How Madrid turned a transatlantic trade shock into a bid to reposition Europe between Washington and Beijing
Peacock Tariff Consulting · Analysis · June 2026
When Donald Trump unveiled his sweeping “reciprocal” tariff regime in April 2025, the shock rippled outward in ways the White House may not have fully anticipated. Among the loudest responses came not from Beijing or Brussels, but from Madrid. Spanish Prime Minister Pedro Sánchez, mid-way through an Asian tour, used the moment to make an argument that had been simmering on the edges of European debate for years: that the European Union should treat the rupture in transatlantic trade as a reason to rebalance its relationship with China rather than to harden it. Spain, he suggested, could be the bridge.
More than a year on, Sánchez’s gambit looks both vindicated and unresolved. Chinese capital is now flowing into Spanish battery plants, the EU and China have edged toward a truce over electric-vehicle tariffs, and the transatlantic relationship has lurched from crisis to fragile deal and back toward friction. Yet the deeper question Sánchez forced onto the agenda – whether Europe’s answer to American economic coercion is to lean east – remains very much contested inside the bloc. This briefing traces how Spain’s position emerged, what underpins it, and why it has divided European capitals.
A briefing over the Pacific
The framing crystallised in early April 2025. Speaking to reporters before landing in Hanoi during a swing through Vietnam and China, Sánchez argued that the European Union needed to change its stance toward China – and China toward Europe – and that Spain could play a role as a builder of “more balanced alliances” between the two. The timing was deliberate. Trump had just announced steep new tariffs on most of the world, and Sánchez was the first European leader to travel to China after the announcement.
It was not a one-off. The April trip was Sánchez’s third visit to China in roughly two years, the cadence itself a signal of how central Beijing had become to his economic strategy. On 11 April 2025 he met President Xi Jinping in the Chinese capital. Xi, for his part, was happy to supply the soundbite: he told Sánchez that China and Europe should “jointly resist unilateral bullying practices” – a thinly veiled reference to Washington – and called for the two sides to defend an open global trading system. For Beijing, a sympathetic European leader arriving in the immediate aftermath of an American tariff broadside was a gift, and Chinese state media amplified the visit accordingly.
“The European Union needs to change its stance toward China, and China toward Europe – Spain can be a builder of more balanced alliances.”
Sánchez was careful to frame his message as one of balance rather than alignment. He repeatedly invoked the EU’s large trade deficit with China – a gap that has exceeded $300 billion – as evidence that the relationship needed recalibration in Europe’s favour, not merely warmer ties. But the political subtext was unmistakable. At a moment when the United States was treating allies and rivals alike as targets, Madrid was signalling that Europe should keep its options open rather than reflexively close ranks with Washington against Beijing.
Washington pushes back
The reaction from the Trump administration was swift and blunt. US Treasury Secretary Scott Bessent warned that countries cosying up to China were effectively “cutting their own throat,” arguing that closer alignment with Beijing would expose Europe to the same trade distortions – cheap, subsidised exports – that Washington was trying to wall off. The remark was widely read as aimed squarely at Sánchez’s outreach.
The exchange exposed the strategic bind Europe found itself in. The United States was simultaneously imposing tariffs on European goods and demanding that Europe align with American policy toward China. From Madrid’s vantage point, that was an untenable combination: Europe was being asked to absorb economic pain on Washington’s behalf while receiving tariffs rather than protection in return. Sánchez’s implicit retort was that if the transatlantic bargain no longer offered Europe security in trade, Europe had every right to diversify its partnerships.
Skeptics, however, noted that the same logic could cut the other way. Beijing’s structural overcapacity – in EVs, steel, solar panels and batteries – posed a genuine threat to European industry, and a hasty pivot risked trading dependence on an unreliable ally for dependence on a systemic rival. That tension would shadow every subsequent step of the debate.
