Alignment or Misalignment? US and EU High-Tech Trade and Sanctions Policies toward China

CSDS POLICY BRIEF • 10/2025

By Antonio Calcara and Jeffrey J. Schott

2.4.2025

Key issues

• The second Trump administration has imposed large-scale additional tariffs on US imports from China, but these actions raise crucial questions for the Europeans;
• There is a need for closer coordination between the US and the European Commission on controls on Chinese access to advanced semiconductors;
• New US tariffs will complicate transatlantic cooperation in the automotive sector, but hopefully not sour cooperative transatlantic trade policies toward China;

Introduction

This Policy Brief focuses on the alignment or misalignment of the European Union (EU) and the United States (US) on high-technology trade and sanctions vis-à-vis China. The Trump administration is likely to continue the aggressive US stance toward China in the technological realm, putting increasing pressure on its European allies to align with US policy. The Europeans, for their part, are in a difficult position: on the one hand, they are under pressure from the US government; on the other hand, the more Washington restricts Chinese trade, the more Chinese exporters will look to the European market to sell their manufactured goods. Increased competition from Chinese imports in Europe, especially in the automotive sector, could in turn trigger a political backlash that weakens support for transatlantic coordination on China.

Compared with the Cold War era, when economic relations between the two geopolitical blocs were very limited, the US and Europe today face a very different situation in managing their relations with China. Both run large trade deficits with China in the range of US$275 billion to US$300 billion annually. More than half of EU-China trade is in the strategic sectors of electronics, machinery and transport equipment. US trade with China is more diversified, although electronics remains the largest category of US imports from China. US imports from China have been subject to high punitive tariffs since the Trump trade war with China six years ago, which were maintained and then expanded by the Biden administration. Even though US President Donald Trump’s administration has exempted smartphones, computers and some other electronic devices from “reciprocal” tariffs, his administration seems unwilling to change course on denying Chinese companies access to US technology.

In its first three months back in office, the second Trump administration imposed large-scale additional tariffs on US imports from China, while also expanding export controls to blunt Chinese access to advanced technologies that can accelerate China’s economic advance and expand its military capabilities. These actions raise crucial questions for the Europeans, who have launched the Economic Security Strategy to protect their own infrastructure and critical technologies from outside interference, especially from China, but are reluctant to fully align themselves with the highly restrictive US approach.

Outlining the alignment or misalignment between Europe and the US on high technology vis-à-vis China is admittedly a herculean task. Therefore, we want to specify that we will not discuss two points. First, this Policy Brief will not specifically address the impact of the extensive additional tariffs on US imports imposed by Trump against a wide range of countries, including European allies, and which are focused heavily on those countries that have trade surpluses with the US.

Second, this Policy Brief will not address how the alignment or misalignment of the US and Europe towards China will be influenced by developments in the negotiations to end the conflict in Ukraine. Europeans have been shocked by the Trump administration’s limited consultation with them on the ongoing conflict and peace talks, and are looking for ways to strengthen their internal unity, for example, by planning to spend more on defence. US-European coordination on Ukraine will certainly have an impact on their positions toward China, if only because of Beijing’s direct and indirect support for Moscow.

To understand transatlantic alignment or misalignment on advanced technologies, our analysis will focus specifically on tariffs and export controls. We believe that these two areas are critical for understanding the degree of transatlantic convergence or divergence in concrete situations that directly affect their positions on China. In terms of sectors, we will zoom in on semiconductors and automotive as two good proxies to understand possible divergences between the US and Europe. We conclude by recommending closer coordination between the US and the European Commission on controls on Chinese access to advanced semiconductors. On autos, new US tariffs will complicate transatlantic cooperation but hopefully not sour cooperative transatlantic trade policies toward China.

EU-US trade and sanctions (mis)alignment on China: state of play

Looking at the reactions of Washington and Brussels to Russia’s invasion of Ukraine, the two partners worked closely to forge an unprecedented response in imposing export controls and sanctions on Russia. Both also openly criticised Chinese exports of high-tech and dual-use goods to Russia. The generally positive climate in US-EU relations has not, however, overshadowed the differences that remain between the two sides of the Atlantic when it comes to coordinating a common strategy toward China.

The Biden administration, following the playbook of the first Trump administration, prioritised national security considerations vis-à-vis China, imposing even higher tariffs and export controls on advanced technologies. The Biden administration also framed the competition with China in ideological terms, as an existential confrontation between democracies and non-democracies, between market economies and non-market economies that do not respect rules on subsidies and use economic interdependence to coerce and force technology transfer. Biden’s National Security Advisor, Jake Sullivan, wrote that the goal was to ‘ensure that emerging technologies work for […] democracies and security’ and end the status quo whereby ‘competitors and adversaries took advantage of our complacency and inherent openness’.Washington has therefore urged the Europeans to take a firmer stand against Beijing, not only diplomatically but also in bilateral economic relations.

