{"id":17378,"date":"2026-09-30T09:55:20","date_gmt":"2026-09-30T06:55:20","guid":{"rendered":"https:\/\/www.globalpanorama.org\/?p=17378"},"modified":"2026-09-30T09:55:24","modified_gmt":"2026-09-30T06:55:24","slug":"the-european-union-in-a-trade-war-with-china-bahri-yilmaz","status":"publish","type":"post","link":"https:\/\/www.globalpanorama.org\/en\/2026\/09\/the-european-union-in-a-trade-war-with-china-bahri-yilmaz\/","title":{"rendered":"The European Union in a Trade War with China – Bahri Y\u0131lmaz"},"content":{"rendered":"\n

In recent months, one of the most striking issues in international political economy is the debate on the trade war between China and the European Union<\/a> (EU). European Commission, together with the German and French governments, is working on a joint position in the trade dispute with China. Berlin and Paris aim to present a position paper by the EU summit on 15 October, setting out new measures to address the existing trade imbalances<\/a>.<\/p>\n\n\n\n

There were two important reasons why the EU resorted to protectionism: First, the EU’s trade deficit with China reached approximately 360 billion euros in 2025. This figure has increased by 89% since 2015. According to estimates, this deficit could increase to 500 billion euros annually<\/a>. The main aim of this protectionist policy of Brussels is to close the foreign trade deficit between China and the EU, which has been increasing continuously over time. The second key reason for this step taken to protect the European Single Market is the fierce competition between China and Europe, as well as the unbalanced and one-sided foreign trade relations between the two partners.<\/p>\n\n\n\n

To put it another way, China has the upper hand in terms of the export of raw materials and technologies. The EU’s economy has not expanded enough to compete with China’s in certain important sectors. In response, the EU is strengthening its protectionist trade policy tools to gain an advantage against the world’s second-largest economy<\/a>. \u201cAlmost all basic industries are under pressure from Chinese competition, with exceptions such as aircraft construction<\/a>,” says Ferdinand Schaff, Head of Department of the Federation of German Industries (BDI).<\/p>\n\n\n\n

Members of trade associations, business societies and leading China experts are expressing criticism and making negative comments about the economic relationship between China and Europe. For example, industry associations such as the German Engineering Federation, (VDMA), which represents the interests of German and European machinery and plant manufacturers, are now persistently warning against destructive competition from China. Oliver Blume, Chief Executive of the Volkswagen Group, one of the leading companies in the German automotive industry, has called for swift action to protect the domestic industry.<\/a><\/p>\n\n\n\n

According to the Association of German Industry (BDI), 15,000 jobs are currently being lost every month; this means that the number of jobs is gradually decreasing and unemployment is rising, which poses a major danger to the economy in the current situation.<\/p>\n\n\n\n

According to a study by a French government commission, up to 55 of European industrial production could be at risk in the domestic market in the medium term. In Germany, this rate could reach 70%<\/a>. In addition, according to the European Central Bank’s assessment, if this trend continues, approximately 29 million jobs in Europe could be jeopardized<\/a>.<\/p>\n\n\n\n

One of the main reasons for this conflict between the Chinese and European markets is the significant price differences between goods manufactured and exported from China and those sold on the European market. Costs for products from China are set to fall shortly due to overcapacity in China resulting from state subsidies and lack of demand, which are currently affecting the level of supply of goods  in Europe. This unfair situation is leading to the erosion of free competition between Europe and China. According to the head of the pharmaceutical company Sandoz, certain Chinese products are sold at prices 90% lower than those of European manufacturers. <\/a>In these circumstances, European manufacturers are having to contend with a rise in the market share of Chinese companies both in their own countries and on global markets, which is leading to increasing competitive pressure.<\/p>\n\n\n\n

Economic Relations between the EU and China<\/strong><\/p>\n\n\n\n

Let us begin with trade relations between China and Europe.<\/a> The EU is one of the world’s largest participants in international trade, along with the USA and China. The EU’s share in global exports is approximately 17%, and its share in global imports is 15%. These figures mean that the EU is the second largest exporter and importer of goods in the world.<\/p>\n\n\n\n

