The European Union is adopting a tougher approach to trade with China as its growing trade deficit raises concerns over the bloc’s industrial competitiveness. However, divisions among member states and dependence on Chinese supply chains continue to limit Brussels’ ability to act.
The EU’s trade deficit with China is expected to reach €400 billion in 2026, up from €360 billion last year. In July alone, the gap reportedly reached €36.5 billion, equivalent to around €1.18 billion a day. All EU member states recorded trade deficits with China in June, highlighting the scale of the imbalance.
China’s expanding manufacturing capacity, supported by low-cost energy, automation and control over critical minerals and rare earth elements, is intensifying competitive pressure on European industries. While the first major wave of Chinese competition affected labour-intensive sectors after China joined the World Trade Organization in 2001, the current challenge is increasingly concentrated in strategic industries such as electric vehicles, batteries, steel, chemicals and wind turbines.
EU divisions have weakened its response
For years, differences among EU member states have complicated efforts to develop a common trade policy towards Beijing. Germany, in particular, had resisted tougher measures because of its automotive industry’s strong commercial ties with China.
However, growing competition from Chinese manufacturers and pressure on German industrial jobs have prompted a shift in Berlin’s position. France and Germany are now increasingly aligned in calling for stronger European trade protections.
Another source of concern is what the EU sees as unfair competition arising from Chinese state subsidies, industrial policies and currency practices. Brussels has argued that these factors have contributed to the widening trade imbalance and weakened European manufacturers.
Brussels considers stronger trade measures
The EU has begun signalling that it is prepared to take a firmer stance. Ahead of trade negotiations in October, European Commission President Ursula von der Leyen warned that China would face stricter measures unless it addressed European concerns.
The talks resulted in an interim agreement intended to slow Chinese hybrid vehicle exports to the EU. The agreement also demonstrated the importance of access to the European market for Chinese manufacturers.
Brussels is also considering stronger trade instruments. The EU’s Anti-Coercion Instrument, adopted in December 2023, allows the bloc to respond to economic pressure from third countries through measures such as trade and investment restrictions. However, it has not yet been used, partly because of lengthy procedures and the need for support from member states.
Separately, the proposed Industrial Accelerator Act aims to increase manufacturing’s share of EU GDP from 14.3 per cent to 20 per cent by 2035 and reduce dependence on individual countries for critical supplies.
France and Germany push for faster action
In May 2026, French President Emmanuel Macron proposed a European mechanism modelled on the US Section 301 trade law, which allows Washington to investigate and respond to unfair foreign trade practices.
German Chancellor Friedrich Merz initially opposed the proposal but later called for stronger protection against unfair competition. In July, he also criticised China’s currency policy, linking it to the loss of 10,000 industrial jobs in Germany each month.
In a joint letter to the European Commission in October, Macron and Merz called for faster responses to trade threats and greater powers for EU Trade Commissioner Maroš Šefčovič ahead of negotiations expected in March 2027. They argued that the bloc’s existing trade defence instruments were no longer sufficient.
China has warned that it would retaliate more forcefully if the EU introduced tougher restrictions. Both sides nevertheless appear keen to avoid a direct trade confrontation, recognising that an escalation could damage their economies.
Despite growing political support for a tougher approach, the EU’s ability to rebalance trade with China will depend on whether member states can maintain a common position and turn their proposals into effective measures.
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