Beyond Tariffs: How the EU Can Compete with China in ASEAN’s Digital Economy

As Europe’s competition with China increases, the EU is seeking greater partnership with ASEAN.

Europe is now grappling with the growing influence of China’s economic power within the continent. The EU has begun imposing restrictions on imports of Chinese-made electric vehicles (EV) and curbs on solar technology, such as solar inverters used in Europe’s clean tech industry (Medina, 2026; European Commission, 2024). Yet China’s economic influence in Europe still trails behind its dominance in ASEAN. Chinese exports to ASEAN reached almost US $60 billion in October 2025 while exports to the EU stood at roughly US $51,7 billion over a comparable period (Statista, 2026). Electric vehicles stand out as one of the products that dominate China’s exports to Southeast Asia.

Chart 1:  China’s Trade with ASEAN Compared to EU

China has been remarkably astute at targeting the ASEAN market, which has diverse tastes when it comes to vehicles amid dollar volatility that weakened many Asian currencies and pushed regional buyers further toward Chinese EVs. This “China Shock 2.0” is more complex this time and is compounded by the US-China trade war, which has pushed China to aggressively redirect its export focus toward ASEAN and Europe (Benner, 2026). Caught in this trade conflict, China appears increasingly comfortable leaning on both markets even though ASEAN remains its clear priority. China’s EV industry is well-positioned to capitalize on this, offering a wide range of brands spanning from luxury models to entry-level mainstream technology vehicles. It also has over 100 Chinese passenger car brands competing across nearly every price segment (Eco Motors News, 2025).

The consequences of this shift are also already visible on European soil. Even with high tariffs in place, the wide range of Chinese EV brands has kept sales momentum strong. Reducing dependence on China for around 80 percent of solar inverter supply remains a far tougher challenge (Transport & Environment, 2026; European Solar Manufacturing Council, 2025). Last year, China’s trade surplus with the EU even reached approximately US $411 billion, even as Europe’s own manufacturing sector remains under heavy strain (Benner, 2026).

Specifically, Chinese EV exports to Europe surged from $11 billion to $20.6 billion in Q1 alone this year. Chinese solar inverters are on track to dominate nearly the entire EU market, which is an estimated 95 percent share by the end of 2026 (Soapbox, 2026). Furthermore, as the continent’s largest industrial economy, Germany has been losing around 10,000 jobs a month. And to make matters worse, Europe is also losing ground in Asian markets, particularly in ASEAN, and seems to be caught on both fronts at once.

Chart 2: The Increase of Chinese Electric Cars Exports to EU

Chart 3: The Increase and Estimation of Chinese Solar Inverters Supply to EU

Beyond Tariffs: Rethinking the EU’s Strategy Toward ASEAN

Faced with this squeeze, the EU needs to reduce its dependency on China and lean primarily on defensive measures. Tariffs and restrictions may not be the right response. Amid a fast-moving and uncertain global landscape, the EU should urgently conduct a strategic assessment to strengthen external partnerships beyond China in order to close its current economic gap. Fortunately, the EU is not starting from zero: it already holds a positive strategic ambition for ASEAN. One of the two sides has been calibrating since at least 2015, when the EU launched its first dedicated ASEAN partnership strategy, opened a mission in Jakarta, and then upgraded to a full Strategic Partnership in 2020 and a new Plan of Action for 2023–2027. Yet the pace of that ambition has arguably not kept up with the speed at which China has deepened its own economic foothold in Europe (du Rocher, 2026).

This is where the opportunity lies. Amid this situation, ASEAN is the external partner outside the EU that still holds the most promising potential, provided the EU can read the gap that China has not yet deeply penetrated. ASEAN is currently building out a fast-growing digital trade sector, which in 2022 alone reached $387 billion and spans financial services and insurance (OECD, 2024). Alongside this, Asia’s e-commerce sector has also been expanding rapidly. Although ASEAN has shown signs of regulatory reform in this domain, its telecommunications, digital, and financial regulatory frameworks and infrastructures remain highly fragmented across member states (OECD, 2024). This is precisely where EU investors could step in to build cooperation without touching the normative conditions that remain the most politically sensitive issue for ASEAN. Engaging on this front would carry more comprehensive strategic weight in cybersecurity and telecommunications.