China is the EU’s most important trading partner, accounting for about 16% of the EU’s total trade in goods. The United States, the United Kingdom, Switzerland and Russia follow closely. China became the EU’s fourth-largest partner in terms of exports (behind Switzerland) and remained its largest partner in imports. EU exports of goods to China totalled \u20ac637 billion between 2023 and 2025, while EU imports of goods from China amounted to \u20ac1,6 trillion. As a result of this, the EU’s foreign trade deficit on the basis of goods reached \u20ac970 billion in the same years.<\/p>\n\n\n\n

In the field of trade in services, the EU continues to maintain a trade surplus with China; the US is the EU’s fourth largest services trading partner after the UK and Switzerland. The EU’s services exports to China amounted to \u20ac239 billion, while imports from China amounted to \u20ac80 billion in 2023-25. As a result, the EU’s trade in services with China generated a total trade surplus of \u20ac62 billion. Considering all trade in goods and services, the EU’s net trade deficit decreased to \u20ac908 billion in the same period.<\/p>\n\n\n\n

In 2025, EU imports of manufactured goods accounted for 97.3% of total imports from China, while intermediate goods accounted for only 2.4%. The most imported goods were machinery and vehicles (54.4%), followed by other goods (33%) and chemicals (9.8%). In 2025, EU implied goods accounted for 86.2% of total EU exports to China, with primary goods accounting for 11.5%. The most exported goods were machinery and vehicles (50%), followed by other goods (20%) and chemicals (16.2%). It is obvious that there is an intra-trade specialisation between the two trading partners. \u0130t means that both sides export almost the same kind of manufactureded products to each other. On trade in services, the EU continues to maintain a trade surplus with China; China is the EU’s fourth-largest services trading partner after the US, the UK and Switzerland.<\/p>\n\n\n\n

Foreign Direct Investments<\/strong><\/strong><\/p>\n\n\n\n

Europe’s developed economies have become an important target for Foreign Direct Investments by Chinese firms. China’s FDIs in Europe (EU and UK) have increased, reaching their highest level since 2018. The EU’s investment stock in China was \u20ac239 billion in 2024, with EU investment in China in 2025 mainly focused on automotive, pharmaceuticals and biotechnology, and basic materials. China’s investment stock in the EU reached \u20ac80 billion in 2024. The three most important areas are the automotive sector, entertainment, media and education, and energy and basic materials<\/a>.<\/p>\n\n\n\n

According to the 2026 Report of the Rhodium and MERIC Groups of Foreign Direct Investments (FDIs) in the EU with Chinese origin<\/a> between 2000 and 2025, investment by Chinese companies will continue to focus on the \u2018big three\u2019, namely the United Kingdom, Germany and France. The distribution of Chinese investments among the top 10 EU countries in terms of (billion euros) is as follows: United Kingdom \u20ac 84.8, Germany \u20ac 39.3, France \u20ac 25.5, Netherlands \u20ac 18.5, Italy \u20ac 16.5, Finland \u20ac 15.1, Sweden : \u20ac 11.6, Spain \u20ac 11.3, Hungary \u20ac 11.2, Ireland \u20ac 10.1<\/a>.<\/p>\n\n\n\n

Hungary remains a prime destination for Chinese foreign direct investment in Europe, with more investment flowing into Germany and France again. Germany’s share of total Chinese foreign direct investment in Europe rose to 15% from 10% in 2024, while France’s share rose from 5% to 12%.<\/p>\n\n\n\n

The automotive sector attracted more Chinese (FDIs) than any other sector in 2025. Investments in the sector totalled 7.6 billion euros, with 93% focused on the electric vehicle supply chain. The automotive sector’s share of total Chinese foreign direct investment in Europe stood at 45%. The entertainment sector ranked second, attracting 14% of the total, followed by the consumer goods and services sector, which accounted for 12% of the total<\/a>.<\/p>\n\n\n\n

