EU-China Trade Relations: Escalating Disputes and Economic Friction

Amidst a global trade landscape frequently shaped by U.S. tariff actions, a significant and increasingly fraught dynamic is unfolding between the European Union and China. What was once viewed as a domain of expansive economic opportunity for both blocs is now characterized by escalating risks, with analysts describing the bilateral trade relationship as “quite poor.” This deterioration is underscored by a recent flurry of reciprocal accusations and restrictive measures, marking a distinct shift from past engagement toward a more confrontational stance.

• The EU-China bilateral trade relationship is currently described by analysts as “quite poor,” marked by escalating risks and reciprocal measures.
• Primary points of contention include China’s industrial overcapacity, leading to trade diversion towards Europe.
• This dynamic creates a conflict between Beijing’s need to export and the EU’s imperative to protect its domestic industries.
• Recent trade disputes include EU restrictions on Chinese medical devices and China’s retaliatory import curbs on similar products, alongside brandy duties.
• The operating environment for foreign companies in China has become increasingly challenging, exacerbating Europe’s growing trade deficit.

The current strain in EU-China relations stems from fundamental clashes in economic policy and priorities. Experts frequently cite China’s industrial overcapacity as a primary point of contention, a phenomenon that often leads to trade diversion towards European markets. This situation creates a direct contradiction: Beijing’s pressing need to export, driven by domestic production exceeding demand and sluggish economic growth, directly conflicts with the EU’s imperative to safeguard its own industrial base from perceived unfair competition. Furthermore, the environment for foreign companies operating in China has become increasingly challenging, a factor that further compounds Europe’s growing trade deficit with the Asian economic powerhouse.

This escalating economic friction has manifested in several concrete trade disputes. For instance, recent EU restrictions on Chinese companies participating in public tenders for medical devices were swiftly met with China imposing reciprocal import curbs on similar products. Concurrently, long-threatened Chinese duties on brandy originating from the EU were enforced, a move widely seen as retaliation after the EU began imposing levies on Chinese-made electric vehicles last year. This recurring pattern of ‘weaponizing’ trade, as some analysts suggest, reflects a strategic maneuver by Beijing designed to exert pressure on Europe.

The U.S. Trade Dynamic and its Unintended Consequences

Ironically, the aggressive tariff regime implemented by then-U.S. President Donald Trump could have presented an opportunity for China and the EU to forge a stronger common front against perceived economic coercion. However, this potential has yet to materialize. One suggested reason for this missed opportunity is Beijing’s perception of a favorable outcome in its bilateral trade negotiations with Washington, thereby lessening the perceived necessity for a strategic alignment with the EU.

Following initial sharp escalations, China and the U.S. confirmed a trade framework agreement in June, which included provisions on sensitive areas such as rare earths and technology regulations. Earlier in the year, Beijing had notably imposed export restrictions on several rare earth elements and magnets—materials critical for sectors including automotive, defense, and energy—as part of its response to initial U.S. tariffs. This resolution, from Beijing’s perspective, may have significantly reduced the urgency to seek common ground with the EU. Moreover, a palpable concern is growing in Beijing that the EU might align itself with an increasingly anti-Chinese stance advocated by the American administration as part of broader trade discussions, a development that would further complicate the already strained bilateral relationship.