The EU and China have a strong reciprocal trade relationship, with impressive flows of goods and services in both directions. This relationship has come under increasing pressure in recent years. When China was still the manufacturing factory of the world and mainly created products with low added value, the threat to the EU economy was limited. In recent years, however, China has changed its industrial policy by increasingly focusing on the development and production of high-tech goods. This puts pressure on the relationship between the two giants because China has become a major competitor for key industries in the EU, while the Chinese market remains highly shielded from foreign producers and investors. In addition, the EU is increasingly concerned about China’s strategic power, including Europe’s high dependence on China for critical materials for the digital and energy transitions. The EU is now looking at how it can balance trade with China without shooting itself in the foot. China has already clearly indicated that it will take countermeasures if the EU goes against its interests. The fact that the EU takes this threat seriously is evident from the cautious outcome of the meeting of European leaders in June. This meeting did not end in a large-scale plan with trade measures, but in a request to the European Commission to investigate which instruments can be used to deal with all kinds of global trade threats (unofficially especially China’s industrial overcapacity). The EU is clearly committed to strengthening its trade and industrial policy, but continues to emphasise that communication and cooperation are still the basis of its relationship with other countries, including China.
EU flooded with Chinese goods
The EU’s trade deficit with China for goods has grown sharply since the 2000s. This is not an unsurprising evolution, as economic activity in emerging economies typically increases a lot faster than developed economies. The big problem the EU is currently facing is that China’s exports are growing strongly (increasingly in important economic sectors for the EU) and imports are not keeping up. The middle class in China has increased spectacularly in numbers, but the spending of this group is not growing at the same rate. Culprits here include the country’s ongoing real estate crisis and limited social safety net. Consumers in China are keeping their fingers on the purse strings and producers are not getting enough sales of their products on the domestic market. The oversupply of certain products was also exacerbated by the government’s market-distorting investment policy, in which strategic goals and local interests led to overproduction. Due to this overproduction, Chinese producers are increasingly forced to look for markets abroad. The more hostile trade policy of the US under Trump has added additional pressure, pushing Chinese exporters towards the EU even more.
EU wants to set boundaries
EU industries are increasingly outcompeted by Chinese imports and the EU’s dependence on China is increasing. Aggravating circumstances in the relationship with China include the asymmetries between China’s market openness and the EU and the restrictions on the free movement of Chinese currency.
There are therefore more and more voices within the EU calling for additional measures to slow down these developments. There are good reasons to do so, ranging from protecting EU jobs to safeguarding European geopolitical and economic independence. There are also growing warnings about the strategic risks associated with the high share of Chinese components and software in key infrastructure in the EU.
The EU has already launched a whole host of initiatives to diversify imports of goods and to better protect the internal market, for example from imports of oversubsidised goods. These include the Critical Raw Materials Act, the Industrial Accelerator Act, the Cyber Security Act, the Net-Zero Industry Act and the abolition of the de minimis exemption for e-commerce shipments under 150 euros from third countries.
Circumvention and retaliation
The EU has long been wary of perceived attempts by China to circumvent the EU’s protective measures. One example is the questions that are raised around the large sums that China is investing in Morocco, a country with which the EU has an extensive free trade agreement. The EU fears that these investments are at least partly intended to ship the overproduction from China to the EU via Morocco, without creating any significant added value in Morocco. The latter is an important condition (cf. rules of origin) for the products to fall under the trade agreement and be exported to the EU duty-free.
China is also less and less afraid to use tough language and actions to prevent other countries from tightening their trade policies. Just think of the rapid escalation of tariffs and export restrictions between the US and China in 2025. The trade arsenal that China can use to protect its own interests is extensive. On the one hand, China can impose import duties and restrictions. At the beginning of this year, there were warnings that the country would launch anti-dumping and anti-subsidy investigations into EU goods, including French wine, if the EU took trade measures against China. Even more damaging than the import instrument is China’s ability to limit or completely halt exports of critical materials needed for the climate and technology transition.
EU keeps lines of communication open
Given this consideration, it is not surprising that the meeting of European leaders on this issue in June 2026 did not lead to a large package of new tariffs, quotas or trade restrictions. Yet the meeting was not in vain. The European Commission has now been given the task of examining what measures the EU can take to address the “unsustainable” trade deficit with China. While its stance against China has toughened, the EU’s emphasis communication and cooperation also remains strong, as proven by the establishment of a new consultation forum between the two power blocs, the EU-China Trade and Investment Consultation (TIC) mechanism. It is clear that the EU is serious about rebalancing its economic relationship with China, but that it plans to do so in a careful and measured way.
