Trade Relations Between the EU and China: A Growing Deficit, Rising Tensions

Published in China News on 20.08.2026

Trade Relations Between the EU and China: A Growing Deficit, Rising Tensions

As the EU’s trade deficit with China rises to over 359 billion euros, a new “China shock”—centered on technology-intensive goods—is fueling tensions reminiscent of the 2018 conflict between the U.S. and China. With the October deadline for “tangible progress” approaching, the EU is moving beyond simple tariffs and aiming for structural risk mitigation—even as gridlocked global supply chains and rising Chinese investment in Europe complicate the situation.

1. “China Shock 2.0” and the Growing Trade Imbalance

Widening Deficit: The European Union’s trade deficit with China reached 359.8 billion euros in 2025, representing a 118.1% increase compared to 2019, driven by rising EU imports and declining EU exports.
Sectoral Concentration: The widening of the deficit is heavily concentrated in four “technology-intensive” sectors—electrical appliances, vehicles, machinery, and organic chemicals—which together account for 64% of the total increase.
Key Drivers: China’s technological progress has increased product and sector overlaps with the EU, thereby intensifying direct competition in China’s domestic markets, EU markets, and export destinations in third countries.

2. Escalating Trade Tensions and Structural Barriers

Upcoming Deadlines: While the EU and China have agreed, as part of their consultation mechanism, on a deadline of October to achieve “tangible progress,” both sides are preparing for intensified trade conflicts (e.g., Germany is analyzing China’s economic vulnerabilities).
Parallels to the 2018 U.S.-China Trade War: The tensions resemble earlier trade disputes between the U.S. and China, but the EU’s “de-risking” strategy goes beyond traditional tariffs and extends to structural policy areas:

Restrictions on public procurement
Screening of foreign investments
Cybersecurity certification requirements
Technical standards

Long-term implications: These structural barriers create more persistent obstacles to cross-border trade than tariff measures alone.

3. “Sticky Globalization” and Interdependence in the Supply Chain

Intermediate Goods: Intermediate goods account for approximately 50% of Chinese exports to the EU, illustrating the deep integration of supply chains.
Involvement of Multinational Corporations: Multinational corporations (MNCs) have expanded their foreign direct investment (FDI) in China, thereby contributing significantly to the rising volume of Chinese exports to the EU.
Policy vs. Business Realities: Decades of globalization and cross-border production networks mean that the optimization of corporate supply chains conflicts with national policy priorities—making it difficult to unravel these economic interdependencies through trade restrictions.

4. Strategic Responses and Future Framework Conditions

China’s Policy Shift: Beijing is taking steps to restore balance by pushing forward reforms to promote domestic consumption, opening up parts of its services sector, and expanding foreign direct investment near end markets.
Key Milestone: In 2025, China became the single largest source of foreign direct investment in Germany.

Governance and Stabilization: Despite stricter investment reviews for security reasons, existing structures—such as the EU-China Trade and Investment Consultation Mechanism established in June 2026 and the experience gained from the U.S.-China Board of Investment—offer models for creating a more stable bilateral economic framework.