The EU’s Industrial Accelerator Act (IAA) is pushing the UK toward an economic confrontation with China it would rather avoid. The IAA plans to introduce new ‘Made in Europe’ obligations, conditioning access to certain public subsidy and procurement schemes on the use of sufficient local, European, content. This is intended, in part, to protect European industry from cheap, high-quality, Chinese goods such as hybrid and electric vehicles (EVs).
The UK government, seeking closer economic integration with the EU, wants ‘Made in Europe’ provisions extended to include its firms. But key EU member states are conditioning any extension on the UK aligning with EU economic security measures.
A 15 October Franco-German paper said that ‘Made in Europe’ treatment for the automotive sector should only be extended to the UK and a small group of other partners on the condition of both reciprocity and ‘dynamic alignment with EU conditions related to third countries’ investments and on relevant EU trade defense measures’.
In practical terms, France and Germany want the UK to impose tariffs on Chinese EVs to prevent the further erosion of their manufacturers’ UK market share. They also want the UK to impose stricter conditions on foreign direct investment into key manufacturing sectors to prevent Chinese firms from qualifying for future EU subsidies or procurement schemes via their UK-located operations.
With the next EU–UK summit scheduled for 20 November, this creates a problem for Prime Minister Andy Burnham’s new government. Much of the media reporting has focused on the question of whether the UK will agree to impose tariffs on Chinese vehicles. But the focus on investment is arguably more consequential, given the UK’s desire to attract Chinese automotive manufacturing facilities to Britain.
The UK’s China problem
Until now, the UK’s preferred approach to China has been one of cautious pragmatism. It has demonstrated a willingness to intervene with tariffs or other restrictions in the event of acute economic or national security concerns. See, for example, the decision to impose permanently high tariffs on certain steel products or the blocking of a proposed £1.5 billion investment in offshore wind by the Chinese firm Ming Yang.
However, the UK has continued to court Chinese investment in the automotive sector and deepen trade ties in what it considers non-sensitive areas. And, though it has made a commitment to the US to strengthen supply chain security in respect of steel and pharmaceuticals as part of the 2025 Economic Prosperity Deal, there has so far been limited evidence of substantive implementation.
The UK’s reluctance to fully align with either the EU or US approach to China is understandable, given its relative size and economic weight. It wants increased trade and investment and relies on Chinese renewables for its decarbonization objectives.
But the UK can certainly not afford to be shut out of EU procurement and public subsidy schemes. The EU’s proposed safeguard on hybrid vehicle imports – which would restrict imports above specified quota levels – will also create its own pressures, as Chinese vehicles risk being diverted onto the UK market.
It is therefore less of a question of whether the UK will align itself with EU economic security measures than how.
The price to pay
One route would be for the UK to replicate EU measures wholesale. This would see the UK replicate EU tariffs on EVs and the new hybrid safeguard. And it could potentially include future interventions targeting chemicals, plastics, batteries and wind turbines.
The UK would also need to consider equivalent restrictions on foreign investment, reflecting proposed IAA conditions relating to ownership limits, joint ventures, workforce localization and local content in key manufacturing sectors.
Yet this approach is not straightforward. The UK does not necessarily have the legal tools available to replicate EU measures and has historically been cautious about breaching its international obligations.
China would also be incentivized to retaliate. That could mean anything from initiating its own tariff measures against UK exports to imposing restrictions on rare earths or battery inputs.
The UK is not the only country in the region facing pressure from the EU to impose more stringent controls on Chinese trade and investment as a condition for access to the EU market. Turkey, Morocco and Switzerland are in a similar position. China will be wary of a negative precedent being established and keen to demonstrate that aligning with EU restrictions comes at a price. Indeed, Beijing may have a greater incentive to make an example of the UK than escalate its confrontation with the EU.
An alternative would be for the UK to pursue similar outcomes more slowly, using traditional trade defence tools. An anti-subsidy investigation into Chinese electric vehicles, for example, would take around a year to conclude but could provide the government with some breathing space. A safeguard investigation, potentially justified by rising Chinese imports and the risk of trade diversion from the EU, could offer a quicker route.
Neither would guarantee the outcome the EU wants. And both would need to satisfy the relevant legal requirements. But they would at least allow the UK to argue that it was responding to evidence of harm to its own industry, rather than simply implementing EU demands.
A safeguard also has the benefit, or not, of generally applying to imports regardless of origin, allowing the UK to argue it is not singling out China. It also remains possible that Brussels will attach more importance to the political signal of alignment than to the precise form of the measures adopted.
Yet this still leaves open the question of Chinese investment into UK manufacturing. This is of particular importance in the automotive sector. And it will prove more difficult to address without compromising the government’s wider economic objectives.
The government could also seek to demonstrate progress by announcing new economic security tools, such as a proposed anti-coercion instrument. It could also introduce specific restrictions on foreign investment, or repackage existing initiatives, such as new cybersecurity-related restrictions. Such announcements might demonstrate goodwill towards Brussels but they would not automatically satisfy EU demands for alignment on specific measures.
The most likely outcome is that the UK seeks to navigate a course through these competing demands, giving the EU just enough of what it wants, while delaying implementation, hoping to avoid the worst response from Beijing. Delay may buy time with Brussels. But Beijing will likely view any such commitment as setting a precedent and retaliate against the UK accordingly.
There will be a price for the UK to pay either way. The only question is how successfully the government can minimize it.