This fragmentation is precisely the gap between China and ASEAN in this domain. ASEAN remains far from centralized in its digital governance while China, by contrast, is already far more tightly coordinated. For the EU, this is a distinct advantage. As a regional institution that has fought its way through decades of integration across virtually every policy area, the EU is uniquely positioned to share that hard-won experience with ASEAN, offering a model of coordinated regional governance that China simply cannot replicate (Ilham, 2026).

A Path Forward: Four Pillars and a Shared Agenda

To fully capitalize on this potential, the region needs to facilitate cross-border e-commerce and digital trade along four key aspects: (i) data connectivity; (ii) logistics to facilitate the free flow of goods and services; (iii) financial connectivity to facilitate cash flows; and (iv) seamless links between cyberspace and the physical parts of the e-commerce network (Chen & Wei, 2025). These are the areas where EU expertise and investment could add the most value by helping ASEAN close its infrastructure and regulatory gaps. This can, in turn, give the EU a long term foothold in the region’s digital economy that goes beyond simple trade volume.

Ultimately, the EU should intensify its dialogue with ASEAN to build investment collaboration aimed at accelerating the convergence of digital security and network development across Europe. The EU is already one of the primary destinations for digital services and ICT hardware exports from Asian countries. This investment should be complemented by research and development exchanges involving the epistemic community of inter-regional business stakeholders, IT practitioners, and academics, to ensure that this development translates into a genuine win-win solution for both Europe and ASEAN.

References

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du Rocher, S. (2026) ‘CHOICE newsletter: How Europe and Southeast Asia de-risk from China’, China Observers in Central and Eastern Europe (CHOICE). https://chinaobservers.eu/choice-newsletter-how-europe-and-southeast-asia-de-risk-from-china/ (Accessed: 13 August 2026).

Eco Motors News (2025) ‘The multiverse of the Chinese car brands’, 4 November. https://www.ecomotorsnews.com/en/expertise/multiverse-chinese-car-brands (Accessed: 14 August 2026).

European Commission — Access2Markets (2024) ‘EU Commission imposes countervailing duties on imports of battery electric vehicles (BEVs) from China’ [Press release], 30 October. https://trade.ec.europa.eu/access-to-markets/en/news/eu-commission-imposes-countervailing-duties-imports-battery-electric-vehicles-bevs-china (Accessed: 15 August 2026).

European Solar Manufacturing Council (ESMC) (2025) ‘New EU Economic Security Doctrine flags dependence on solar inverters from China as high-risk’ [Press release], 16 December. https://esmc.solar/new-eu-economic-security-doctrine-flags-dependence-on-solar-inverters-from-china-as-high-risk/ (Accessed: 15 August 2026).

Ilham, A.M. (2026) ‘Learning from the EU: Strengthening ASEAN fiscal integration to mitigate China’s potential economic coercion’, Australian Outlook. Australian Institute of International Affairs. https://www.internationalaffairs.org.au/australianoutlook/learning-from-the-eu-strengthening-asean-fiscal-integration-to-mitigate-chinas-potential-economic-coercion/ (Accessed: 13 August 2026).

Medina, M. (2026) ‘EU restricts Chinese solar inverters and opens market to European suppliers’, Inspenet, 14 August. https://inspenet.com/en/news/eu-restricts-chinese-solar-inverters-in-europ/    (Accessed: 15 August 2026).

OECD (2024) Digital trade review of the Association of Southeast Asian Nations. Paris: OECD Publishing. https://www.oecd.org/en/publications/digital-trade-review-of-the-association-of-southeast-asian-nations_abd6f44a-en.html (Accessed: 13 August 2026).

Reuters (2026) ‘Factbox: EU tariffs on imports of China-made EVs’, 11 February. https://www.reuters.com/world/china/eu-tariffs-imports-china-made-evs-2026-02-11/ (Accessed: 15 August 2026).

Statista (2026) ‘Chinese exports to ASEAN and EU rise as U.S. trade falls’ [Graph]. Based on data from the General Administration of Customs of China. https://www.statista.com  (Accessed: 13 August 2026).

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Wei, J. and Chen, Y. (2025) ‘The driving forces, challenges and countermeasures of China-ASEAN digital trade cooperation governance under the new development pattern’, International Journal of Finance and Investment, 3(3), p. 28. https://www.scirp.org/journal/paperinformation?paperid=124634  (Accessed: 14 August 2026).