Why Spain, and why now
Spain’s enthusiasm was not abstract. Under Sánchez, Madrid has actively courted Chinese investment in exactly the sectors where Europe is trying to build a green-industrial base, and it has had concrete results to show for it. During and around the 2025 visit, Spain lined up billions of euros in commitments spanning battery production, renewable energy and electric-vehicle manufacturing, alongside agreements in pharmaceuticals and agricultural and medical products. Madrid could plausibly claim to have become China’s preferred partner in Europe at a moment of acute economic uncertainty.
The flagship example arrived later in the year. In November 2025, China’s CATL – the world’s largest battery maker – and the carmaker Stellantis broke ground on a joint-venture battery plant in Zaragoza, in northern Spain, a project valued at roughly €4.1 billion. The factory is designed to produce lithium-iron-phosphate cells, with a planned annual capacity of up to 50 gigawatt-hours – enough to supply batteries for around 750,000 electric vehicles a year – and is slated to begin output by the end of 2026. CATL’s chief executive Robin Zeng met Sánchez ahead of the announcement, and the prime minister publicly thanked both companies for their “firm commitment” to Spain.
It was not the only such bet. Spain backed a separate battery project by the Chinese-owned manufacturer Envision AESC with some €300 million in grants and loans, covering close to a quarter of the project’s costs. The pattern was clear: Madrid was prepared to put public money and political capital behind Chinese-linked manufacturing in a way that several larger member states were not.
Crucially, this investment courtship was tied to a policy choice. When the EU moved in 2024 to impose anti-subsidy tariffs on Chinese-made EVs, Spain abstained rather than voting in favour – and Sánchez openly urged Brussels to reconsider penalising Chinese cars in order to avoid a trade war. Critics inside and outside Spain saw a transactional logic at work: the decision to locate the Zaragoza plant in Spain followed that abstention, and reinforced the impression that openness to Beijing was being rewarded with factories and jobs. Supporters countered that Spain was simply being pragmatic about where Europe’s clean-energy supply chains will actually be built.
Madrid was prepared to put public money and political capital behind Chinese-linked manufacturing in a way several larger member states were not.
The fault lines inside Europe
Sánchez’s pitch landed in a bloc that was already deeply divided over how to handle China – and the divisions are not easily reduced to a simple hawk-versus-dove split. For most of the past decade, the European Commission has steered the EU toward a policy of “de-risking” rather than decoupling: an attempt to reduce strategic dependencies and guard against coercion while preserving trade, built around the formula that China is simultaneously a partner, an economic competitor and a systemic rival.
National positions vary considerably within that frame. Germany institutionalised the de-risking turn in its July 2023 China Strategy, the first comprehensive adoption of the approach by a major European power, and its policy has since drifted from economic optimism toward more cautious competition as security concerns mounted. France, guided by its long-standing pursuit of “strategic autonomy,” has likewise moved toward a more guarded and balancing posture. Yet both countries also have powerful export industries – German carmakers above all – with deep stakes in the Chinese market, which pulls in the opposite direction.
Those cross-pressures were laid bare in the October 2024 vote on EV tariffs, often described as a litmus test of European resolve. On the final decision, ten member states voted in favour of the duties, twelve abstained, and five – including Germany – voted against. The split underscored that there was no European consensus to confront Beijing, and it gave Sánchez room to argue that Spain’s accommodationist line was a legitimate strand of EU thinking rather than an outlier.
Analysts at think-tanks across the spectrum cautioned against reading Trump’s tariffs as a straightforward trigger for an EU-China rapprochement. Several pointed out that the very overcapacity problem driving Europe’s anxiety about China had not gone away, and that Beijing’s continued support for Russia, its trade surplus with Europe, and its coercive economic tactics all militated against a wholesale pivot. The more likely outcome, in this reading, was not alignment with China but a hedging posture: Europe quietly diversifying away from over-reliance on the United States while keeping its guard up against Beijing.