To counter the rise of China and to meet the challenge of innovation in new technologies, the US has aggressively pursued industrial policies in areas such as electronics and renewable energy, fuelled by subsidies provided under the US CHIPS and Science Act and the Inflation Reduction Act. These initiatives were primarily motivated by geopolitical objectives, and how the US designed them and how the EU responded to them illustrates important aspects of the current transatlantic misalignment. While the CHIPS Act did not provoke particularly hostile reactions in Europe, if only because Europe shares the intention to be less dependent on East Asian countries, the transatlantic problems over the Inflation Reduction Act were more acute.

Europeans have reacted negatively to the Inflation Reduction Act, particularly because the domestic content requirement favours electric vehicles (EVs) assembled in the US and would not allow a European-made EV to qualify for the consumer tax credit offered to US-made EVs. In addition, the Inflation Reduction Act provides credits to US-based battery manufacturers and, even if battery credits were available to free trade agreement (FTA) partners, the EU does not have an FTA with the US, so European battery producers could not have benefited from FTA exemptions. Europe was shocked by the lack of US consultation with its allies over the Inflation Reduction Act. Former US Senator Joe Manchin, of West Virginia, even admitted that US lawmakers ‘didn’t realize the US and the European Union do not have a free trade agreement when we wrote stringent new requirements for the electric vehicle tax credit that the EU says will unfairly disadvantage its members’. One European Commissioner has even suggested that the Inflation Reduction Act could push Europe back toward a friendlier relationship with China.

To address the differences between the US and Europe, the EU-US Trade and Technology Council (TTC) was established as a forum to discuss a wide range of issues, from industrial policy to the regulation of artificial intelligence (AI). The TTC has been successful in coordinating sanctions against Russia, in regulating new technologies and especially in critical minerals, mainly to limit dependence on China. It has also served as a useful forum for discussing technical export control issues through its Working Group 7, but has been ineffective in resolving differences between the US and Europe over which technologies should be controlled. Another difference between the EU and the US concerns the possibility of reforming the multilateral export control system – the Wassenaar Arrangement –, which is currently blocked by the Russian veto. For the European states, this is essential for multilateral coverage, while the US prefers a unilateral or minilateral approach and ex-post coordination with allies.

In recent years, Europe has adopted tougher tools against China, although there are still differences between member states. The European Commission has launched the Economic Security Strategy, which, while officially country neutral, appears designed to counter the dangers of overdependence on China for critical technologies, and instruments such as the Investment Screening Mechanism or the Anti-Coercion Mechanism have been designated to prevent Chinese investment in strategic European infrastructure and to counter China’s subsidies and anti-competitive practices. Even in Germany, where companies depend heavily on and continue to invest in the Chinese market, there is an increasing focus on reducing reliance on China for critical technologies.

Europe certainly has a less restrictive approach to China than Washington, but the Biden administration had done a good job of distancing the Europeans from Beijing, aided by the explicit cooperation between Russia and China in Ukraine. It is unclear whether the Trump administration will lead to greater alignment or misalignment, but the issue of tariffs and export controls, especially in the high-tech sectors of semiconductors and autos, could be a good test of the soundness of transatlantic coordination.

Tariffs and other import restrictions

The first Trump administration initiated a tariff war with China to blunt the flow of subsidised goods to the US market, raising average US tariffs against China from about 3% to 19%. During the 2024 election campaign, Trump promised to increase US bilateral tariffs against China by 50%-60% and suggested that he would raise US tariffs by 10%-20% on all imports from friends and foes alike.

Since taking office, Trump has imposed a baseline 10% tariff on almost all countries and additional “reciprocal” duties that vary by country, plus 25% tariffs on autos and steel and aluminium products. Most US trade with Mexico and Canada that is consistent with the US-Mexico-Canada Agreement (USMCA) has been exempted from the new baseline and auto tariffs. In addition, most reciprocal duties have been postponed until July 2025 to encourage trade negotiations – including Chinese electronics and selective other products. Other Chinese goods face triple digit tariffs at US customs.

By targeting auto imports, which constitute an important share of the overall US trade deficit with Europe, North America, Japan and South Korea, Trump is creating new frictions with key US partners. President Trump also could threaten new US tariffs against Europe in retaliation for EU carbon border adjustment measures (CBAMs) which will begin hitting specified products, some possibly from US exporters, in January 2026. Almost all these tariffs arguably contravene US obligations under the World Trade Organisation (WTO) and US FTAs, and likely would trigger product- or sector-specific retaliation against US exports by friends and foes alike.

