When Maroš Šefčovič set out his strategy for engaging with China to European Union ambassadors in July, he had a warning for governments urging tougher action on trade against Beijing.

“Sometimes, it’s even popular to start a trade war, but it’s very difficult to finish it,” the EU trade chief recalled later in an interview with POLITICO.

Three months on, Šefčovič has secured a first breakthrough, reaching a deal in Beijing last week to sharply reduce imports of Chinese hybrid cars. The symbolic win marks a small step toward stabilizing a trading relationship that Brussels believes has reached a dangerous tipping point.

The agreement, which will initially cap imports at 350,000 vehicles a year, marks a significant concession from Beijing, whose carmakers have been flooding the European market with increasingly competitive vehicles. 

For Šefčovič, who negotiated last year’s tariff truce with Donald Trump, the agreement suggests his strategy of engagement backed by the threat of tougher trade measures may be starting to pay off.

Šefčovič agreed to launch the trade dialogue at a meeting with Chinese Commerce Minister Wang Wentao in Brussels in late June.

By focusing initially on cars — an area where the EU has leverage as one of the few major markets still open to Chinese manufacturers — the Slovak commissioner hoped to secure a confidence-building win before tackling thornier questions, from critical raw materials to China’s vast industrial overcapacity.

At the same time, he worked to coalesce European governments behind a parallel effort to strengthen the bloc’s trade defenses, reinforcing his negotiating position with the threat of tougher action to bring down the EU’s €1 billion-a-day trade deficit with China.

The hybrid deal, however, is only the opening move in a much bigger contest.

EU leaders meet in Brussels on Thursday to take stock, weighing the benefits of continued engagement against demands for more aggressive action to protect European industry from a surge in Chinese imports.

The meeting will test whether a commissioner who has made a career of finding compromises with difficult partners can maintain Europe’s support for a strategy whose success is far from assured.

“You have to deal with the same partner across the table,” Šefčovič said of the risks of starting a trade war, in the interview with POLITICO in August. “So if you can avoid this, it would be much better.”

Market power

Šefčovič’s opening move was to focus on an area where Europe still has leverage: access to its market of 450 million people.

China’s fiercely competitive manufacturers have become global powerhouses, but they are struggling with weak demand at home. A prolonged property slump has weighed on consumer spending, while cutthroat competition has triggered price wars. Domestic sales of passenger vehicles fell 28% in September from a year earlier.

That makes overseas markets increasingly important. With the U.S. shutting out Chinese imports, Europe remains one of the most lucrative markets still open to Chinese manufacturers.

Šefčovič gambled that Beijing would prefer to accept limits on exports rather than risk losing access to the European market altogether.

He set his sights on the automotive sector, where Chinese manufacturers have been making rapid inroads. Chinese carmakers accounted for just 2% of both the European hybrid and plug-in hybrid markets in 2024; by the first half of 2026, their respective shares had risen to 14% and 25%, industry figures show.

The Commission was preparing to restrict hybrid imports even without an agreement. But a negotiated settlement also offered Šefčovič something valuable politically: evidence that engagement with Beijing could deliver tangible results.

The negotiations were intense, according to a person familiar with the talks on the Chinese side.

“It was very, very tough,” the person said, speaking on condition of anonymity to discuss the closed-door negotiations. “Both sides hadn’t seen such intensity in a long time. No summer break, no holidays. They worked around the clock even one, two days prior to Šefčovič’s trip to Beijing.”

While pursuing dialogue, Brussels also wanted to convince Beijing that it was prepared to take tougher action if the negotiations failed.

Šefčovič had earlier flagged plans for a new “diversification instrument” that would require businesses in critical sectors to source essential inputs from at least three suppliers — a move to reduce China’s ability to exploit Europe’s dependence on its critical raw materials.

Then, just three days before Šefčovič’s trip to Beijing, France and Germany raised the stakes.

President Emmanuel Macron and German Chancellor Friedrich Merz called for a powerful new trade weapon that would allow Brussels to restrict — or even shut off — access to the European market within days for countries deemed to have severely distorted the bloc’s single market.

The proposal did not explicitly name China, but Beijing was its obvious target. 