Evaluation of relations with China<\/strong> <\/strong><\/p>\n\n\n\n

Nearly 50 years ago, on May 6, 1975, diplomatic relations were established between the EU and the socialist Chinese government. Thus, economic and political relations were initiated between China and EU member states. There are three main reasons why the leading industrialised countries of the EU \u2013 Germany, France, the Netherlands and Italy \u2013 have an interest in China and the region: (1) the growing potential for production and demand, as well as profitable business opportunities, offered by the Chinese economy; (2) meeting Europe\u2019s demand for scarce minerals and intermediate goods; (3) establishing economic and international relations with the RCEP \u2013 comprising the countries of the region \u2013 via the Chinese market for European companies. Today, half a century later, the volume of trade between the two communities stands at 2.6 trillion euros, which is almost equivalent to the volume of trade between the EU and the US.<\/p>\n\n\n\n

Over the past five decades,  China-Europe relations have developed smoothly. There have been no serious conflicts; however, over time, differences of opinion have begun to emerge on political and economic issues.<\/p>\n\n\n\n

Quite simply because China was an underdeveloped and poor country when it first established economic ties with the US and Europe. Consequently, since the beginning of China\u2019s economic boom, the US and Europe have benefited enormously from trade with China and from their own investments in the country.<\/p>\n\n\n\n

The multinational institutions, such as the IMF and World Bank, praised the benefits of free trade and the market economy, on which China\u2019s economic development was to be based. This extremely positive picture has been reversed over the last ten years, and China has begun to benefit from these economic ties. The old story has resurfaced: protectionism on the part of national economies against fierce competition with enterprises from China.<\/p>\n\n\n\n

Reasons for the Emergence of the Trade War<\/strong><\/p>\n\n\n\n

According to the OECD report \u2018China 2026\u2019, growth in China is slowing and is expected to fall to 4.5 per cent in 2026 and to 4.3 per cent in 2027. The Chinese government essentially has two political and economic options available to it to prevent this decline in the growth rate: Firstly, by increasing public spending and thereby stimulating domestic consumption and investments\u2013 through growth driven by domestic demand.<\/p>\n\n\n\n

In 2026, however, Chinese companies will continue to expand their opportunities in global markets due to weak domestic demand, which is attributable to low profit margins, and the traditionally high propensity to save amongst the country’s consumers. So far, there is little sign of the Chinese government’s promises to stimulate domestic consumption-driven growth. Therefore, China’s growth is expected to remain highly dependent on overseas markets.<\/p>\n\n\n\n

 For years, China has been pursuing a two-pronged strategy towards these foreign markets. On the one hand, it is expanding its market share abroad by increasing its exports to foreign markets at lower prices, and on the other, in order to secure the market share it has gained over time, it is intensifying its investments in these countries and relocating its production from domestic market to international markets \u2013 which it had previously exported \u2013 there, thereby avoiding any protectionist measures taken by the home countries.<\/p>\n\n\n\n

From a macroeconomic perspective, China’s currency is still undervalued against the USD and expects China to maintain its current monetary policy line in 2026. As in 2025, it is expected that a weak \u201cRenminbi\u201d (RMB) will increase China’s competitiveness in export goods this year, and thus may reduce the effectiveness of the EU’s trade protection measures.<\/p>\n\n\n\n

if Brussels increases European safeguards against export goods from China, Chinese companies will try to maintain their market share in member countries by increasing investments. Because China has the world’s highest foreign exchange reserves in term of USD. To avoid the risk of import tariffs, which in some cases are over 20%, Chinese manufacturers can increasingly shift their investments to Europe \u2013 as in the case of battery giant CATL, which already produces in Th\u00fcringen \/Germany. Car manufacturers BYD, Xpeng and Chery are also currently setting up production facilities or looking for locations in Hungary, Austria and Spain<\/a>.<\/p>\n\n\n\n

From the Brussels point of view, these differences are due to state-sponsored dumping and overproduction capacity in China’s exports to the EU, and the resulting abundance of low-priced Chinese-sourced goods in the EU market; another problem is the EU’s large foreign trade deficit with China, which we examined above. A third problem is the irregular and different arrangements that China has implemented in its trade relations with the world and the EU after its accession to the WTO.<\/p>\n\n\n\n