The transatlantic deal that complicated everything
The argument for an eastward tilt was blunted, at least temporarily, by what happened on the transatlantic front. After months of brinkmanship, Commission President Ursula von der Leyen and Trump struck a framework trade deal on 27 July 2025. It set a baseline US tariff of 15% on most EU imports – covering cars, auto parts, pharmaceuticals and semiconductors, with carve-outs for aircraft and certain chemicals – while EU tariffs on American goods were largely eliminated. The package came bundled with sizeable European commitments, including expectations of hundreds of billions of dollars in US energy and AI-chip purchases and a pledge of large-scale EU corporate investment in the United States.
The arrangement, formalised in a joint statement on 21 August 2025 and nicknamed the “Turnberry Agreement” after the Scottish golf resort where the leaders met, was framed by Brussels as a way to restore predictability and avert a damaging tariff war. Critics across Europe saw it as a lopsided capitulation – a 15% tariff ceiling accepted in exchange for the removal of the threat of something worse. Either way, the deal took some of the urgency out of Sánchez’s case: with a transatlantic truce in place, the argument that Europe had no choice but to look east lost a measure of its force.
That reprieve proved unstable. A US Supreme Court ruling in 2026 found that the administration lacked the authority to declare an economic emergency and levy tariffs on that basis, which had the effect of lowering the effective baseline on many EU goods from 15% toward 10% as Washington scrambled to reconstruct its tariffs under other legal authorities. Then, in May 2026, Trump threatened to raise US tariffs on EU cars to 25%, accusing the bloc of failing to comply with the terms of the deal. The episode was a reminder that the transatlantic settlement was a ceasefire, not a peace – and that the instability Sánchez had pointed to in 2025 had not disappeared.
The transatlantic settlement was a ceasefire, not a peace – and the instability Sánchez had pointed to in 2025 had not disappeared.
The EV tariff truce with Beijing
If the US relationship swung between deal and discord, the EU-China track moved, haltingly, toward accommodation – the very direction Spain had advocated. The flashpoint remained the EV tariffs the EU adopted in 2024, which layered additional duties ranging from 7.8% to 35.3% on top of the standard 10% import duty, calibrated by manufacturer to offset what Brussels deemed unfair Chinese subsidies.
Almost from the outset, both sides explored an alternative: replacing the tariffs with a system of minimum import prices, under which Chinese carmakers would commit not to sell their vehicles in Europe below an agreed floor. The idea was first floated in April 2025 – the same month as Sánchez’s Beijing visit – but the initial round of talks stalled and the proposal faded. It revived later in the year, with the Commission’s examination of a possible tariff exemption for Volkswagen’s China-made vehicles helping to restart the process. By December 2025 the two sides had resumed negotiations in earnest, and in January 2026 the EU published a guidance document setting out how Chinese manufacturers could make minimum-price offers, with the floors tailored to vehicle type and Chinese investment plans inside the EU taken into account.
The shift was not without critics. Trade economists warned that swapping tariffs for minimum prices risked handing Chinese producers higher margins while doing little to address the underlying subsidy problem – effectively letting Beijing keep the profits that tariffs would have captured for European public coffers. But for advocates of engagement, the move represented exactly the kind of negotiated, de-escalatory settlement Sánchez had urged: a way to defend European industry without tipping into open trade war.
Spain’s calculus: pragmatism or overreach?
Viewed from Madrid, the strategy has a coherent logic. Spain runs a smaller direct exposure to the US market than Germany’s export machine, and its government has prioritised attracting the foreign capital needed to build out renewable energy, batteries and electric mobility – sectors where China holds a commanding lead in technology and manufacturing scale. According to tariff-exposure estimates, Spanish goods entering the United States faced an average applied rate of roughly 11% in mid-2026, with the baseline sitting near 10% after the legal turbulence around Trump’s emergency tariffs – meaningful, but not the existential threat it represents for more US-dependent economies. For Sánchez, courting Chinese investment is less a geopolitical statement than an industrial-policy bet on where the green economy will be manufactured.
There is also a diplomatic ambition at work. By positioning Spain as a mediator – a “builder of balanced alliances” – Sánchez has sought to raise Madrid’s profile in a Europe whose China policy has long been dominated by Berlin and Paris. Being the destination of choice for marquee Chinese investments such as the CATL plant gives Spain leverage and visibility it might not otherwise command. In effect, Spain has tried to convert openness to Beijing into a seat at the table on one of the EU’s defining strategic questions.
