France and Germany Propose Sweeping EU Trade Defense Tool Targeting Market Distortions

France and Germany have jointly called for expansive new powers for the European Commission to counter severe market distortions and shield the European single market, primarily amid mounting economic pressure from China. In a joint letter and policy paper submitted to Commission President Ursula von der Leyen on Monday, Paris and Berlin demanded fast-track legal mechanisms to restrict market access, diversify supply chains, and build coordinated defenses against foreign economic coercion.

The proposal highlights an unsustainable economic relationship with Beijing, noting that the European Union's trade deficit approached an estimated €1 billion per day in 2025. "We need a comprehensive framework to complement our toolbox with new legal instruments – in a lean and non-bureaucratic way," stated French President Emmanuel Macron and German Chancellor Friedrich Merz. The accompanying paper warned that a "massive industrial shock" threatens core European pillars, including pharmaceuticals, aerospace, automotive, industrial machinery, and chemicals.

Under the Franco-German plan, the proposed instrument would operate on a country-agnostic basis, targeting systemic distortions ranging from direct production subsidies to currency manipulation. To bypass bureaucratic paralysis, decisions would be approved under a comitology procedure that takes effect automatically unless rejected by a qualified majority of member states. The measures would encompass punitive tariffs as well as restrictions on licenses and intellectual property rights, mirroring aspects of the EU's existing Anti-Coercion Instrument.

European leaders are scheduled to deliberate on the joint proposal at next week's European Council summit, where France and Germany plan to push for rapid implementation. The initiative also demands a formalized assessment to prepare member states for likely foreign retaliation, tighter anti-dumping and anti-subsidy rules, and broad resource reallocation within the Commission to initiate trade defense investigations proactively.