the EU and China.
"What you saw in that Franco-German paper is completely unimaginable and quite a dangerous political trend in a way for China," said Andrew Small, director of the Asia program at the European Council on Foreign Relations. "So your better bet becomes essentially can you start fracturing this coalition in Europe?"
European leaders have already agreed to develop two new legal tools, according to the bloc's officials. One is a so-called diversification instrument, which aims to reduce European companies' dependencies on one country for the inputs they need. The EU is also preparing measures to support specific industries or regions that China -- or other trade partners -- might target for economic retaliation.
Europe's trade deficit with China more than doubled over the past decade to reach the equivalent of roughly $1 billion a day last year. It rose even faster in volume terms, increasing more than fivefold during the same period, according to the European Commission. In September, China's exports to the European Union surged by 25.3% in dollar terms from a year earlier, according to customs data released Wednesday.
The rapid growth of Chinese exports to Europe and many other countries in part reflects China's domestic economic weaknesses. Chief among them is the pessimism of many Chinese and their unwillingness to spend the money they earn, forcing manufacturers to rely on exports.
As Chinese leader Xi Jinping has placed priority on advanced manufacturing in recent years, overcapacity has spread from old industries such as cement into higher-value sectors such as cars and pharmaceuticals -- both sectors in which Europe competes.
The concession on hybrid vehicles might ease some pressure on China in the short term. But EU officials and diplomats said ahead of this week's meeting that they still expected the bloc to pursue tougher measures -- including potentially in other sectors such as chemicals that have struggled to compete with low-cost Chinese imports.
The challenge for Europe is to sustain its current show of unity. European elections scheduled in coming months, including a potentially destabilizing vote in France, could make it harder for EU countries to move together.
A firm show of retaliation from China could also give officials cold feet, said Noah Barkin, an analyst with Rhodium Group in Berlin.
"No matter how united Europe is today, if China hits back hard, that unity will be tested," he said.
