How Switzerland turned China’s Europe problem into leverage

On 20 August, China and Switzerland concluded negotiations to upgrade the free trade agreement that has governed their commerce since 2014. Once the revised deal clears legal review and domestic approval, 99.8% of Switzerland’s current exports will eventually enter China duty-free. The upgrade also expands rules covering investment, services, digital trade, competition, labour and the environment.

The timing is increasingly consequential. China and the EU still have no free trade agreement, while their comprehensive agreement on investment, agreed in principle in 2020, remains politically blocked. Trade frictions have widened from electric vehicles to subsidies, industrial overcapacity, market access and economic security. In late August, German industry intensified pressure on Chancellor Friedrich Merz for tougher measures against Chinese competition, while Merz signalled support for a firmer common European approach if EU-China talks fail to deliver this autumn. France and Germany are also preparing a joint approach to China’s trade surplus.

China and the EU: picking apart the problem areas

At the same time, Beijing and Brussels are trying to prevent rivalry from hardening into an economic rupture. In June, they launched a Trade and Investment Consultations mechanism covering trade and investment balancing, export controls, intellectual property and WTO reform. EU trade chief Maroš Šefčovič has set October as a target for tangible progress. The emerging pattern is less a return to the grand bargains of the 2010s than an attempt to manage interdependence issue by issue.

The Swiss agreement fits this changing landscape. Beijing increasingly works through several European interfaces at once. Brussels remains indispensable because it controls the EU’s common trade policy. Inside the bloc, Chinese companies are localising production, most visibly in Hungary’s electric vehicle and battery industries, while China continues to cultivate major industrial economies such as Germany. Outside the EU, Switzerland offers something different: a highly developed European economy with an autonomous trade policy and the institutional capacity to negotiate directly with Beijing.

Switzerland provides an alternative path

Switzerland cannot provide a tariff backdoor into the EU single market. Its value lies in institutional depth. For China, the agreement demonstrates that deeper economic integration with an advanced European economy remains possible even as Brussels strengthens trade defences. It also helps Beijing preserve differentiation within Europe at a moment when Washington is encouraging other major economies to coordinate more forcefully against Chinese trade imbalances. US Treasury Secretary Scott Bessent said on 30 Aug that G20 members should re-examine their terms of trade with China and press Beijing to rely less on exports.

But the Swiss side of the bargain matters just as much. Bern is facing a more defensive geoeconomic environment from several directions. The US imposed new additional tariffs on some Swiss goods in July. Meanwhile, the EU’s push for “Made in Europe” industrial policies is creating concern in Switzerland and other closely integrated non-EU economies that measures aimed mainly at Chinese and American competition could also fragment wider European supply chains.

China therefore provides Switzerland with additional optionality. It is already Switzerland’s third-largest trading partner after the EU and the US, and Bern explicitly describes the upgraded agreement as a way to diversify export markets. Switzerland also used the negotiations to improve investor access, strengthen environmental and labour provisions, and modernise rules for services, digital trade and trade facilitation. China’s desire to preserve a successful European free-trade relationship became Swiss bargaining leverage.

This is where the agreement becomes relevant to middle powers. Switzerland is a small state by conventional measures, but its behaviour captures a broader form of middle power geoeconomic agency. Strategic autonomy need not come only from reducing dependence. For open economies, it can also come from diversifying and institutionalising interdependence: maintaining several major economic relationships, negotiating clearer rules around them and retaining safeguards in sensitive sectors.

Four verbs capture the approach. Diversify across markets rather than replace one dominant partner with another. Leverage assets that larger powers find difficult to substitute, whether finance, technology, energy, logistics or regulatory expertise. Institutionalise temporary bargaining advantages through trade, investment and sectoral agreements. Screen areas where openness could create unacceptable security risks.

China’s rise makes this strategy especially relevant. Beijing already has identifiable preferences for a more multipolar, sovereignty-centred and development-oriented international order, and it continues to defend multilateral trade. Yet the institutional shape of the order accompanying China’s rise remains comparatively fluid. China still benefits heavily from globalisation, needs markets and investment partners, and seeks legitimacy for institutions and initiatives that cannot function through Chinese participation alone.

That creates room for other states to shape outcomes. Engagement with China can be conditional: market access can be exchanged for reciprocity, investment for localisation, participation for stronger rules, and political legitimacy for more genuinely multilateral governance. Switzerland’s achievement is modest in global terms, but the mechanism matters. China wanted a deeper European economic partnership, and Switzerland used that demand to negotiate terms that served its own commercial and regulatory interests.

EU countries could leverage industrial policy, investment conditions 

The implications differ inside and outside the EU. Non-EU economies such as Norway and the UK retain greater freedom to pursue bilateral or sectoral arrangements with China. EU members cannot negotiate their own free trade agreements, but they can exercise agency through industrial policy, investment conditions and coalition-building in Brussels. Hungary has used Chinese capital to embed itself in Europe’s battery and electric-vehicle supply chains; other states can demand more local employment, suppliers, research and technology from Chinese investment.

The lesson travels beyond Europe. Singapore, the Gulf states and other open middle powers face the same tension between economic fragmentation and the continuing need for access to several markets and technology ecosystems. As the major blocs harden their boundaries, the ability to preserve differentiated relationships becomes a strategic asset.

Middle powers should therefore treat great power competition as a source of bargaining power as well as risk. Their central question is not simply how to hedge between Washington and Beijing, but what kind of economic order they want both powers to operate within, and what access, investment and legitimacy they are willing to offer in return. The China-Switzerland agreement points to one answer: strategic autonomy in a fragmented global economy will increasingly depend on the ability to structure interdependence and preserve multiple channels of choice.

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