New strategy: Protection for All Sectors<\/strong><\/p>\n\n\n\n

The European Commission is expected to obtain a clear mandate from member states for cross-sectoral trade defense instruments and, if necessary, customs to counter market distortions. For this reason, EU Industry Commissioner St\u00e9phane S\u00e9journ\u00e9 is focusing on a fundamental policy change. He emphasizes that in the future, protective tariffs will be imposed for entire industrial sectors instead of individual measures. Four key elements support the new strategy: diversification of supply chains, faster use of trade instruments, establishment of sector-wide mechanisms and tightening of the Foreign Subsidies Regulation (FSR). In short, the EU’s strategy aims to radically reduce its dependence on China in all sectors<\/a>.<\/p>\n\n\n\n

It is known that the Beijing administration pursues a radical and uncompromising industrial policy that focuses entirely on China’s security and power interests; this policy deeply affects Europe in general \u2013 we have personally experienced this strategy in the trade wars with the USA. Therefore, ,the fundamental conflicts are so fierce that further escalations from the Chinese side are expected at any time. Both sides have started arming themselves step by step.<\/p>\n\n\n\n

What measures would the Brussels authorities take?<\/strong><\/strong><\/p>\n\n\n\n

The first measure Brussels should take, in the short and long term, in three areas to create a balanced competitive environment in its current economic relations with China is to increase customs tariffs on goods imported from China and impose quota restrictions. Secondly, however, these protective measures cannot be implemented permanently; the aim is for dependence on imports of critical goods from China to be reduced by importing the same goods from third countries to replace them. Thirdly, domestic markets are replacing certain imported goods with import substitutes.<\/p>\n\n\n\n

The EU is also grappling with a severe economic recession. European economies have been particularly hard hit, with structural problems and rising production costs resulting from increasing energy prices leading enterprises to flight capital abroad. As a result, production is being relocated to countries where labour costs are lower in order to generate higher profits.<\/p>\n\n\n\n

Thus, a <\/strong>common and integrated EU policy towards China is both inevitable and necessary. It is obvious that if the EU wishes to compete with China, it must first put its own house in order by implementing the structural and institutional reforms necessary to keep pace with China.<\/p>\n\n\n\n

The first key question for Brussels is whether the 27 EU Member States are truly prepared to accept and implement the inevitable reforms, and whether all Member States can resolutely adhere to and consistently implement the \u2018Joint China-Indo-Pacific Strategy\u2019 that has been drawn up. If the EU members fail to agree on a common and unified policy for China and the Indo-Pacific region, each country will pursue a policy that prioritizes its own national interests and acts unilaterally at the national level.<\/p>\n\n\n\n

Member states such as Hungary and Greece have started individual negotiations with Beijing in recent years as well, while the Chinese government and companies have pursued a policy of ‘divide and rule’ towards individual EU states. While some member states, such as Germany and France, may be successful in economic relations with China, Europe faces an ‘existential challenge’ in the long run. In this context, Mario Draghi, former President of the European Central Bank, presented his report on the future of European competitiveness to the European Parliament on 16 September 2025<\/a>. In this report, Draghi makes clear Europe’s economic and institutional weaknesses and makes recommendations on how Europe can finance and coordinate its policies so as not to be left behind on the world stage. Overall, he assesses that Europe’s economic future is in serious danger.<\/p>\n\n\n\n

The report also highlights that European states and companies are investing too little in Europe. The consequences, on the other hand, are an inadequate education system, deteriorating infrastructure, little innovation and a lack of adaptability by companies. Europe is in danger of being left behind when it comes to digital services and artificial intelligence.  The EU has lost a position to its global competitors over the past two decades. To remedy this, Draghi has made extensive reforms and a reorientation of EU policy to be able to keep pace with global competition against Chinese and American companies.<\/p>\n","protected":false},"excerpt":{"rendered":"

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