China has a quiet ally in its quest for global domination: Europe.
China is Europe’s third-largest trading partner. Chinese direct investment in Europe nearly doubled between 2023 and 2024. And 29 European countries have signed agreements with China as part of the latter’s Belt and Road Initiative to expand Chinese influence across the world.
This under-the-radar collaboration now extends to Europe’s regulatory framework. The European Union is in the process of adopting new rules that would require any large company with a presence there to obey its onerous compliance laws wherever they do business. If adopted, these rules could give Chinese businesses an even bigger economic advantage.
This law – the Corporate Sustainability Due Diligence Directive, or “CS3D” – will hamstring American companies with a presence in Europe while allowing Chinese rivals to do what they always do – pretend to follow the rules while ignoring them completely. This has been China’s preferred playbook to enable its businesses to steal market share from other companies that play by the rules.
On its face, this CS3D law commands large companies with a presence in Europe to rigorously report on their global supply chains. The intent is to prevent environmental or human rights violations. But the practical upshot is that businesses, including many prominent American companies, would be forced to spend billions of dollars and deploy an army of accountants and outside consultants to comply with a law that is ripe for abuse. Violations will result in large penalties, even if they occur outside Europe, or even when caused by distant third parties in the supply chain over which the company has little to no control.
The purpose of this law is less about the environment or human rights and more about shackling successful companies with new requirements that give moribund European rivals a better shot to compete. The European Union is using its market size to impose regulatory restrictions that will make it harder for American companies to compete there and everywhere else in the world. But Chinese businesses will be the main beneficiary because they will mostly ignore these new rules.
This is exactly the type of activity President Donald Trump is trying to correct with his new tariff regime. Instead of rolling over as other governments erect barriers to American companies, the president is giving them a dose of their own medicine with the intent of forcing them to relent and instead make it easier for American businesses to compete in those markets. This CS3D law is a direct rejection of President Trump’s push to make the global economy more competitive.
There is still time to influence the rule-making process in Europe. American negotiators forced their European counterparts to promise to soften this law as part of ongoing trade negotiations between the two countries. In a framework put out by the White House, the EU committed to addressing American concerns. Trump and his representatives in Europe, including EU Ambassador Andy Puzder, should continue to push back on this law by using our own trade enforcement as leverage in these trade talks between the United States and Europe.
Congress also has an opportunity to weigh in by passing legislation offered in the Senate by Tennessee Sen. Bill Hagerty and in the House by Wisconsin Rep. Scott Fitzgerald. Their bill, the Protect U.S. Companies from Foreign Regulatory Taxation Act, seeks to prevent American businesses from being forced to comply with certain rules whose sole intent is to make foreign companies less competitive.
These rules were established to make American companies less competitive, giving their Chinese rivals yet another leg up. Rules like this one nullify other efforts to enhance competition. When American businesses are allowed to compete fairly, they usually win. Laws like this are meant to make it harder for our companies to compete. That’s why we need to fight. If we don’t, this law will give China yet another edge.
Robert Romano is the Executive Director at Americans for Limited Government.