EU-China trade tensions raise fears of looming trade war

TLE DESK: Growing trade tensions between the European Union and China have fuelled concerns about a potential trade war, as Brussels moves to protect key industries while Beijing warns against what it calls protectionist measures.

The issue is expected to feature prominently as European leaders gather for a summit on Thursday amid mounting concerns over the widening trade imbalance between the two economic powers.

According to the European Commission, the EU’s trade deficit with China has reached an “unsustainable” level. Data from Eurostat showed the bloc recorded a trade deficit of 31.9 billion euros (about $37 billion) with China in April alone.

European Commissioner for Trade Maros Sefcovic said the relationship requires “rebalancing” rather than confrontation.

“Our trading relationship with China has reached a point that requires a reset,” Sefcovic said on Monday.

China has acknowledged European concerns but rejects accusations that its export success is driven by unfair state subsidies. Beijing argues that Chinese competitiveness stems from innovation, economies of scale and a strong industrial base.

China’s ambassador to the EU, Cai Run, said Beijing has already taken steps to address concerns, including expanding market access for European agricultural products, removing tax rebates for Chinese solar exporters and imposing export restrictions on electric vehicles.

Relations between Brussels and Beijing have become increasingly strained as the EU strengthens measures aimed at protecting domestic industries.

European officials are concerned that Chinese dominance in sectors such as electric vehicles, chemicals and green technologies could undermine European manufacturers. The bloc is also pressing for greater access to the Chinese market, arguing that European companies do not receive the same opportunities in China that Chinese firms enjoy in Europe.

Among recent measures, the EU has imposed additional tariffs on Chinese electric vehicles since 2024 and tightened cybersecurity regulations that could restrict the role of Chinese technology companies such as Huawei in European telecom networks.

China has warned it could retaliate if Brussels proceeds with proposed legislation that would limit public procurement opportunities for products manufactured outside the EU and restrict foreign takeovers of European firms.

Experts say the risk of a trade conflict is real, though both sides have strong incentives to avoid escalation.

Xu Dingbo, a professor at the China Europe International Business School in Shanghai, said emotions are running high and warned that a trade war remains a genuine possibility.

However, economists note that both economies remain deeply interconnected. The EU is China’s second-largest trading partner, while China remains a crucial market for European exporters.

Analysts suggest Beijing could respond with anti-dumping investigations, tighter regulatory scrutiny or restrictions targeting politically sensitive European industries. China has previously imposed anti-dumping duties on European cognac and launched investigations into pork and dairy imports from the EU.

One major concern for Europe is the possibility that China could limit exports of rare earth minerals, which are essential for advanced manufacturing and high-tech industries.

Despite the tensions, many experts believe both sides will seek a negotiated solution rather than a full-scale trade confrontation.

Economist Zhu Tian said neither side would benefit from escalation, warning that Europe would face higher costs and a slower green transition, while China would risk losing access to one of its most important export markets.

Analysts expect Beijing to respond carefully to any new EU restrictions, signalling its displeasure while avoiding actions that could permanently damage economic ties.

As both sides prepare for high-level talks, the challenge will be balancing economic competition with the need to preserve one of the world’s most important trading relationships.