Will Europe respond in kind, as it did when Trump issued Section 232 national security tariffs against US steel imports six years ago, against across-the-board or sector-/product-specific tariffs affecting European exports to the US? The EU runs a large merchandise trade surplus with the US – which totalled about US$236 billion in 2024 or about 20% of the total US merchandise trade deficit.

In the auto sector, Trump will undoubtedly continue existing US restrictions on electric vehicles (EVs), batteries and other components from China and may take additional steps to blunt China’s circumvention of those restrictions by exporting through Mexico and Europe. The Biden administration sought to bar imports of Chinese EVs by imposing prohibitive 100% tariffs and by coercing Mexico and Canada to follow suit. Such measures have constrained but not blocked Chinese investment in the auto sector throughout North America.

The US measures against Chinese EVs will certainly have an impact on European automakers, especially those that are formally European but controlled by Chinese companies, such as Volvo. In contrast to US policy, Europe prefers to use the WTO rules to frame and secure fair competition with China rather than invoking geopolitical/national security arguments for import protectionism. As such, the EU is using trade statutes to constrain EV imports from China while keeping open to Chinese FDI in European production of batteries and vehicles. In October 2024, the European Commission imposed definitive countervailing duties (CVDs) for five years on EV imports that benefit from Chinese subsidies; rates vary by Chinese exporter, with BYD facing 17% CVDs and SAIC and others subject to 35.3% CVDs. Interestingly, Tesla’s exports to the EU from China only face duties of 7.8%. Some of these exporters may try to bypass the CVDs by investing in European production facilities. While Chinese investment in Europe is generally declining, greenfield investment in the automotive and EV battery sectors is increasing, especially in “friendly” countries such as Hungary.

The automotive sector is a good case study for understanding the evolution of US and European trade preferences toward China, as it is also one of the areas of European industrial excellence. We doubt Europe will follow the aggressive and WTO-inconsistent policy pursued by the Biden and Trump administrations. Limiting EU actions to countering unfair trade practices and time-limited safeguard measures will provide some relief from Chinese import competition while encouraging Chinese FDI, especially in the EU auto market. That, in turn, could create friction in US-EU auto trade if the US imposes more stringent origin and ownership rules as a condition of US market access.

Export controls

In 2019, the Trump administration passed the Export Control Reform Act (ECRA), which gave the US executive branch more power to regulate dual-use exports. US export control measures added Chinese companies to the Commerce Department’s entity list, first hitting ZTE, then Fuijian Jinhua and then Huawei. The Biden administration continued in this vein, adding nearly 400 Chinese companies to the Entity List, expanding the range of technologies on the export control list and broadening foreign investment reviews. The explicit US objective was to create a “small yard, high fence” approach (i.e. to impose strict restrictions on a limited number of technologies with significant military potential, while maintaining normal economic exchanges in other areas). As military power becomes increasingly dependent on commercial innovation and given China’s policy of military-civilian fusion, the range of technologies to be controlled has grown, as has the size of the yard.

The Biden administration quickly realised that export controls against China would be effective only if allies joined Washington’s restrictions. This is because supply chains are global, there are multiple choke points – and they are not just controlled by US companies –, and Chinese companies could eventually replace some American suppliers with those from third countries. As admitted by a US official, ‘we recognize that the unilateral controls that we are putting in place will lose effectiveness over time if other countries don’t join us’.

The main targets of the US offensive to persuade other countries to join export controls were the Asia-Pacific countries – mainly South Korea and Japan – and then the European countries. But export control is a sensitive issue for Europe. First, there is a problem of competence: the Dual-Use Regulation, which regulates the export of dual-use technologies, is part of the EU’s Common Commercial Policy (CCP), an area of “exclusive” competence of the EU institutions. However, the Dual-Use Regulation contains specific provisions that delegate responsibility for implementation and enforcement to the member states. This creates uncertainty about who should take the final decision on export controls and leads to structural non-coordination at the European level, which causes frustration in Washington.

The issue of competence should not overshadow the political aspect around export controls. While European countries were determined to implement export controls along with financial sanctions against Russia, they are reluctant to apply these tools beyond that “exceptional” case. European policymakers are wary of aligning too closely with US restrictions on China for fear of economic repercussions from Beijing. The Europeans also fear that while multilateral export control regimes such as the Wassenaar Arrangement are ineffective because of the Russian veto, the US will continue to use minilateral – collaboration among a small group of countries or parties – and ad hoc arrangements to coordinate export controls in the long term. This could lead, for example, to the US conditioning access to critical technologies on further EU alignment with US export control policy.

