The European Union faces mounting pressure to rebalance its trade with China.
Rising Chinese exports threaten European manufacturers, compelling policymakers to consider tougher trade measures despite the risk of retaliation.
On Friday, the parties reached a preliminary agreement to limit Chinese exports of hybrid and plug-in hybrid vehicles to Europe, lower tariffs on a range of European goods, and streamline Chinese export licensing for rare-earth metals and permanent magnets.
However, according to European Trade Commissioner Maroš Šefčovič, the agreement is merely a first step toward addressing a trade imbalance that exceeds €1 billion ($1.16 billion) per day.
In a report dated October 7, Deutsche Bank economist Marion Mühlberger described the relationship as being at a "turning point," emphasizing the need to counter Chinese competition while simultaneously boosting Europe's industrial competitiveness.
Germany is particularly vulnerable; its traditional export model—reliant on automobiles, machinery, and capital goods—faces intensifying competition both within China and in third-country markets. According to Deutsche Bank data, China’s share of global vehicle exports rose from 5% in 2013 to 11% in 2023 and 15% in 2025, matching Germany’s share.
The sectors facing the greatest competitive pressure include machinery, transport equipment, electrical engineering, green technologies, and industrial intermediate goods. The share of EU exports directly competing with Chinese goods has more than tripled over the past 30 years, now accounting for approximately 7% of the European Union's GDP.
When including goods where China is currently developing a competitive advantage, this vulnerability rises to over 10% of GDP—more than double the level seen in 1996. Europe retains advantages in specific segments of the chemical industry, pharmaceuticals, precision engineering, and specialized industrial niches.
An agreement with Beijing could reduce Chinese exports of hybrid and plug-in hybrid vehicles to the EU by several million units over four years. China has also agreed to improve market access for European exports worth approximately €4 billion and to streamline licensing procedures for rare-earth metals and permanent magnets, although implementation details have not yet been disclosed.
According to Reuters, citing UN Comtrade data, Chinese exports to the EU reached $560 billion in 2025, while European exports to China totaled $268.3 billion. Deutsche Bank noted that cheaper Chinese imports benefit consumers and related industries but risk undermining the profit margins and investment capacity of European manufacturers.
If these concessions prove insufficient, the EU could launch a subsidy investigation into Chinese plug-in hybrid vehicles, potentially leading to the imposition of provisional tariffs by early 2027.
France and Germany have also proposed a trade defense mechanism that would allow for a response to disputes within 24 hours, while the European Commission is developing the "DiversifyEU" program to reduce reliance on strategic suppliers. Deutsche Bank indicated that long-term competitiveness requires domestic reforms, including lowering energy costs, streamlining approval processes, improving infrastructure, and developing capital markets. As of July, Mario Draghi’s recommendations had been fully implemented in 16% of cases, or 41% when including partially implemented measures.