Keeping it together

EU leaders are expected to welcome the agreement but also press the Commission to act quickly to strengthen the bloc’s trade defenses, according to several diplomats. The understanding reached in Beijing has bought time, but hasn’t settled how far Brussels should go if Chinese exports keep rising or negotiations stall.

“We’re losing thousands of jobs in industry; olive oil and ice cream won’t solve the core issue,” said one EU diplomat after Šefčovič briefed ambassadors on Sunday, referring to reported deliverables from the talks.

A senior German official welcomed the Beijing deal as a first step in the right direction. “It’s a positive sign — which, of course, doesn’t fully solve the problem of the trade deficit with China,” the official said.

But Berlin’s support for a tougher line might prove short-lived.

Alicia García-Herrero, a senior fellow at the Bruegel think tank, argued that Beijing’s concessions had been calculated to assuage Berlin, given the importance of the automotive industry to the German economy.

“I’m just hoping Merz doesn’t turn away from the letter he sent to the Commission,” she said. With the German chancellor politically weakened at home, García-Herrero fears he may be reluctant to risk a prolonged confrontation: “I worry Merz will take this quick win and run.”

That leaves Šefčovič facing a balancing act: keeping EU governments on board with continued engagement with China while maintaining a credible threat of tougher action if the talks break down. 

“I expect [leaders] to give the Commission a nod to move ahead with other trade defense measures. China may see this as a betrayal. If that is the case, we could return to conflict very quickly,” said Noah Barkin, a senior adviser at the Rhodium Group’s China practice.

The battle ahead

For Šefčovič, the challenge now is to turn a limited breakthrough on cars into a broader rebalancing of trade with China — while buying Europe time to strengthen its defenses should the negotiations fail.

“There is an argument for doing to China what China had done to Europe for years — bogging Beijing down in dialogue and process while Europe gets its tools in place. But the EU needs to make full use of the time that these talks provide,” said Rhodium’s Barkin. 

The trade chief is expected to hold a video call with Wang in January, before the two meet again next March. Those talks will test whether Beijing is prepared to make further concessions in sectors where European industry is increasingly on the defensive, including chemicals.

Another priority is critical raw materials, where China has agreed to continue issuing export licenses for rare earths. Beijing’s grip on their supply gives it considerable leverage over European manufacturers, underscoring the limits of Šefčovič’s negotiating position.

The Commission is also preparing two proposals for December: the diversification instrument, aimed at reducing dependence on Chinese supplies, and a mechanism to shield European industries and regions from retaliation.

The scale of the challenge is daunting. Chinese hybrid imports were worth €6.7 billion in the first half of 2026, against an EU-China trade deficit of €360 billion last year. The agreement offers some relief to European automakers but does little to address the underlying imbalance.

Brussels hopes the hybrid safeguard can serve as a blueprint for protecting other industries facing a surge in Chinese imports.

“We hear our industry. That includes the chemical industry, the wind industry, the furniture industry. We know where there’s a surge, and we know what hits the hardest in terms of our deindustrialization,” a senior Commission official said on Monday.

Šefčovič acknowledged the limits of dialogue in his August interview, warning that negotiations would become harder to sustain without tangible progress.

“What would be very important is to come back to say there is acknowledgment of the issue and there are already some pilot schemes which we want to test and to see if they are working,” he said.

“But if simply there will be no action, then of course it will be much more difficult for us just to talk about these issues.”

Jordyn Dahl in Brussels and Hans von der Burchard in Berlin contributed reporting. 

BRUSSELS — Ryanair has accused rivals Lufthansa and Air France-KLM of trying to ground the low-cost carrier by alleging that its ownership structure violates EU rules.

The two legacy airlines, which face growing competition from budget carriers, belong to the European Network Airlines Association, a lobby group that has filed a legal challenge over Ryanair’s share ownership.

“Now they’re in the Irish High Court seeking to have our license suspended and Ryanair grounded,” Ryanair CEO Michael O’Leary said Thursday in Brussels.

The association confirmed to POLITICO that it has spent months urging EU and Irish aviation authorities to investigate whether Ryanair complies with the bloc’s ownership and control rules.

