Navigating EU-China Tensions: Strategic Sectors for Growth in China-France Partnerships

Amid escalating trade disputes between the EU and China, investors are seeking clarity on which sectors can thrive despite short-term headwinds. China-France bilateral cooperation in rare earths, electric vehicles (EVs), and luxury goods offers a compelling case study. While tariffs and geopolitical friction dominate headlines, strategic partnerships in these industries are laying groundwork for long-term growth. Here's why investors should pay attention—and where to allocate capital.

1. Rare Earths: A Foundation of Technological Supremacy

China dominates 80% of global rare earth production, a critical input for EV batteries, semiconductors, and renewable energy systems. France, a key EU player, faces a dilemma: it needs Chinese rare earths for its tech and defense sectors but supports EU efforts to diversify supply chains. Recent developments highlight opportunities in this tension:
- Diplomatic Leverage: During Foreign Minister Wang Yi's European tour in June 2025, France emerged as a mediator in EU-China talks. While the EU raised concerns about China's export restrictions, Paris emphasized “strategic autonomy” over confrontation, signaling a path to negotiated access.
- Investment Angle: Companies involved in rare earth processing or tech integration, such as France's Solvay (SOLB.PA) or China's Baowu Steel (600019.SH), could benefit from bilateral agreements. show steady growth despite tariffs, underscoring demand resilience.

2. Electric Vehicles (EVs): A Market in Flux, but Still Expanding

The EU's June 2025 tariffs on Chinese EVs (up to 45%) and its probe into BYD's Hungary plant have fueled volatility. Yet the sector's long-term trajectory remains bullish:
- Cooperation Over Conflict: The EU and China are negotiating a “price undertaking” mechanism to replace tariffs, which could stabilize trade flows. BYD's stock (002594.SZ) dipped after the EU's probe but rebounded as talks advanced—a pattern likely to repeat.
- French Players: Renault and PSA (Stellantis) are deepening ties with Chinese partners like CATL (300750.SZ) for battery tech. Paris's push for green alliances, framed during Wang Yi's July summit preparations, could accelerate joint ventures in EV infrastructure.
- Investment Takeaway: Focus on EV supply chains. reveals a correlation between diplomatic progress and market stability.

3. Luxury Goods: Resilience Through Cultural and Digital Adaptation

The EU-China brandy tariff dispute (up to 34.9%) and data privacy clashes (e.g., TikTok's €530M fine) have tested luxury sectors. Yet French brands like LVMH (MC.PA) and Kering (PRTP.PA) are adapting:
- Chinese Consumer Power: Post-pandemic outbound tourism and digital engagement (e.g., Xiaohongshu's role in travel-inspired purchases) are fueling demand. Dior's pop-up shops in Bali and Phuket, targeting Chinese tourists, exemplify this strategy.
- Sustainability as a Selling Point: Gucci's use of recycled materials and Louis Vuitton's “cultural storytelling” align with Chinese consumers' preference for ethical luxury. shows strong alignment.
- Investment Play: Luxury stocks with strong digital footprints and sustainability narratives—such as Richemont (CFR.SW), which acquired eco-focused Vhernier—could outperform amid trade noise.

The Diplomatic Catalyst: Wang Yi and the July Summit

Foreign Minister Wang Yi's shuttle diplomacy in June-July 2025 is pivotal. By framing the EU-China summit as a platform to address “intertwined turmoil and transformation” (as Xi Jinping did with Germany), China is signaling a shift from confrontation to pragmatic deals. Key outcomes to watch:
- Rare Earths: A joint EU-China working group on critical minerals could emerge, easing export bottlenecks.
- EVs: A price floor agreement might avert further tariffs.
- Luxury: Resolving the brandy dispute could set a precedent for sector-specific compromises.

Investment Strategy: Balance Short-Term Pain with Long-Term Gain

• Diversify: Allocate across rare earths, EVs, and luxury stocks.
• Focus on Resilience: Prioritize firms with cross-border partnerships (e.g., BYD-Stellantis) or tech leadership (e.g., CATL).
• Monitor Diplomacy: The July summit's success or failure will recalibrate sector valuations.

The EU-China trade war isn't going away, but neither are the economic ties binding France and China. Investors who look past tariffs to the deeper collaboration in tech, mobility, and luxury stand to capitalize on a fragmented but growing market. As Wang Yi's shuttle diplomacy shows, the path to profit lies in betting on pragmatism over ideology.

A stable trade relationship could mitigate currency risks for multinational firms.