The risks, however, are real and widely flagged. Critics argue that Spain’s approach deepens European dependence on Chinese technology and supply chains at precisely the moment the bloc is trying to reduce such dependencies, and that hosting Chinese-controlled battery plants – some reliant on Chinese engineers and know-how to operate – may entrench rather than relieve strategic vulnerability. There is also the diplomatic cost of antagonising Washington at a time when European security still rests heavily on the United States. And there is the awkward possibility that Spain’s bet pays off commercially for Madrid while complicating the EU’s collective bargaining position toward both superpowers.
Where things stand
By mid-2026, the picture is one of partial vindication rather than decisive victory for the Spanish view. The EU has not pivoted to China in any strategic sense: de-risking remains the official doctrine, anxieties about overcapacity and Beijing’s geopolitical alignment persist, and the bloc continues to deploy trade-defence instruments against Chinese goods. But the texture of the relationship has softened on the issue that mattered most to Spain. The EV tariff confrontation is being defused through negotiated minimum prices, Chinese investment is landing in European – and especially Spanish – factories, and the reflexive instinct to align with Washington against Beijing has been tempered by the unreliability of the transatlantic partner itself.
That last factor may prove the most durable legacy of Sánchez’s 2025 intervention. The on-again, off-again nature of the US-EU deal – a framework struck, a Supreme Court ruling that scrambled its legal basis, and renewed tariff threats on European cars in 2026 – has reinforced the case for European hedging that Sánchez made in Hanoi. Even leaders deeply skeptical of Beijing have had to reckon with the reality that betting Europe’s economic security entirely on Washington carries its own risks.
The unresolved tension is structural. Europe wants Chinese investment and affordable green technology, but not Chinese strategic leverage; it wants transatlantic stability, but not American economic coercion. Spain has chosen to resolve that tension by leaning toward engagement and investment, wagering that Europe’s industrial future runs through partnership with China whether Brussels likes it or not. Other capitals continue to resist, fearing the bill will come due later. The argument Sánchez forced into the open – whether Trump’s tariffs should push Europe toward Beijing or simply toward greater self-reliance – is, more than a year later, still the central question of European trade strategy.
Europe wants Chinese investment but not Chinese leverage; transatlantic stability but not American coercion. Spain has chosen to resolve that tension by leaning toward engagement.
Implications for businesses and policymakers
For companies navigating this landscape, the practical takeaway is that supply-chain and market-access decisions can no longer assume a stable transatlantic baseline or a uniform European stance on China. Tariff rates on EU exports to the US have proven legally and politically volatile, swinging with court rulings and presidential statements, while access to Chinese capital and technology increasingly depends on which member state a project is sited in. Spain’s willingness to host Chinese-linked manufacturing makes it a comparatively welcoming base for such investment, even as that openness carries longer-term regulatory and reputational uncertainty as Brussels refines its inbound-investment screening.
For policymakers, the episode is a case study in how a mid-sized member state can shape the EU agenda by moving first and offering something concrete – in Spain’s case, factories and a mediating voice. Whether that influence ultimately serves European cohesion or fragments the bloc’s negotiating leverage will depend on whether Brussels can fold national initiatives like Spain’s into a common strategy, or whether member states continue to strike their own bargains with Washington and Beijing. The minimum-price mechanism on EVs offers a tentative template for the former; the patchwork of national investment deals points toward the latter.
What is clear is that the binary framing – with America or with China – that both Washington and Beijing have at times sought to impose does not map onto how Europe actually behaves. Spain’s gambit is best understood not as a choice to abandon the West for the East, but as an insistence that Europe retain the freedom to manoeuvre between them. In an era when economic policy has become an instrument of geopolitical pressure, that freedom – and the disagreements within Europe about how to use it – is the real story behind the headlines about Madrid’s pivot to Beijing.