EU reels under China’s ‘shock and awe’ trade tactics

Europe is suffering a second “China Shock” as exports flood into the EU, fueling a €400 billion (US$467 billion) trade deficit. Blocked by “restrictive access” to the world’s second-largest economy, the European Union faces a trade war on two fronts. 

Brussels has already been battered by tariffs imposed by the Trump administration, and is now struggling to cope with Beijing’s massive state subsidies for exporters. The fallout has strained China-EU relations and sparked a “dumping” dispute.

“The scale of China’s economy – the scale of subsidies, overcapacity and government intervention – is immense,” Alicja Bachulska, of the European Council on Foreign Relations, told Deutsche Welle, the German state-funded news network.

“[Without] serious action to protect Europe’s auto industry, the EU risks partial deindustrialization [within a few years],” she said this week. 

By the numbers:

• China’s trade with Europe increased by a slender 2.5% in the first half of this year compared to 2024. 
• But the figure concealed a significant shift in the balance of power, China Business Spotlight reported. 
• Exports from China to Europe climbed by 6.6% as imports from the EU fell by 5.9%. 
• In Germany, there was a dramatic 10.6% jump, with China’s trade surplus rising by a whopping 180% year-on-year.

Without any trade response, it could squeeze domestic production.

Beth Beckett at Capital Group

Delve deeper: “High US tariffs make it more likely a bigger share of China’s industrial overcapacity finds its way to Europe,” Beth Beckett, an economist at Capital Group, an American investment management firm, said.

Between the lines: “Without any trade response from Brussels, it could squeeze domestic production and to counter that, targeted defense measures may be required,” she wrote in a briefing this week.

Big picture: Yet these trade tensions have surfaced just a week before the China-EU summit in Beijing. Originally scheduled for Brussels, Chinese President Xi Jinping refused an invitation to attend the gathering in the Belgium capital.

Bottom line: The two-day talks will now be rolled into one. “This is another sign of Beijing’s limited willingness and ambition to engage with the Europeans,” Bachulska, of the European Council on Foreign Relations, said.

China Factor comment: A major breakthrough is unlikely after European Council President Ursula von der Leyen accused China of “coercion” and “blackmail” last month. The Ministry of Foreign Affairs responded, slamming  the bloc’s “mindset.”