The Information Technology and Innovation Foundation has delivered a sharp warning to Brussels: Europe’s supply chain diversification strategy will fail unless it explicitly targets Chinese trade aggression.
China’s subsidized manufacturing overcapacity continues to displace European producers across multiple sectors. Meanwhile, Beijing’s economic coercion tactics have eroded the revenue streams that innovative firms need to fund research and development. The stakes have grown urgent, with German manufacturers losing ground in China, in third-country markets, and increasingly at home.
The numbers tell a stark story. Germany’s share of global value-added output across 10 advanced industries dropped from 10.4 percent in 1995 to 5.9 percent in 2022. Over the same period, China’s share surged from 3.5 percent to 24.9 percent. A May 2026 report identified a cumulative drag from declining net exports equivalent to 3 percent of German GDP since late 2023.
Intellectual property theft compounds the damage. Counterfeiting and piracy cost legitimate producers up to €60 billion in annual sales across 11 EU sectors in 2019. A 2019 survey found that 28 percent of medical-device respondents and 27 percent of pharmaceutical respondents reported being compelled to transfer technology in China.
The core problem, according to ITIF, lies in the initiative’s country-agnostic design. Treating dependencies on trusted allies the same as vulnerabilities to Chinese coercion wastes resources and could weaken the allied industries Europe needs. President Ursula von der Leyen announced Diversify EU as part of a “substantial rebalancing” in trade relations with China, yet the same statement described the initiative as country-agnostic.
ITIF recommends organizing the initiative around allied production capacity through Strategic Techno-Economic Agreements. Product-specific rules of origin should prevent Chinese goods from gaining preferential access after minor processing in partner countries. Development finance should build alternative supply chains in critical inputs like magnesium, gallium, and ferro-tungsten, where China supplied 92 percent, 77 percent, and 68 percent of EU imports respectively in 2025. Joint trade investigations, reciprocal market access conditions, and coordinated export controls would round out the framework. Better supply chain information remains essential, so firms can identify upstream vulnerabilities and commercially viable alternatives before compliance requirements kick in.