Under those rules, airlines must be majority-owned and effectively controlled by EU nationals or entities to hold an EU operating license. ENAA argues that Ryanair no longer meets those requirements, pointing to the airline’s March announcement that only 30% of its shares are held by EU nationals. O’Leary, an Irish citizen, holds 4% of the stock.

When the Irish Aviation Authority seemed “reluctant to engage on the matter,” ENAA took the matter to court. If Ryanair loses the case, it could be forced to change its ownership structure. The carrier’s operating license would only be suspended if it does not comply with the verdict.

Ryanair has rejected the allegations, arguing that its non-EU shareholders do not have voting rights, which means the airline is under EU control.

In an emailed statement, Ryanair accused its rivals of attempting “to restrict competition and choice for EU air travel” by challenging its operating license.

Grounding risk seen as remote

Augusto Viansson Ponte, a London-based director at Alton Aviation Consultancy, doubted that the legal case would be easily dismissed, but also said it was unlikely that Ryanair would lose its operating license.

“ENAA’s request is sufficiently well-founded to justify examination, but it is way too early to say that Ryanair is violating the rules,” he said.

Regardless of the legal outcome, Viansson Ponte said that a “likely first step would be corrective measures, not immediate grounding.”

Even if the court rules against the budget airline, Ryanair would have several options to address any compliance problems, the analyst said. 

“Ryanair could restrict non-EU [share] purchases, facilitate transfers of shares to EU investors, implement targeted share buybacks or restructure its licensed subsidiaries for example,” he said, adding that the process “should be manageable” for the airline.

Enemies in court, friends in Brussels

Despite their spat, Ryanair, Lufthansa and Air France-KLM all belong to the Brussels-based Airlines for Europe (A4E) lobby, and all are pushing for a reform of the Air Services Regulation, which sets the rules for operating in the EU, including ownership and control.

The lobby’s members jointly support providing “more flexibility … and tackle the risks linked to this change,” they said in feedback to the Commission.

“The potential way forward is to allow institutional investors from selected third countries to hold a limited percentage of shares … which would count towards the EU share of ownership,” the joint position adds. 

If EU lawmakers adopt the proposal, “that would allow a greater access to liquidity in those markets for airlines,” said easyJet CEO Kenton Jarvis, whose company is set to be acquired by U.S. investment firm Apollo.

However, the legal battle between the Irish budget airline and legacy carriers may fracture A4E. O’Leary threatened on Thursday at an A4E press conference to leave the lobby group unless the legal case is dropped by the end of the year. 

A4E later acknowledged that its members “may have differing views on certain issues, [but] we share a common interest in advancing our collective work for the benefit of European passengers, particularly in an increasingly complex and costly regulatory environment.”

Neither Lufthansa nor Air France-KLM commented on O’Leary’s threat to leave A4E.

LONDON — British Prime Minister Andy Burnham confirmed Friday he will legislate to ease restrictive non-compete clause rules for workers — but stopped short of committing to a ban.

​Burnham said in a speech in Manchester that he wants to “make sure that non-compete clauses will no longer be a barrier to hiring for our most promising start-ups and scaling firms” — but did has yet to set out the extent of the crackdown.

​The scope of the new rules will come later, ahead of legislation. POLITICO first reported the planned crackdown Thursday.

​The government’s action would be the “Bosman ruling for the innovation sector,” Burnham said at a government-backed innovation summit in Manchester. That’s a reference to a 1995 European Court of Justice decision that changed how star players are transferred between football clubs.

​Potential changes to non-compete clauses in workers’ contracts began in 2025 under Burnham’s predecessor Keir Starmer. The proposals ranged from a total ban on non-compete clauses to a partial ban, such as allowing non-compete clauses only for workers earning more than a set salary threshold, or limiting their length.

​The vow from Burnham comes after intense lobbying lobbying for and against the restrictions in workers’ contracts. U.K. tech start-ups claim the curbs are undermining economic growth, while City firms and trade bodies, including TheCityUK and the Managed Funds Association, are against any changes.

LONDON — The U.K. government is planning to commit to a full or partial ban on non-compete clauses in workers’ employment contracts, six people with knowledge of the discussions told POLITICO.