The semiconductor case illustrates Europe’s problems in finding an autonomous position on export control. In Europe, the main target of the US diplomatic offensive was to coordinate export controls with the Netherlands, where ASML had a near monopoly on the production of lithography equipment needed for advanced semiconductors. The Netherlands therefore found itself under diplomatic pressure from the US side and tried to promote a European approach to the issue, but with great difficulty due to lack of EU competencies in this area and intra-European divisions. In the end, the Netherlands reached an agreement that imposed export control mechanisms on ASML that were very similar to, but formally different from, those in the US.

European problems are further complicated by the extraterritoriality of US restrictive measures. Under the Foreign Direct Product Rules, the US Department of Commerce can require any company anywhere in the world that uses US technology or intellectual property in its production processes to obtain a US license for its exports. This worries European companies, which may be forced to bifurcate their operations to serve the Chinese and American markets simultaneously, a problem shared by US allies in the Indo-Pacific.

It is difficult to predict the extent to which the Trump administration will increase restrictive measures against China, but it is likely that current restrictions on semiconductors will remain in place. As experts and members of the Biden administration have noted, it is also likely that Trump will continue to use export controls to target AI models. The Trump administration has expanded the list of AI chips to be checked (e.g. by including Nvidia’s H20s, a product that Chinese tech industry has relied upon in its effort to challenge US dominance in developing large language models). Political pressure is also already having some impact, as evidenced by OpenAI’s decision to restrict access in China to its Application Programming Interfaces (API), a platform that allows developers of other products to integrate its AI models.

On this issue, the US has already imposed extensive controls on the export of chips used in AI. Specifically, the US has created a three-tier licensing system for chips used in AI. The first tier – which includes members of the G7, key US allies in the Indo-Pacific and the Netherlands – will be unrestricted, while the third tier – which includes China, of course – will be fully restricted. Two aspects of this regulation could have important consequences for Europe: first, some European states will have no restrictions on purchasing AI chips – being in tier 1 –, while other European states will have restrictions – being in tier 2. This could weaken the coherence of the European position or lead other states to diversify their suppliers, even though China is not currently an exporter of computing power covered by this regulation. Second, and in the longer term, the Trump administration could use the tier system to move European countries up or down depending on how closely they comply with US preferences. It is unclear whether this would be an incentive for European states to align themselves more closely with the US, or whether it would lead them to diversify their suppliers while maintaining the EU’s push for technological sovereignty.

Conclusions

Transatlantic unity is crucial, as any cracks in the US-EU relationship would certainly be exploited by China for both commercial and security advantages. Competing with China was a top priority of the Biden administration. The new Trump administration is likely to continue both imposing restrictions on China – using a mix of tariffs and export controls – and pursuing domestic policies – some of which likely contravene WTO rules – that support American companies and allow the US to maintain a competitive edge in critical technologies. Europe may need to accept a continuation and deepening of export controls on advanced chips and other critical technologies.

If Trump raises import barriers against EU exports, it could greatly complicate transatlantic cooperation on export controls, especially if Washington continues to impose unilateral export controls. However, the tier system proposed by the US in its latest restrictions on AI chips could be a good pretext for upgrading all EU countries to tier 1, in return for a supervisory role for the European Commission in these regimes. While it is understandable that the US does not trust some member states that are seen as too pro-China, it could instead develop a relationship of trust with the European Commission, and export controls on critical technologies could be an example of a more centralised US-EU control room on China.

The fact that many European countries are moving to the right politically could bring them ideologically closer to the Trump agenda. This may be good news for the US in the short term, but in the long term it could fragment European integration and leave European countries moving disorderly within the competition between China and the US. In this case, it is interesting to note that China is pursuing a similar strategy to weaken Europe’s position and make it more fragmented and easier to influence.

Escalating transatlantic frictions through tit-for-tat retaliation can only weaken efforts to coordinate export control policies that serve both US and European interests. We suggest that European leaders instead seek to limit the internecine battle with the US over the scope of high-technology controls against China. But EU leaders have other partners in addition to the US in East Asia and Latin America that have shared concerns about Chinese competition in home and export markets.

For that reason, while managing transatlantic relations, the EU should seriously consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP already extends beyond its region with the entry of the United Kingdom and would welcome the deepening of trade and investment ties with the EU that some of the 12 CPTPP countries already have on a bilateral basis. This could be a pragmatic and realistic intermediate step that would help Europe compensate for the costs of aligning with the US on measures to restrict Chinese access to the most advanced Western technologies.

__________