Rising trade deficit with China will continue to be a key focus focus European policymakers

President Xi Jinping’s recent visit to France, Hungary, and Serbia has done little to alleviate mounting trade pressures between China and the EU, with recent investigations into Chinese imports of EVs and energy components likely to result in tit-for-tat protectionist measures. Multinationals should note that while we expect these measures to remain contained to a few strategic sectors, the likelihood of a policy miscalculation that results in a wider trade war has also increased significantly. Executives should evaluate their direct exposure to potential trade disruptions and re-evaluate their logistics networks to minimize a negative impact of trade protectionist measures. Businesses should also closely monitor upcoming statements by both the EU and China, which could be indicative of the timing and scope of the disruptions.


  • Chinese President’s Xi Jinping’s meeting with French President Emmanuel Macron has failed to produce concrete commitment to de-escalate brewing trade tensions.
  • The Chinese president’s trip will also include visits to Hungary and Serbia, which have been much more receptive to China’s political and economic overtures in the region.
  • European Commission President Ursula von der Leyen warned that the EU intends to use all of the trade tools at its disposal to curb the influence of China’s heavily subsidized manufacturing sector and address unfair trade practices.
  • The EC chief’s comments come on the back of a series of anti-subsidy probe investigations into EVs, infrastructure, and solar panels, which may see the EU imposing tariffs on Chinese imports and fines for companies that fail to comply with the commission’s information requests.
  • The EU also recently conducted a raid on Chinese security equipment company Nuctech at its Dutch and Polish offices, following allegations that the company has been subsidized unfairly.
  • President Xi has sought to underplay claims of dumping and unfair subsidies, stressing the strategic importance of EU-China trade relationships, but an earlier series of raids on foreign consulting firms, and tighter state regulations signal that the government may be willing to respond in kind to any punitive trade measures.

Our View

As outlined in our E2W report for 2024, rising trade tensions between the EU and China will present one of the most significant business risks to multinationals, which threatens to complicate global supply chain planning and directly impact operational costs. The EU’s tougher rhetoric on Chinese EVs, which are produced at a fraction of the cost and sell much cheaper than European-manufactured cars, signals that the implementation of a tariff in mid/late 2024 is becoming increasingly likely. Chinese manufacturers are already facing a 10% tariff, and further punitive measures will likely see additional tariffs in the range of 15–30% on Chinese EVs, despite estimation that the EU would need to implement tariffs of around 50% to address competitiveness issues.

The EU, however, is looking into other sectors, including solar panels and infrastructure, and will likely expand its investigations into steel products, over concerns of Chinese overcapacity production and dumping, which is dampening the competitiveness of European industries. According to data released by Eurostat, the trade deficit in goods between China and the EU saw a dip to EUR 291.0 billion in 2023, from nearly EUR 400.0 billion in 2022, but is well above the pre-pandemic historical averages of EUR 145.0 billion despite a consistent performance in European exports. The tougher rhetoric and concrete plans to launch investigations also reflect an exacerbation of the EU’s stance on its trade relationship with China and is a departure of the previously more cautious “de-risking” approach, which calls for an increase in European supply-chain resilience through the development of domestic manufacturing capacity in strategic sectors such as energy and electronic manufacturing. At the same time, EU officials are lobbying China to exclude agricultural sectors from potential escalating trade disputes, with agrifood being one of the few areas where the EU blocs have run a surplus. Representatives of the EU also stated that there are few signs that China would seek to penalize the sector, citing a previous decision by the Chinese government to lift a five-year ban on Belgian pork products at the start of 2024.

The latter suggests that as things stand, the trade dispute is likely to be concentrated in a few strategic sectors, and the EU remains cautious despite a brash rhetoric on trade. Indeed, China remains a key partner in the supply of critical raw materials, such as rare earth minerals that are critical for the production of energy infrastructure, including offshore turbines. China also remains a key supplier for processed raw materials, such as nickel, cobalt, and copper, and substitution through expanding domestic production capacity within the EU will be difficult. European officials are thus likely to tread carefully, and a more proactive approach to trade grievances with China will likely be complicated by a much more ambivalent or friendly stance of countries, such as Hungary, on the issue. The implementation of targeted tariffs, however, is now very likely, which will inevitably prompt a response from China. Additionally, European businesses in China have already reported increasing pressures, with 48% of companies also citing that they expect to increase their current operations in China in 2023, down from 62% in 2022 and 59% in 2021, while a quarter of surveyed companies indicated that they have either shifted investments or are considering shifting investments outside of China.

While we expect the trade dispute to be contained in specific sectors, the implementation of tit-for-tat measures will weigh on the operational environment and will necessitate consistent re-evaluation of supply chains’ structure in the upcoming years. The potential of a policy miscalculation that results in a wider trade war between China and the EU should also not be ignored, and further intensification of tensions may have a significant impact on growth and the operational environment across the eurozone.

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