All six of the people, who were granted anonymity to discuss government policy, said they believed an announcement is due imminently and could be made as soon as Friday. Three of those people said they believed the announcement was likely to be fronted personally by Prime Minister Andy Burnham, who is expected to give a speech Friday.

The government of Burnham’s predecessor, Keir Starmer, set out options in November 2025 to limit the use of non-compete clauses, which aim to restrict a person’s ability to work for or set up a competing business after they leave their job.

The founders of more than 20 U.K. tech start-ups wrote to the government last month saying the restrictions, along with long notice periods and enforced gardening leave, were and “undermin[ing] the innovation that drives economic growth”.

The options set out 11 months ago ranged from a total ban on non-compete clauses to a partial ban, such as allowing non-compete clauses only for workers earning more than a set salary threshold, or limiting their length.

However, two of the six people quoted above said that the government would stop short of backing a specific option at this stage.

Ministers are expected to set out a broad intention of ensuring that non-compete clauses are no longer a hiring problem for start-ups and innovative firms, but finer details will be worked out further down the line in consultation with industry.

No. 10 declined to comment.

The announcement comes after Chancellor John Healey said he wanted to tackle the costs for businesses in his budget on Oct. 28. One of the six people quoted above said: “They want to sell it as pro growth and freeing up the labour market.”

AI Minister Kanishka Narayan said last week that the government was “working extremely rapidly” on potential changes to the system.

Non-compete clauses are common in the financial services industry. The lobby group TheCityUK opposed a ban earlier this year, arguing that non-compete clauses “promote competition and innovation in high-value industries” as they are often the “only way to pre-emptively protect confidential information and intellectual property.”

The government argued last year that even though non-compete clauses are “unenforceable” as a starting point under current law, ministers were “concerned about the behavioural effect of including a non-compete clause in an employment contract. Even if broadly drafted and unlikely to be enforceable, workers may perceive the clause as binding and comply with it for fear of legal repercussions.”

LONDON — Germany wants the U.K. to raise tariffs on Chinese electric vehicles in exchange for protection from Made in Europe rules, according to a person familiar with Berlin’s position.

Friedrich Merz’s government believes the move would show reciprocity on trade and counter accusations from other EU member states that Britain is trying to “cherry pick” the benefits of EU membership, said the person, who was granted anonymity to discuss closed-door talks.

It comes as Prime Minister Andy Burnham met with the German chancellor on his first official visit to the country this week.

Burnham and Merz were due to talk about possibilities for Britain’s future relationship with the EU — after the British prime minister put rejoining the bloc back on the table of U.K. politics for the first time in a decade.

Berlin’s position on EV tariffs is significant as Germany has broadly backed a tolerant policy towards the U.K. on trade matters since Brexit — in contrast to more hard-line positions taken by countries like France.

The EU is in the process of drawing up new Made in Europe rules that would favor European producers over those outside the bloc — in response to trade practices by competitors like China and the United States.

The U.K. is worried that the measures will hit British business — especially automakers — and wants assurances from Brussels that it will get an opt out. If Berlin gets its way, those assurances could be dependent on emulating EU trade policy with regard to Chinese EVs.

Predatory strategy

Germany’s vaunted car industry, arguably the jewel in the country’s economic crown, has faced stiff competition from Chinese imports in recent years.

EU countries have accused China of dumping low-cost, state-subsidized electric vehicles into the European market and in December 2024 imposed countervailing duties as high as 35.3. percent on some manufacturers.

Industry Commissioner Stephane Séjourné accused China of pursuing a deliberate “predatory strategy” with state subsidies to the tune of €10,000 per vehicle.

The U.K.’s Trade Secretary Jonathan Reynolds told POLITICO last month that the government was keeping tariffs “under review, to be frank, more closely than lots of other issues” and that “different parts of our own sector want different things from” the government’s policy.

Hamish Falconer, the U.K.’s minister for European relations, told POLITICO’s Brussels Playbook Podcast this week that he was “surprised” at reports tariffs might be a condition of Made in Europe opt-outs, adding: “That’s not the kind of conversation that I’m having with my European counterparts.”

Going ahead with higher tariffs risks alienating Beijing, which has expressed serious concerns about the policy. It would also raise the price of electric vehicles on the market, potentially making it harder for the government to meet its decarbonization targets.